<PAGE>
As filed with the Securities and Exchange Commission on January 3, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
MOTORS AND GEARS, INC.
(Exact name of registrant as specified in its charter)
----------------
DELAWARE 3621 36-410641
(State or other
jurisdiction of
incorporation or
organization)
(Primary Standard Industrial Classification Number)
(I.R.S. Employer
Identification Number)
MOTORS AND GEARS, INC.
1751 LAKE COOK ROAD
DEERFIELD, ILLINOIS 60015
(847) 267-4449
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
----------------
RON A. SANSOM
MOTORS AND GEARS, INC.
1751 LAKE COOK ROAD
DEERFIELD, ILLINOIS 60015
(847) 267-4449
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------
With a copy to:
JAMES B. CARLSON, ESQ.
MAYER, BROWN & PLATT
1675 BROADWAY
NEW YORK, NEW YORK 10019
(212) 506-2515
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED
OFFERING MAXIMUM
TITLE OF EACH CLASS OF AMOUNT PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED UNIT(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
10 3/4% Series B Senior Notes
Due 2006..................... $170,000,000 100% $170,000,000 $51,515.15
</TABLE>
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(1) Estimated solely for the purposes of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 3, 1997
PROSPECTUS
MOTORS AND GEARS, INC.
OFFER TO EXCHANGE ITS 10 3/4% SERIES B SENIOR NOTES DUE 2006, WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT FOR ANY AND ALL OF ITS OUTSTANDING 10 3/4%
SERIES A SENIOR NOTES DUE 2006.
Motors and Gears, Inc., a Delaware corporation (the "Company") and a direct,
wholly-owned subsidiary of Motors and Gears Holdings, Inc., a Delaware
corporation ("Parent"), hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal (the "Letter of Transmittal") (which together constitute the
"Exchange Offer"), to exchange up to $170 million aggregate principal amount of
10 3/4% Series B Senior Notes due 2006 (the "New Notes"), of the Company for a
like principal amount of the Company's issued and outstanding 10 3/4% Series A
Notes due 2006 (the "Old Notes" and collectively with the New Notes, the
"Senior Notes"), with the holders (each holder of Old Notes, a "Holder")
thereof. The terms of the New Notes are substantially identical to the terms of
the Old Notes that are to be exchanged therefor. See "Description of the Senior
Notes." The Company will receive no proceeds in connection with the Exchange
Offer.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1997, UNLESS EXTENDED.
The New Notes will be senior unsecured obligations of the Company and will
rank pari passu in right of payment with all other Senior Indebtedness (as
defined) of the Company and senior to all Subordinated Indebtedness (as
defined) of the Company, and will effectively rank junior to all secured
Indebtedness (as defined) of the Company and to all Indebtedness of the
Company's subsidiaries, including borrowings under the New Credit Agreement (as
defined). On a pro forma basis, as of September 30, 1996, after giving effect
to (i) the Old Note Offering (as defined), (ii) the application of the net
proceeds therefrom and (iii) the Company's acquisition of Barber Colman Motors,
Imperial, Scott and Gear (in each case, as defined), the aggregate principal of
secured Indebtedness of the Company and Indebtedness of the Company's
subsidiaries to which the New Notes would have been effectively junior would
have been approximately $5.6 million. The Indenture permits the Company and its
subsidiaries to incur additional Indebtedness, including secured Indebtedness,
subject to certain limitations. Such permitted additional secured Indebtedness
which would effectively be senior to the New Notes may include up to $75.0
million incurred under the New Credit Agreement and other Indebtedness
permitted by the Indenture, including $25.0 million of additional Indebtedness.
See "Description of Senior Notes" and "Description of Certain Indebtedness."
The Company will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn on or prior to 5:00 p.m., New York City time, on
, 1997, unless the Exchange Offer is extended (the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the Expiration Date. The Exchange Offer is not conditioned upon
any minimum principal amount of Old Notes being tendered for exchange. However,
the Exchange Offer is subject to certain customary conditions which may be
waived by the Company. The Company has agreed to pay the expenses of the
Exchange Offer. There will be no cash proceeds to the Company from the Exchange
Offer. See "Use of Proceeds."
(Cover continued on following page)
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FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF
OLD NOTES WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER, SEE "RISK FACTORS"
ON PAGE 13 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-----------
The date of this Prospectus is , 1997
<PAGE>
The Old Notes were issued and sold on November 7, 1996 (the "Old Note
Offering"), in a transaction not registered under the Securities Act of 1933,
as amended (the "Securities Act"), in reliance upon the exemption provided in
Section 4(2) of the Securities Act. Accordingly, the Old Notes may not be
reoffered, resold or otherwise pledged, hypothecated or transferred in the
United States unless so registered or unless an applicable exemption from the
registration requirements of the Securities Act is available. The New Notes
are being offered for exchange in order to satisfy certain obligations of the
Company under a Registration Rights Agreement (as defined) between the Company
and the Initial Purchasers (as defined). The New Notes will be obligations of
the Company evidencing the same indebtedness as the Old Notes and will be
entitled to the benefits of the same Indenture (as defined), which governs
both the Old Notes and the New Notes. The form and terms (including principal
amount, interest rate, maturity and ranking) of the New Notes are the same as
the form and terms of the Old Notes, except that the New Notes (i) will be
registered under the Securities Act and therefore will not be subject to
certain restrictions on transfer applicable to the Old Notes, (ii) will not be
entitled to registration rights and (iii) will not provide for any Liquidation
Damages (as defined). See "The Exchange Offer-- Registration Rights;
Liquidated Damages."
Prior to the Exchange Offer, there has been no established trading market
for the Old Notes or the New Notes. The Company does not intend to apply for
listing or quotation of the New Notes on any securities exchange or stock
market. Therefore, there can be no assurance as to the liquidity of any
trading market for the New Notes or that an active public market for the New
Notes will develop. Any Old Notes not tendered and accepted in the Exchange
Offer will remain outstanding. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered, or
tendered but unaccepted, Old Notes could be adversely affected. Following the
consummation of the Exchange Offer, the holders of Old Notes will continue to
be subject to the existing restrictions on transfer thereof and the Company
will have no further obligations to such holders to provide for the
registration of the Old Notes under the Securities Act. See "The Exchange
Offer--Consequences of Not Exchanging Old Notes."
The Company is making the Exchange Offer pursuant to the registration
statement of which this Prospectus is a part in reliance upon the position of
the staff of the Securities and Exchange Commission (the "Commission") set
forth in certain no-action letters addressed to other parties in other
transactions. However, the Company has not sought its own no-action letter and
there can be no assurance that the staff of the Commission would make a
similar determination with respect to the Exchange Offer. Based on these
interpretations by the staff of the Commission, the Company believes that the
New Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by holders thereof (other than (i) any such
holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act, (ii) an Initial Purchaser who acquired the Old Notes
directly from the Company solely in order to resell pursuant to Rule 144A of
the Securities Act or any other available exemption under the Securities Act,
or (iii) a broker-dealer who acquired the Old Notes as a result of market
making or other trading activities) without further compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
holder's business and such holder is not participating and has no arrangement
or understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes. Each broker-dealer that
receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. The Letter of Transmittal states that by so acknowledging and
by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-
dealer as a result of market-making activities or other trading activities.
The Company has agreed that, for a period of 180 days after the Expiration
Date (as defined), it will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution."
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to and should
be read in conjunction with the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Offering
Memorandum. Unless otherwise indicated, all references in this Offering
Memorandum to the Company's business and pro forma information give effect to
the acquisition of all of the Company's subsidiaries, including the acquisition
of Barber Colman Motors (the "Barber Colman Acquisition"), and the acquisitions
of Imperial, Scott and Gear (the "Imperial Acquisitions"), as if all such
transactions occurred on January 1, 1995. Unless the context indicates or
otherwise requires, references in this Offering Memorandum to the "Company" are
to Motors and Gears, Inc. (formerly MK Group, Inc.) and its subsidiaries.
THE COMPANY
The Company is a leading domestic manufacturer of specialty purpose electric
motors, gearmotors, gearboxes and gears for a wide variety of consumer,
commercial and industrial markets. The Company has a diverse base of customers
and its products are utilized in a broad range of applications including
vending machines, refrigerator ice dispensers, commercial floor care equipment,
elevators and photocopy machines. The Company's subsidiaries have sold their
brand name products to their customers for an average of over 70 years. The
Company believes that it has created strong customer loyalty for its products
primarily through its emphasis on high quality, custom engineered products,
competitive prices and customer service. For the year ended December 31, 1995,
the Company had pro forma net sales, EBITDA (as defined), and net income of
$116.8 million, $29.8 million and $2.4 million, respectively.
Shipments of electric motors and generators are estimated by industry sources
to have been approximately $7.0 billion in 1995 and to have been growing at a
compound annual growth rate of approximately 2% to 3% over the last five years.
Although the industry has experienced substantial consolidation in recent
years, the industry remains highly fragmented with over 200 manufacturers
serving the U.S. market in 1995 according to industry sources. The Company
believes that continuing competitive pressures will lead to further
consolidation in the electric motor industry and create opportunities for the
Company to extend its product lines and business through strategic
acquisitions.
Within this industry, the Company operates in specialized niche markets which
typically consist of high value-added motor applications requiring custom
engineered, non-standardized motors and generate relatively small annual dollar
volumes. The Company has an active new product development effort and
constantly seeks to find new applications for its products and new niche
markets to enter. As a result of these efforts, the Company has historically
been able to achieve sales growth in excess of industry trends. The Company's
products typically require small manufacturing runs and frequent line
changeovers. These markets are generally unattractive to large integrated
manufacturers which target larger markets and long-run, standardized product
lines.
The Company constantly seeks to reduce its costs through redesigning its
manufacturing processes to minimize labor and material costs without
sacrificing quality. In addition, the Company works closely with its customers
to engineer its products in ways that enable the Company to manage costs and
increase value to the customer. The Company outsources its most capital
intensive processes and strives to minimize its capital investment through
purchasing and updating used equipment.
1
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The Company operates in three product groups: (i) subfractional motors, which
represented 65.7% of pro forma net sales for the year ended December 31, 1995,
(ii) fractional/integral motors, which represented 28.8% of pro forma net sales
for the year ended December 31, 1995, and (iii) gears and gearboxes, which
represented 5.5% of pro forma net sales for the year ended December 31, 1995.
Subfractional Motors. The Company's subfractional horsepower products are
comprised of motors and gearmotors that power applications up to 30 watts (
1/25 horsepower). These small, "fist-size" AC and DC motors are used in light
duty applications such as snack and beverage vending machines, refrigerator ice
dispensers and photocopy machines. Average product selling prices typically
range from $3 to $20 per unit. The Company focuses on niche applications in
this product group and believes it has a leading market position in most of its
niches.
Fractional/Integral Motors. The Company's fractional/integral horsepower
products are comprised of AC and DC motors and gearmotors having power ranges
from 1/8 up to 300 horsepower. Key end markets for these motors include
commercial floor care equipment, elevators, automatic hose reels, and
industrial lift machinery. Average product selling prices typically range from
$50 to $150 per unit for commercial floor care and hose reel products to $2,000
to $2,500 per unit for elevator motors. The Company believes it is the primary
supplier to virtually all the major commercial floor care product manufacturers
and the leading DC elevator motor manufacturer in the United States.
Gears and Gearmotors. The Company's precision gear and gearbox products are
produced in sizes of up to 16 inches in diameter and in various customized
configurations such as pump, bevel and helical gears. These products have a
reputation for their durability, accuracy, and low noise generation. Key end
markets for these products include motor original equipment manufacturers
("OEMs") for assembly into a gearmotor as well as OEMs of commercial floor care
equipment, aerospace and food processing product equipment. The Company focuses
on niche applications in this product group and believes it has a leading
market position in most of its niches.
COMPETITIVE STRENGTHS. The Company believes that it benefits from the
following competitive strengths:
Leading Position in Niche Markets. The Company has targeted niche markets in
which it has achieved leading market positions and which are generally
unattractive to large manufacturers due to their small size and specialized
nature. The Company believes that it has attained market shares in excess of
50% in markets which comprise over 65% of its net sales. These leading market
positions have provided a high level of predictability to the Company's net
sales. The Company believes that it has succeeded in these markets due to its
product design capabilities, reputation, competitive prices, quality and
service.
Diverse Markets and Customers. The Company serves numerous end user markets
and a diverse base of over 1,300 customers. In 1995, the Company's largest
single customer represented less than 6% of net sales and the Company's top ten
customers represented less than 35% of net sales. The Company's customers
include leading OEMs such as General Electric Co. Inc. ("General Electric"),
Whirlpool Corporation, Clarke Industries Inc., Siebe, plc. and Vendo Company
Inc. The diversity of products, markets and customers minimizes the Company's
exposure to economic cycles or geographic markets and provides a broad base
from which to grow sales through continued development of new products.
Active Product Development. The Company focuses on developing value-added
products with its customers by utilizing its extensive product development
expertise and manufacturing process capabilities to meet specific application
requirements. The Company's sales and technical staff work with existing
customers to identify specific needs and develop innovative solutions. As a
result, this custom application capability has also been a key driver of new
customer development. Indicative of this strength, the Company added
approximately 70 new customers in 1995.
2
<PAGE>
Quality Product and High Level of Service. The Company sells into end product
applications which have long life cycles and require durability. In response,
the Company has established itself as a reliable manufacturer of high-quality
products. The Company maintains close contact with its customers during both
the original motor design and the continuous redesign processes to ensure that
the most reliable product is manufactured. The Company aggressively redesigns
its motors to improve performance and reduce production costs. This entrenches
the Company with its customers and minimizes competition. In addition, the
Company is dedicated to on-time delivery as evidenced by its 100% on-time
delivery record with General Electric, its largest customer, in 1995.
Experienced Management Team. The Company's five senior managers together have
over 140 years of experience in the motors and gears industry and over time
have substantially improved operating efficiencies. The experience of senior
management has been critical to developing strong relationships with the
Company's customers and has resulted in significant new product development
opportunities. The Company's President, Ron Sansom, gained extensive experience
in this industry during his 15 years with General Electric.
BUSINESS STRATEGY. The Company's business strategy includes the following key
elements:
Expand Product Lines and Increase Distribution. The Company focuses on
developing value-added products with its customers by utilizing its extensive
product development expertise. The Company's sales, technical service and
development staff work with customers to identify specific needs and develop
innovative solutions. New product developments can often be profitably applied
to other high-margin niche markets. In addition, the Company intends to expand
its distribution sales effort to capture additional sales opportunities.
Reduce Costs. The Company's manufacturing cost reduction effort is
accomplished through redesigning the Company's products in cooperation with its
customers and through incremental production process improvements. The Company
also seeks to reduce costs through acquisitions by centralizing administration,
finance, legal service and long-range strategic planning functions. This has
been demonstrated by annual cost savings from completed headcount reductions
and administrative savings relating to the Barber Colman Acquisition.
Pursue Strategic Acquisitions. The U.S. electric motor and gear market
remains highly fragmented, with many specialized manufacturers serving numerous
market niches. The Company will continue to search for strategic acquisitions
that support its current product groups by adding complementary product lines,
expanding technological capabilities or entering new geographic markets. In
addition, the Company believes there are other areas in the motion control
industry which offer acquisition opportunities. The Company defines the motion
control industry as having the following major business segments: motors, gears
and gear drives, controls and sensors, drives and drive systems, and couplings.
Acquisitions in other areas of the motion control industry would allow the
Company to access new markets and develop higher value-added products by
combining an existing motor product with additional motion control features.
The Company was organized in September 1995 by Jordan Industries, Inc.
("JII") to acquire and operate companies in the motion control industry. Since
its inception, the Company acquired Merkle-Korff Industries, Inc. ("Merkle-
Korff") in September 1995 and acquired the net assets of each of Colman, Inc.
and Colman Motor Products, Inc. (collectively, "Barber Colman Motors") in March
1996 through Merkle-Korff. Concurrent with the consummation of the Old Note
Offering, the Company, through a newly formed subsidiary, acquired the business
and net assets of Imperial Electric Company ("Imperial"), and Imperial's
subsidiaries, Scott Motor Company ("Scott") and Gear Research, Inc. ("Gear").
Since 1988, Imperial, Scott and Gear have been subsidiaries of JII. The Company
is structured as a holding company which owns all of the stock of Motors and
Gears Industries, Inc. ("M&G Industries"). M&G Industries owns all the stock of
the Company's operating subsidiaries.
3
<PAGE>
THE EXCHANGE OFFER
Securities Offered.......... $170,000,000 principal amount of 10 3/4% Series B
Senior Notes due 2006. The terms of the New Notes
and the Old Notes are identical in all material
respects, except for certain transfer
restrictions and registration rights relating to
the Old Notes and except for certain Liquidated
Damages provisions relating to the Old Notes
described below under "--Summary Description of
the New Notes."
Issuance of Old Notes;
Registration Rights........ The Old Notes were issued on November 7, 1996 to
Donaldson, Lufkin & Jenrette Securities
Corporation, BT Securities Corporation and
Jefferies & Company, Inc. (collectively, the
"Initial Purchasers"), which placed the Old Notes
with "qualified institutional buyers" (as such
term is defined in Rule 144A promulgated under
the Securities Act). In connection therewith, the
Company executed and delivered for the benefit of
the holders of Old Notes a certain registration
rights agreement (the "Registration Rights
Agreement"), pursuant to which the Company agreed
(i) to file a registration statement (the
"Registration Statement") on or prior to 60 days
after November 7, 1996 with respect to the
Exchange Offer and (ii) to use their best efforts
to cause the Registration Statement to be
declared effective by the Commission on or prior
to 120 days after November 7, 1996. In certain
circumstances, the Company will be required to
provide a shelf registration statement (the
"Shelf Registration Statement") to cover resales
of the Old Notes by the holders thereof. If the
Company does not comply with its obligations
under the Registration Rights Agreement, it will
be required to pay Liquidated Damages to holders
of the Old Notes under certain circumstances. See
"The Exchange Offer--Registration Rights;
Liquidated Damages." Holders of Old Notes do not
have any appraisal rights in connection with the
Exchange Offer.
The Exchange Offer.......... The New Notes are being offered in exchange for a
like principal amount of Old Notes. The issuance
of the New Notes is intended to satisfy the
obligations of the Company contained in the
Registration Rights Agreement. Based upon the
position of the staff of the Commission set forth
in no-action letters issued to third parties in
other transactions substantially similar to the
Exchange Offer, the Company believes that the New
Notes issued pursuant to the Exchange Offer may
be offered for resale, resold and otherwise
transferred by holders thereof (other than (i)
any such holder that is an "affiliate" of the
Company within the meaning of Rule 405 under the
Securities Act, (ii) an Initial Purchaser who
acquired the Old Notes directly from the Company
solely in order to resell pursuant to Rule 144A
of the Securities Act or any other available
exemption under the Securities Act, or (iii) a
broker-dealer who acquired the Old Notes as a
result of market making or other trading
activities) without further compliance with the
registration and
4
<PAGE>
prospectus delivery requirements of the
Securities Act, provided that such New Notes are
acquired in the ordinary course of such holder's
business and such holder is not participating and
has no arrangement with any person to participate
in a distribution (within the meaning of the
Securities Act) of such New Notes. Each broker-
dealer that receives New Notes for its own
account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in
connection with any resale for such New Notes.
Although there has been no indication of any
change in the staff's position, there can be no
assurance that the staff of the Commission would
make a similar determination with respect to the
resale of the New Notes. See "Risk Factors."
Procedures for Tendering.... Tendering holders of Old Notes must complete and
sign the Letter of Transmittal in accordance with
the instructions contained therein and forward
the same by mail, facsimile or hand delivery,
together with any other required documents, to
the Exchange Agent, either with the Old Notes to
be tendered or in compliance with the specified
procedures for guaranteed delivery of Old Notes.
Holders of the Old Notes desiring to tender such
Old Notes in exchange for New Notes should allow
sufficient time to ensure timely delivery.
Certain brokers, dealers, commercial banks, trust
companies and other nominees may also effect
tenders by book-entry transfer. Holders of Old
Notes registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
are urged to contact such person promptly if they
wish to tender Old Notes pursuant to the Exchange
Offer. Letters of Transmittal and certificates
representing Old Notes should not be sent to the
Company. Such documents should only be sent to
the Exchange Agent. Questions regarding how to
tender and requests for information should be
directed to the Exchange Agent. See "The Exchange
Offer--Procedures for Tendering Old Notes."
Tenders, Expiration Date;
Withdrawal................. The Exchange Offer will expire the earlier of (i)
5:00 p.m., New York City time, on ,
1997 or (ii) the date when all Old Notes have
been tendered, or such later date and time to
which it is extended, provided it may not be
extended beyond , 1997. The tender of
Old Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration
Date. Any Old Note not accepted for exchange for
any reason will be returned without expense to
the tendering holder thereof as promptly as
practicable after the expiration or termination
of the Exchange Offer. See "The Exchange Offer--
Terms of the Exchange Offer; Period for Tendering
Old Notes" and""--Withdrawal Rights."
Certain Conditions to the
Exchange Offer............. The Exchange Offer is subject to certain
customary conditions, all of which may be waived
by the Company, including the absence of
5
<PAGE>
(i) threatened or pending proceedings seeking to
restrain the Exchange Offer or resulting in a
material delay to the Exchange Offer; (ii) a
general suspension of trading on any national
securities exchange or in the over-the-counter
market; (iii) a banking moratorium; (iv) a
commencement of war, armed hostilities or other
similar international calamity directly or
indirectly involving the United States; and (v)
change or threatened change in the business,
properties, assets, liabilities, financial
condition, operations, results of operations or
prospects of the Company and its subsidiaries
taken as a whole that, in the sole judgment of
the Company, is or may be adverse to the Company.
The Company shall not be required to accept for
exchange, or to issue New Notes in exchange for,
any Old Notes, if at any time before the
acceptance of such Old Notes for exchange or the
exchange of New Notes for such Old Notes, any of
the foregoing events occurs which, in the sole
judgment of the Company, make it inadvisable to
proceed with the Exchange Offer and/or with such
acceptance for exchange or with such exchange. If
the Company fails to consummate the Exchange
Offer because the Exchange Offer is not permitted
by applicable law or Commission policy, it will
file with the Commission a Shelf Registration
Statement to cover resales of the Transfer
Restricted Securities (as defined) by the holders
thereof who satisfy certain conditions. If the
Company fails to consummate the Exchange Offer or
file a Shelf Registration Statement in accordance
with the Registration Rights Agreement, the
Company will pay Liquidated Damages to each
holder of Transfer Restricted Securities until
the cure of all defaults. The Exchange Offer is
not conditioned upon any minimum aggregate
principal amount of Old Notes being tendered for
exchange. See "The Exchange Offer--Registration
Rights; Liquidated Damages" and "--Certain
Conditions to the Exchange Offer."
Federal Income Tax
Consequences............... For Federal income tax purposes, the exchange
pursuant to the Exchange Offer should not result
in any income, gain or loss to the Holders or the
Company. See "Certain Federal Income Tax
Considerations."
Use of Proceeds............. There will be no proceeds to the Company from the
exchange pursuant to the Exchange Offer.
Appraisal Rights............
Holders of Old Notes will not have dissenters'
rights or appraisal rights in connection with the
Exchange Offer.
Exchange Agent.............. Fleet National Bank is serving as Exchange Agent
in connection with the Exchange Offer.
6
<PAGE>
CONSEQUENCES OF NOT EXCHANGING THE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate
that it will register the Old Notes under the Securities Act. See "Risk
Factors--Consequences of Exchange and Failure to Exchange" and "The Exchange
Offer--Consequences of Exchanging Old Notes."
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions and registration rights
relating to the Old Notes and except that, if the Exchange Offer is not
consummated by 1997, subject to certain exceptions, with respect to the
first 90-day period immediately following thereafter, the Company will be
obligated to pay Liquidated Damages to each Holder of Old Notes in an amount
equal to $.05 per week for each $1,000 principal amount of Old Notes, as
applicable, held by such Holder. The amount of the Liquidated Damages will
increase by an additional $.05 per week with respect to each subsequent 90-day
period until the Exchange Offer is consummated, or any other Registration
Default (as defined) is cured, up to a maximum of $.40 per week for each $1,000
principal amount of Old Securities, as applicable.
The New Notes will bear interest from the most recent date to which interest
has been paid on the Old Notes or, if no interest has been paid on the Old
Notes, from November 7, 1996. Accordingly, registered Holders of New Notes on
the relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from November 7, 1996. Old Notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the Exchange Offer. Holders
of Old Notes whose Old Notes are accepted for exchange will not receive any
payment in respect of interest on such Old Notes otherwise payable on any
interest payment date which occurs on or after consummation of the Exchange
Offer.
7
<PAGE>
THE NEW NOTES
Issuer...................... Motors and Gears, Inc.
Securities Offered.......... $170 million aggregate principal amount of 10
3/4% Series B Senior Notes due 2006.
Maturity.................... November 15, 2006.
Interest.................... The Old Notes bear interest and the New Notes
will bear interest at a rate of 10 3/4% per
annum, payable semi-annually in cash in arrears
on each May 15 and November 15, commencing on the
first such date to occur after the Expiration
Date.
Optional Redemption......... On or after November 15, 2001, the Senior Notes
will be redeemable at the option of the Company,
in whole or in part, at any time at the
redemption prices set forth herein, plus accrued
and unpaid interest and Liquidated Damages, if
any, to the date of redemption. Notwithstanding
the foregoing, at any time prior to November 15,
1999, the Company may redeem up to 35% of the
original aggregate principal amount of the Senior
Notes with the net proceeds of one or more Equity
Offerings (as defined) at a redemption price
equal to 109.750% of the principal amount
thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of
redemption. See "Description of Senior Notes--
Redemption of Senior Notes."
Mandatory Redemption........ Except after the passage of certain events, the
Company is not required to make any mandatory
redemption, purchase or sinking fund payments
with respect to the Senior Notes. See
"Description of Senior Notes--Mandatory Offers to
Purchase Senior Notes."
Change of Control........... Upon the occurrence of a Change of Control (as
defined), each holder of Senior Notes will have
the right to require the Company to purchase such
holder's Senior Notes pursuant to an Offer (as
defined) at a purchase price in cash equal to
101% of the aggregate principal amount thereof,
plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of purchase. Certain
transactions with affiliates of the Company may
not be deemed to be a Change of Control.
Transactions constituting a Change of Control are
not limited to hostile takeover transactions not
approved by the current management of the
Company. Except as described under "Description
of Senior Notes--Mandatory Offers to Purchase
Senior Notes," the Indenture does not contain
provisions that permit the holders of Senior
Notes to require the Company to purchase or
redeem the Senior Notes in the event of a
takeover, recapitalization or similar
restructuring, including an issuer
recapitalization or similar transaction with
management.
Ranking..................... The Senior Notes will be senior unsecured
obligations of the Company, ranking pari passu in
right of payment with all other
8
<PAGE>
Senior Indebtedness of the Company and senior to
all Subordinated Indebtedness of the Company. The
Senior Notes will effectively rank junior to any
secured Senior Indebtedness incurred under the
New Credit Agreement. As of September 30, 1996,
on a pro forma basis after giving effect to (i)
the Old Note Offering, (ii) the application of
the net proceeds therefrom and (iii) the Imperial
Acquisitions and the Barber Colman Acquisition,
the aggregate principal of secured Indebtedness
of the Company and Indebtedness of the Company's
subsidiaries to which the New Notes would have
been effectively junior would have been
approximately $5.6 million. The Indenture permits
the Company and its subsidiaries to incur
additional Indebtedness, including secured
Indebtedness, subject to certain limitations.
Such permitted additional secured Indebtedness
which would effectively be senior to the New
Notes may include up to $75.0 million incurred
under the New Credit Agreement and other
Indebtedness permitted by the Indenture,
including $25.0 million of
additional Indebtedness. See "Description of
Senior Notes--Certain Covenants" and "Description
of Certain Indebtedness."
The Company believes that prepayment of the
Senior Notes pursuant to a Change of Control
would constitute a default under the New Credit
Agreement. In the event a Change of Control
occurs, the Company will likely be required to
refinance the Indebtedness outstanding under the
New Credit Agreement and the Senior Notes. If
there is a Change of Control, any Indebtedness
under the New Credit Agreement could be
accelerated, which Indebtedness is secured and
effectively ranks senior to the Senior Notes.
Moreover, there can be no assurance that
sufficient funds will be available at the time of
any Change of Control to make any required
repurchases of the Senior Notes given the
Company's high leverage. See "Risk Factors--
Leverage and Coverage."
Certain Covenants...........
The Indenture contains certain covenants that,
among other things, limit the ability of the
Company and its Restricted Subsidiaries (as
defined) to pay dividends or make certain other
restricted payments, to incur certain additional
Indebtedness unless it meets a Cash Flow Coverage
Ratio (as defined), to encumber or sell assets,
to enter into transactions with affiliates, to
enter into certain guarantees of indebtedness, to
make certain investments, to merge or consolidate
with any other entity and to transfer or lease
all or substantially all of their assets. In
addition, under certain circumstances, the
Company will be required to offer to purchase
Senior Notes at a price equal to 100% of the
principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, to the
date of purchase with the proceeds of certain
Asset Sales (as defined). See "Description of
Senior Notes--Certain Covenants" and "--Mandatory
Offers to Purchase Senior Notes--Asset Sales."
9
<PAGE>
RISK FACTORS
Holders of Old Notes should consider carefully all of the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors set forth under "Risk Factors." Risk factors which Holders of Old Notes
should evaluate include the consequences of exchanging and not exchanging Old
Notes for New Notes, the Company's leverage and coverage, the ranking of the
Senior Notes among other indebtedness of the Company, the Company's dependence
on intercompany transfers to meet its debt service and other obligations, the
Company's limited operating history and the limited relevance of its historical
financial information, the restrictive covenants contained in the Indenture and
the New Credit Agreement, the absence of a market for the New Notes, the
ability of the Company to purchase the Senior Notes upon a Change of Control,
the influence of the Company's principal stockholders and fraudulent transfer
considerations.
10
<PAGE>
SUMMARY FINANCIAL DATA
The following table presents summary (i) historical and pro forma balance
sheet data of the Company at September 30, 1996; (ii) historical operating and
other data of the Company and its predecessor, Merkle-Korff (also referred to
herein as the "Predecessor"), for the years ended December 31, 1993 and 1994,
for the period from January 1, 1995 to September 22, 1995, for the period from
September 23, 1995 to December 31, 1995, and for the nine months ended
September 30, 1996 and (iii) pro forma operating and other data for the year
ended December 31, 1995 and the nine months ended September 30, 1996. The pro
forma data is unaudited. The pro forma data gives effect to the Old Note
Offering, the application of the net proceeds therefrom, the Refinancing Plan,
the Barber Colman Acquisition and the Imperial Acquisitions. The pro forma data
does not purport to represent what the consolidated results of operations of
the Company would actually have been had the Old Note Offering, the application
of the net proceeds therefrom and the Refinancing Plan, the Barber Colman
Acquisition and the Imperial Acquisitions actually occurred at the beginning of
the relevant period, and does not purport to project the consolidated financial
position or the consolidated results of operations of the Company for the
current year or any future period. The historical data of the Predecessor and
the Company reflects the results of the Company's wholly-owned subsidiary,
Merkle-Korff, for all periods presented, together with its wholly-owned
subsidiary, Barber Colman Motors, from the Barber Colman Acquisition on March
8, 1996. The historical data of the Company at September 30, 1996 and for the
nine months ended September 30, 1996, were derived from the unaudited
consolidated financial statements of the Company. The results of operations for
the nine months ended September 30, 1996 are not necessarily indicative of the
results of operations to be expected for the full year. The summary financial
data set forth below should be read in conjunction with "Use of Proceeds,"
"Unaudited Pro Forma Condensed Financial Statements," "Management's Discussion
and Analysis of Pro Forma Financial Condition and Results of Operations,"
"Selected Historical Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements of the Company, the Predecessor, Barber Colman Motors and Imperial
and the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996
------------------------
PRO
HISTORICAL FORMA(3)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital(4)...... $ 14,230 $ 24,108
Total assets(4)......... 132,628 166,465
Long-term obligations,
including current
portion(4)............. 89,908 175,634
Stockholder's equity
(net capital
deficiency)(5)......... 33,626 (23,927)
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR
AND COMPANY
PREDECESSOR(6) COMPANY COMBINED(9) PRO FORMA(1) COMPANY(7) PRO FORMA(1)
---------------------------- ------------ ----------- ------------ ----------- ------------
JANUARY 1, SEPTEMBER 23 NINE MONTHS NINE MONTHS
YEAR ENDED THROUGH THROUGH YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEM- DECEM- DECEM- DECEM- SEPTEM- SEPTEM-
---------------- BER 22, BER 31, BER 31, BER 31, BER 30, BER 30,
1993 1994 1995 1995 1995 1995 1996 1996
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $43,766 $49,340 $39,295 $14,127 $53,422 $116,837 $57,734 $94,960
Gross profit, excluding
depreciation........... 16,315 18,022 15,182 4,683 19,865 40,131 21,749 33,394
Operating income........ 8,547 12,309 11,616 2,419 14,035 23,849 12,417 20,243
Interest expense........ 0 0 0 1,902 1,902 19,810 6,684 14,918
Net income(2)........... 8,122 11,921 11,604 310 11,914 2,429 3,410 3,195
SUPPLEMENTAL PRO
FORMA DATA:
Pro forma income
taxes(2)............... 3,306 4,837 4,755 0 4,755 0 0 0
Pro forma net
income(2).............. 4,959 7,255 7,133 310 7,443 2,429 3,410 3,195
Ratio of earnings to
fixed charges(8)....... 29.4x 41.7x -- -- -- 1.2x 1.8x 1.3x
</TABLE>
(footnotes on following page)
11
<PAGE>
- --------
(1) Gives effect to (i) the Old Note Offering, the application of the net
proceeds therefrom and the Refinancing Plan, (ii) the Barber Colman
Acquisition, (iii) the elimination of $2,194 and $421 in the year ended
December 31, 1995 and the nine months ended September 30, 1996,
respectively, of operating expenses for completed headcount reductions,
administrative savings and a reduction in executive compensation expense,
in connection with the Barber Colman Acquisition and the acquisition of
Merkle-Korff by the Company, (iv) the elimination, in the year ended
December 31, 1995, of non-recurring purchase accounting adjustments to the
inventories of Merkle-Korff in connection with its acquisition by the
Company, (v) the Imperial Acquisitions and (vi) the adjustment for income
taxes which would have been recorded if the Predecessor had been a C
corporation, as if all such transactions occurred on January 1, 1995. See
"Use of Proceeds," "Unaudited Pro Forma Condensed Financial Statements" and
"Management's Discussion and Analysis of Pro Forma Financial Condition and
Results of Operations."
(2) Pro forma net income reflects income taxes at the tax rate of 40%. For the
Predecessor, net income reflects only certain state income taxes
attributable to Merkle-Korff's income for the historical periods presented
prior to its acquisition by the Company on September 22, 1995, during which
it elected to be a subchapter S corporation and therefore was not subject
to federal and certain state income taxes. For the Company, net income
reflects income taxes attributable to the Company for the historical
periods presented subsequent to September 23, 1995 at the tax rate (40%)
attributed to it as a C corporation pursuant to the Tax Sharing Agreement
(as defined). See "Certain Transactions--Tax Sharing Agreement."
(3) Gives effect to (i) the Old Note Offering, the application of the net
proceeds therefrom and the Refinancing Plan, (ii) the Imperial
Acquisitions, and (iii) an adjustment of $7,872 for the write-off of the
unamortized balance of deferred financing costs relating to the repayment
of amounts owing under the Credit Agreement, as if all such transactions
occurred on September 30, 1996. See "Use of Proceeds," "Unaudited Pro Forma
Condensed Financial Statements," "Management's Discussion and Analysis of
Pro Forma Financial Condition and Results of Operations" and "Certain
Transactions--The Company Formation and Proceeds From the Old Note
Offering."
(4) Does not include (i) the MK Installment Note (as defined) issued to the
seller of Merkle-Korff since this debt is supported with a $90,000 letter
of credit which, in turn, is secured by a $90,000 cash collateral account
thereunder, and (ii) obligations under the Contingent Earnout Agreement (as
defined). See "Description of Certain Indebtedness--MK Installment Note,"
"--MK Installment Note LC Facility," and "The Company--Imperial
Acquisitions."
(5) The pro forma net capital deficiency reflects adjustments for (i) the
purchase price of the Imperial Acquisitions in excess of the net book value
of the assets of Imperial and its subsidiaries of $49,681 (equivalent to
purchase price of $75,000, less (1) the net book value of the assets of
Imperial and its subsidiaries of $18,819, and (2) $6,500 of liabilities of
Imperial and its subsidiaries owed to JII), and (ii) $7,872 for the write-
off of the unamortized balance of deferred financing costs relating to the
repayment of amounts owing under the Credit Agreement. See "Use of
Proceeds" and "Certain Transactions--The Company Formation and Proceeds
From the Old Note Offering."
(6) Reflects the results of operations of the Predecessor for the periods prior
to its acquisition by the Company on September 22, 1995.
(7) The Company's results of operations for the nine months ended September 30,
1996 include the results of Barber Colman Motors since its acquisition by
the Company on March 8, 1996.
(8) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before income taxes, plus fixed charges.
Fixed charges consist of interest expense on all indebtedness and
capitalized interest (which the Company and Predecessor have not incurred
in the respective periods), amortization of deferred financing costs, and
rental expense on operating leases, representing that portion of rental
expense deemed by the Company to be attributable to interest.
(9) Reflects the results of operations for the Predecessor from January 1, 1995
to September 22, 1995, the date of its acquisition by the Company, and the
results of operations of the Company from September 23, 1995 to December
31, 1995.
12
<PAGE>
RISK FACTORS
Holders of the Old Notes should carefully consider the following risk
factors, as well as other information set forth in this Prospectus, before
tendering their Old Notes in the Exchange Offer. The risk factors set forth
below (other than "Consequences of Exchange and Failure to Exchange") are
generally applicable to the Old Notes as well as the New Notes.
CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE
Issuance of the New Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made only after timely receipt by the Exchange Agent of
such Old Notes, a properly completed and duly executed Letter of Transmittal
and all other required documents. Therefore, holders of the Old Notes desiring
to tender such Old Notes in exchange for New Notes should allow sufficient
time to ensure timely delivery. The Company is under no duty to give
notification of defects or irregularities with respect to tenders of Old Notes
for exchange. Holders of Old Notes who do not exchange their Old Notes for New
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Notes as set forth in the legend thereon.
In general, the Old Notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. The
Company does not currently anticipate that it will register the Old Notes
under the Securities Act. In addition, upon the consummation of the Exchange
Offer holders of Old Notes which remain outstanding will not be entitled to
any rights to have such Old Notes registered under the Securities Act or to
any rights under the Registration Rights Agreement. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, a holder's ability to
sell untendered, or tendered but unaccepted, Old Notes could be adversely
affected. See "The Exchange Offer--Consequences of Not Exchanging Old Notes."
Based on interpretations by the staff of the Commission, the Company
believes that the New Notes issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold and otherwise transferred by a
holder thereof (other than (i) an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act, (ii) an Initial Purchaser who
acquired the Old Notes directly from the Company solely in order to resell
pursuant to Rule 144A of the Securities Act or any other available exemption
under the Securities Act, or (iii) a broker-dealer who acquired the Old Notes
as a result of market making or other trading activities) without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such New Notes are acquired in the ordinary
course of such holder's business and that such holder is not participating and
has no arrangement or understanding with any person to participate, in a
distribution (within the meaning of the Securities Act) of such New Notes. The
Company has not, however, sought its own no-action letter from the staff of
the Commission. Although there has been no indication of any change in the
staff's position, there can be no assurance that the staff of the Commission
would make a similar determination with respect to the resale of the New
Notes. Any holder that cannot rely upon such prior staff interpretations must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction, unless such
sale is made pursuant to an exemption from such requirements. See "The
Exchange Offer--Purpose of the Exchange Offer."
LEVERAGE AND COVERAGE
The Company has substantial indebtedness and debt service obligations. At
September 30, 1996, the Company's total indebtedness, including current
portion, would have been approximately $175.6 million and its net capital
deficiency would have been $23.9 million, in each case on a pro forma basis
after giving effect to the transactions contemplated by the Old Note Offering,
the application of the net proceeds therefrom, the Refinancing Plan and the
Imperial Acquisitions. In addition, subject to the restrictions under the New
Credit Agreement and the Indenture, the Company and its subsidiaries may incur
additional indebtedness (including additional secured indebtedness and senior
indebtedness) from time to time. See "Use of Proceeds," "Capitalization" and
"Description of Senior Notes--Certain Covenants."
13
<PAGE>
The level of the Company's indebtedness could have important consequences to
holders of the Senior Notes, including: (i) a substantial portion of the
Company's cash flow from operations must be dedicated to debt service and will
not be available for other purposes; (ii) the Company's ability to obtain
additional debt financing in the future for working capital, capital
expenditures, research and development or acquisitions may be limited, and
(iii) the Company's level of indebtedness could limit its flexibility in
reacting to changes in its operating environment and economic conditions
generally.
The Company's ability to pay principal and interest on the Senior Notes and
to satisfy its other debt obligations will depend upon its future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond its
control, as well as the availability of revolving credit borrowings under the
New Credit Agreement or a successor facility. The Company anticipates that its
operating cash flow, together with borrowings under the New Credit Agreement,
will be sufficient to meet its operating expenses and to service its debt
requirements as they become due. However, the Company may be required to
refinance a portion of the principal of the Senior Notes prior to their
maturity and, if the Company is unable to service its indebtedness, it will be
forced to take actions such as reducing or delaying capital expenditures,
selling assets, restructuring or refinancing its indebtedness, or seeking
additional equity capital. There can be no assurance that any of these
remedies can be effected on satisfactory terms, if at all. See "Management's
Discussion and Analysis of Pro Forma Financial Condition and Results of
Operations--Pro Forma Liquidity and Capital Resources."
RANKING OF SENIOR NOTES
The Senior Notes will be senior unsecured obligations of the Company and
will rank pari passu in right of payment with all other Senior Indebtedness of
the Company. The Senior Notes will effectively rank junior to any secured
Indebtedness of the Company and to all Indebtedness of the Company's
subsidiaries, including indebtedness incurred under the New Credit Agreement.
The Contingent Earnout (as defined) provided by the Company, M&G Industries,
Imperial, Scott and Gear to an affiliate of JII, its indirect parent, in
connection with the Imperial Acquisitions is a potential future obligation and
liability of such subsidiaries of the Company, the payment of which, if
earned, will not be limited or otherwise restricted by the Indenture or the
New Credit Agreement. See "The Company--The Imperial Acquisitions." As of
September 30, 1996, on a pro forma basis after giving effect to the (i) Old
Note Offering, (ii) the application of the net proceeds therefrom and (iii)
the Imperial Acquisitions and the Barber Colman Acquisition, the aggregate
principal amount of secured Indebtedness of the Company and Indebtedness of
the Company's subsidiaries to which the Senior Notes would have been
effectively junior would have been approximately $5.6 million. The Indenture
permits the Company and its subsidiaries to incur up to $25.0 million of
additional indebtedness, including secured indebtedness and indebtedness of
its subsidiaries, subject to certain limitations. See "Description of Senior
Notes--Certain Covenants" and "Description of Certain Indebtedness."
HOLDING COMPANY STRUCTURE; DEPENDENCE ON SUBSIDIARIES; LIMITATIONS ON ACCESS
TO CASH FLOW OF THE SUBSIDIARIES
The Company is structured as a holding company which owns all of the stock
of M&G Industries. M&G Industries owns all of the stock of the Company's
operating subsidiaries. See "The Company--Operating Subsidiaries."
Accordingly, the Company's operations are conducted exclusively through its
subsidiaries, and the Company's only significant assets are the capital stock
of its subsidiaries. As a holding company, the Company is dependent on
dividends or other intercompany transfers of funds from its subsidiaries to
meet the Company's debt service and other obligations, including its
obligations under the Senior Notes. Under the terms of the Indenture, the
Company's subsidiaries may incur certain indebtedness pursuant to agreements
that may restrict the ability of such subsidiaries to make such dividends or
other intercompany transfers necessary to service the Company's obligations,
including its obligations under the Senior Notes. The terms of the New Credit
Agreement limit the Company's subsidiaries from making dividends to the
Company except in limited circumstances. While the New Credit Agreement
permits dividends to the Company for the purpose of paying interest on the
Senior Notes, dividends for other purposes, such as repurchases of Senior
Notes upon a Change of Control or an Asset Sale, are not permitted. Any
failure by the Company to satisfy its obligations with respect
14
<PAGE>
to the Senior Notes at maturity (with respect to payments of principal) or
prior thereto (with respect to payments of interest or required repurchases)
would constitute a default under the Indenture and the New Credit Agreement
and could cause a default under agreements governing other indebtedness of the
Company and its subsidiaries. The Old Notes are and the New Notes will be
obligations exclusively of the Company and will not be guaranteed by any of
the Company's subsidiaries. In addition, because the Company conducts its
business through its subsidiaries, all existing and future liabilities and
obligations of the Company's subsidiaries (including the New Credit Agreement
and the Contingent Earnout Agreement) will be effectively senior to the Senior
Notes. Consequently, the Company's cash flow and ability to service its debt,
including the Senior Notes, are dependent upon the earnings of its
subsidiaries and the distribution of those earnings to the Company, or upon
loans, advances or other payments made by its subsidiaries to the Company.
LIMITED OPERATING HISTORY AND LIMITED RELEVANCE OF HISTORICAL FINANCIAL
INFORMATION
The Company was incorporated in September 1995 to acquire Merkle-Korff and
other targeted companies focused on the motion control industry. The Company
defines the motion control industry as having the following major business
segments: motors, gears and gear drives, controls and sensors, drives and
drive systems, and couplings. The Company has conducted limited operations to
date. The historical financial information included herein for periods prior
to September 22, 1995 is based upon the historical information of Merkle-
Korff. For the periods after September 22, 1995, the historical financial
information is based upon historical information of the Company, including the
results of Barber Colman Motors since its acquisition by the Company on March
8, 1996, and includes purchase accounting adjustments as a result of the
Company's acquisitions. The historical financial information does not reflect
the results of operations, financial position or cash flows of the Company
with Imperial, Scott and Gear. As a result, the historical financial
information is of limited relevance in understanding what the results of
operations, financial position or cash flows of the Company would have been
for the historical periods presented had the Company in fact owned all of its
current subsidiaries or had the Company in fact been organized for such
periods. See "Selected Financial Information" and "Management's Discussion of
Financial Condition and Results of Operations."
CONTROL BY PRINCIPAL STOCKHOLDER AND CERTAIN TRANSACTIONS
JII and other Jordan Stockholders (as defined) own all of the preferred
stock and substantially all of the common stock of the Parent. See "Principal
Stockholders." Accordingly, JII has sufficient voting power to elect the
entire Board of Directors, exercise control over the business, policies and
affairs of Parent and its wholly-owned subsidiary, the Company, and, in
general, determine the outcome of any corporate transaction or other matters
submitted to the stockholders for approval, such as any amendment to the
Company's Certificate of Incorporation, the authorization of additional shares
of capital stock, and any merger, consolidation, sale of all or substantially
all of the assets of the Company and could prevent or cause a change of
control of the Company. JII is expected to maintain a majority ownership
interest in the Company. Messrs. Jordan, Quinn, Zalaznick and Boucher, all
directors of Parent and the Company, are directors, executive officers and
stockholders of JII.
The Company has entered into a number of affiliate transactions with JII and
The Jordan Company, an affiliate of JII, including the Contingent Earnout
Agreement, the JII Services Agreement (as defined), the TJC Advisory Agreement
(as defined), the Tax Sharing Agreement and certain other agreements and
transactions. See "Certain Transactions."
RESTRICTIVE COVENANTS
The Indenture restricts, among other things, the Company's and its
Restricted Subsidiaries' ability to pay dividends or make certain other
Restricted Payments, to incur additional indebtedness, to encumber or sell
assets, to enter into transactions with affiliates, to enter into certain
guarantees of indebtedness, to make Restricted Investments, to merge or
consolidate with any other entity and to transfer or lease all or
substantially all of their assets. In addition, the New Credit Agreement
contains other and more restrictive covenants and prohibits the Company and
its subsidiaries from prepaying other indebtedness, including the Senior
Notes. See "Description
15
<PAGE>
of Senior Notes--Certain Covenants" and "Description of Certain Indebtedness--
New Credit Agreement." The New Credit Agreement also requires the Company to
maintain specified financial ratios and satisfy certain financial condition
tests. The Company's ability to meet those financial ratios and tests can be
affected by events beyond its control, and there can be no assurance that the
Company will meet those tests. A breach of any of these covenants could result
in a default under the New Credit Agreement and/or the Indenture. Upon the
occurrence of an event of default under the New Credit Agreement, the lenders
thereunder could elect to declare all amounts outstanding under the New Credit
Agreement, together with accrued interest, to be immediately due and payable.
If the Company were unable to repay those amounts, such lenders could proceed
against the collateral granted to them to secure that indebtedness. If the
Senior Indebtedness were to be accelerated, there can be no assurance that the
assets of the Company would be sufficient to repay in full all Senior
Indebtedness, including the Senior Notes. Substantially all of the assets of
the Company's subsidiaries were pledged as security under the New Credit
Agreement. The Indenture and the New Credit Agreement do not limit or
otherwise restrict the Company's obligations under the Contingent Earnout
Agreement. See "--Ranking of Senior Notes" and "Description of Certain
Indebtedness--New Credit Agreement."
CHANGE OF CONTROL
In the event of a Change of Control, each holder of Senior Notes will be
entitled to require the Company to purchase any or all of the Senior Notes
held by such holder at the prices stated herein. The Company expects that
prepayment of the Senior Notes pursuant to a Change of Control would
constitute a default under the New Credit Agreement. In the event that a
Change of Control occurs, the Company would likely be required to refinance
the indebtedness outstanding under the New Credit Agreement and the Senior
Notes. There can be no assurance that the Company would be able to refinance
such indebtedness or, if such refinancing were to occur, that such refinancing
would be on terms favorable to the Company. See "Description of Senior Notes--
Mandatory Offers to Purchase Senior Notes--Change of Control" and "--Certain
Definitions."
ABSENCE OF PUBLIC MARKET FOR THE SENIOR NOTES; RESTRICTIONS ON TRANSFERS
The New Notes are being offered to Holders of the Old Notes. The Old Notes
were issued on November 7, 1996 to a small number of institutional investors
and are eligible for trading in the Private Offering, Resale and Trading
through Automated Linkages (PORTAL) Market, the National Association of
Securities Dealers' screenbased, automated market for trading of securities
eligible for resale under Rule 144A. The New Notes are new securities for
which there currently is no market. Although the Initial Purchasers have
advised the Company that they currently intend to make a market in the New
Notes, they are not obligated to do so and may discontinue such market making
at any time without notice. The Company does not intend to list the Senior
Notes on any national securities exchange or to seek the admission thereof to
trading in the National Association of Securities Dealers Automated Quotation
System. Accordingly, no assurance can be given that an active market will
develop for any of the Senior Notes or as to the liquidity of the trading
market for any of the Senior Notes. If a trading market does not develop or is
not maintained, holders of the Senior Notes may experience difficulty in
reselling such Senior Notes or may be unable to sell them at all. If a market
for the Senior Notes develops, any such market may be discontinued at any
time. If a trading market develops for the Senior Notes, future trading prices
of such Senior Notes will depend on many factors, including, among other
things, prevailing interest rates, the Company's results of operations and the
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the Senior Notes may trade at a discount from their
principal amount.
FRAUDULENT TRANSFER CONSIDERATIONS
Under fraudulent transfer law, if a court were to find in a lawsuit by an
unpaid creditor or representative of creditors of the Company, that the
Company received less than fair consideration or reasonable equivalent value
for incurring the indebtedness represented by the Senior Notes, and, at the
time of such incurrence, the Company (i) was insolvent or was rendered
insolvent by reason of such incurrence, (ii) was engaged or about to engage in
a business or transaction for which its remaining property constituted
unreasonably small capital or (iii) intended to incur, or believed it would
incur, debts beyond its ability to pay as such debts mature, such court could,
among
16
<PAGE>
other things, (a) void all or a portion of the Company's obligations to the
holders of Senior Notes and/or (b) subordinate the Company's obligations to
the holders of the Senior Notes to other existing and future indebtedness of
the Company, the effect of which would be to entitle such other creditors to
be paid in full before any payment could be made on the Senior Notes. The
measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction which is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all of its liabilities were greater than
the value of all of its property at a fair valuation, or if the present fair
salable value of the debtor's assets were less than the amount required to
repay its probable liability on its debts as they become absolute and mature.
There can be no assurance as to what standard a court would apply in order to
determine solvency. To the extent that proceeds from the sale of the Old Notes
are used to repay indebtedness under the Credit Agreement, a court may find
that the Company did not receive fair consideration or reasonably equivalent
value for the incurrence of the indebtedness represented thereby.
On the basis of its historical financial information, its recent operating
history and other factors, the Company believes that at the time of the
issuance of the Senior Notes the Company was and will be solvent, did and will
have sufficient capital for the business in which it is engaged and did not
and will not have incurred debts beyond its ability to pay such debts as they
mature. There can be no assurance, however, that a court would necessarily
agree with these conclusions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
17
<PAGE>
THE COMPANY
GENERAL
The Company is a leading domestic manufacturer of specialty purpose electric
motors, gearmotors, gearboxes and gears for a wide variety of consumer,
commercial and industrial markets. The Company has a diverse base of customers
and its products are utilized in a broad range of applications including
vending machines, refrigerator ice dispensers, commercial floor care
equipment, elevators and photocopy machines. The Company's subsidiaries have
sold their brand name products to their customers for an average of over 70
years. The Company believes that it has created strong customer loyalty for
its products primarily through its emphasis on high quality, custom engineered
products, competitive prices and customer service. For the year ended December
31, 1995, the Company had pro forma net sales, EBITDA, and net income of
$116.8 million, $29.8 million and $2.4 million, respectively.
The Company operates in three product groups: (i) subfractional motors,
which represented 65.7% of pro forma net sales for the year ended December 31,
1995, (ii) fractional/integral motors, which represented 28.8% of pro forma
net sales for the year ended December 31, 1995, and (iii) gears and gearboxes,
which represented 5.5% of pro forma net sales for the year ended December 31,
1995.
Subfractional Motors. The Company's subfractional horsepower products are
comprised of motors and gearmotors that power applications up to 30 watts (
1/25 horsepower). These small, "fist-size" AC and DC motors are used in light
duty applications such as snack and beverage vending machines, refrigerator
ice dispensers and photocopy machines. Average product selling prices
typically range from $3 to $20 per unit. The Company focuses on niche
applications in this product group and believes it has a leading market
position in most of its niches.
Fractional/Integral Motors. The Company's fractional/integral horsepower
products are comprised of AC and DC motors and gearmotors having power ranges
from 1/8 up to 300 horsepower. Key end markets for these motors include
commercial floor care equipment, elevators, automatic hose reels, and
industrial lift machinery. Average product selling prices typically range from
$50 to $150 per unit for commercial floor care and hose reel products to
$2,000 to $2,500 per unit for elevator motors. The Company believes it is the
primary supplier to virtually all the major commercial floor care product
manufacturers and the leading DC elevator motor manufacturer in the United
States.
Gears and Gearmotors. The Company's precision gear and gearbox products are
produced in sizes of up to 16 inches in diameter and in various customized
configurations such as pump, bevel and helical gears. These products have a
reputation for their durability, accuracy, and low noise generation. Key end
markets for these products include motor OEMs for assembly into a gearmotor as
well as OEMs of commercial floor care equipment, aerospace and food processing
product equipment. The Company focuses on niche applications in this product
group and believes it has a leading market position in most of its niches.
OPERATING SUBSIDIARIES
The Company was organized in September 1995 by JII to acquire and operate
companies in the motion control industry. The Company conducts all of its
operations through an intermediate holding company, M&G Industries, and M&G
Industries' wholly-owned subsidiaries and each of their respective
subsidiaries.
Merkle-Korff, founded in 1911 and acquired by the Company in September 1995,
custom manufactures subfractional horsepower motors and gearmotors used in
such products as vending machines, refrigerators, photocopy machines, pumps
and compressors.
Barber Colman Motors, founded in 1894 and acquired by the Company through
Merkle-Korff in March 1996, manufactures subfractional horsepower motors and
gearmotors used as components in such products as vending machines, photocopy
machines, automatic teller machines, currency changers, X-ray machines,
heating, ventilating and air conditioning ("HVAC") actuators and medical
equipment.
18
<PAGE>
Imperial, founded in 1889 and acquired by certain Jordan Stockholders in
November 1983 and by JII in March 1988, manufactures electric motors and
gearmotors for commercial and industrial uses, including elevators, floor care
equipment and automatic hose reels.
Scott, founded in 1982 and acquired by JII through Imperial in August 1988,
designs and manufactures a variety of electric motors for commercial and
industrial applications, including floor care equipment and hydraulic pumps
used in various lift applications.
Gear, founded in 1952 and acquired by JII through Imperial in November 1988,
manufactures high-precision gears and gear boxes for OEMs in the floor care
equipment, hydraulic pump, food processing equipment, and aerospace
industries.
For a discussion of the acquisitions of the Company's subsidiaries, see
"Certain Transactions--The Company Formation and Proceeds from the Offering."
THE IMPERIAL ACQUISITIONS
Concurrent with the consummation of the Old Note Offering, the Company,
through a newly-formed subsidiary, acquired the business and net assets of
Imperial, Scott and Gear. Immediately after the consummation of the Imperial
Acquisitions, such newly-formed subsidiary transferred all of the net assets
and liabilities of Scott and Gear to two wholly-owned subsidiaries.These
subsidiaries have continued conducting business under the names Imperial,
Scott and Gear. The purchase price for the Imperial Acquisitions included a
$75.0 million cash payment, which includes the payment of approximately $6.5
million of liabilities of Imperial and its subsidiaries owed to JII, and a
contingent payment (the "Contingent Earnout"). The Contingent Earnout is
payable pursuant to an agreement (the "Contingent Earnout Agreement") whereby
each of the Company, M&G Industries, Imperial, Scott and Gear, will be jointly
and severally obligated to pay to an affiliate of JII 50% of the cumulative
EBITDA (as defined therein) above $50 million of Imperial, Scott and Gear
earned during the five fiscal years ended December 31, 1996 through December
31, 2000. For the year ended December 31, 1995, EBITDA (as defined therein) of
Imperial, Scott and Gear was $10.8 million. Payments, if any, under the
Contingent Earnout Agreement will be determined and made on April 30, 2001.
See "Certain Transactions--The Company Formation and Proceeds From the
Offering."
REFINANCING PLAN
Concurrent with the consummation of the Old Note Offering, (i) Merkle-Korff
repaid in full all of its indebtedness under the Credit Agreement, and (ii)
M&G Industries entered into the New Credit Agreement, which provides M&G
Industries and its subsidiaries with a revolving credit facility of up to
$75.0 million for a five year term which, together with the net proceeds from
the Old Note Offering, replaced and refinanced the Credit Agreement. See
"Description of Certain Indebtedness--Credit Agreement" and "--New Credit
Agreement." The repayment of the Company's indebtedness under the Credit
Agreement and the execution of the New Credit Agreement are referred to herein
as the "Refinancing Plan."
----------------
The Company was incorporated in the State of Illinois on September 8, 1995.
On November 1, 1996 the Company effected a reincorporation merger whereby MK
Group, Inc., an Illinois corporation, was merged with and into Motors and
Gears, Inc., a Delaware corporation, with Motors and Gears, Inc. being the
surviving entity. The Company's principal executive offices are located at
ArborLake Centre, Suite 550, 1751 Lake Cook Road, Deerfield, Illinois 60015,
and its telephone number is (847) 945-5591.
19
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds in connection with the Exchange
Offer. The net proceeds received by the Company from the Old Note Offering
(after the deduction of discounts and commissions, fees and other expenses
associated with Old Note Offering and the New Credit Agreement) were
approximately $160.0 million. The net proceeds from the Old Note Offering,
were used by the Company to: (i) fund the cash portion of the purchase price
payable by the Company in connection with the Imperial Acquisitions, and (ii)
repay in full all outstanding indebtedness under the Credit Agreement pursuant
to the Refinancing Plan.
M&G Industries, the Company's wholly-owned subsidiary, entered into the New
Credit Agreement concurrently with the consummation of the Old Note Offering.
See "Description of Certain Indebtedness--New Credit Agreement." The following
table summarizes, estimated as of December 16, 1996, the sources and uses of
funds as a result of the Old Note Offering and the Refinancing Plan described
above.
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C>
SOURCES OF FUNDS:
Senior Notes...................................... $ 170.0
-------
Total sources................................... $ 170.0
USES OF FUNDS:
Cash purchase price for Imperial Acquisitions..... $ 75.0
Repayment of Credit Agreement, including accrued
interest (1)..................................... 85.0
Fees and expenses(2).............................. 10.0
-------
Total uses...................................... $ 170.0
</TABLE>
- --------
(1) The average interest rate on borrowings under the Credit Agreement for
current borrowings was 8.5%. See "Description of Certain Indebtedness--
Credit Agreement" and "Certain Transactions--The Company Formation and
Proceeds from the Offering."
(2) Includes estimated discounts and commissions and expenses incurred in
connection with the Old Note Offering, fees and expenses incurred in
connection with the Refinancing Plan and fees paid to The Jordan Company.
See "Certain Transactions--The Jordan Company."
20
<PAGE>
CAPITALIZATION
The following table sets forth the (i) historical consolidated
capitalization of the Company at September 30, 1996, and (ii) the pro forma
consolidated capitalization of the Company at September 30, 1996, as adjusted
to reflect the Old Note Offering, the application of the net proceeds
therefrom, the Refinancing Plan and the Imperial Acquisitions. See "Use of
Proceeds." The table should be read in conjunction with the Unaudited Pro
Forma Condensed Financial Statements of the Company and related notes thereto
and the Consolidated Financial Statements of the Company and related notes
thereto included elsewhere in this Prospectus. See "Unaudited Pro Forma
Condensed Financial Statements," "Selected Historical Financial Data" and the
Consolidated Financial Statements of the Company and the related notes
thereto, all included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996
-------------------------
ACTUAL PRO FORMA
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents(2)......................... $ 4,636 $ 4,499
========== ==========
Current portion of long-term obligations............. $ 0(1) $ 126
========== ==========
Long-term obligations:(2)
Credit Agreement(3)................................ $ 84,849(1) $ 0
Senior Notes....................................... 0 170,000
Other debt(4)...................................... 5,059 5,508
---------- ----------
Total long-term obligations...................... $ 89,908 $ 175,508
Stockholder's equity:
Common Stock, $.01 par value, 100,000 shares
authorized:
100,000 shares issued and outstanding............. 1 1
Additional paid-in capital......................... 29,905 29,905
Purchase price in excess of net book value of
Imperial assets................................... 0 (49,681)
Retained earnings (accumulated deficit)............ 3,720 (4,152)
---------- ----------
Total stockholder's equity (net capital
deficiency)(5).................................. 33,626 (23,927)
---------- ----------
Total capitalization............................. $ 123,521 $ 151,581
========== ==========
</TABLE>
- --------
(1) Reflects the reclassification of $7,163 of indebtedness from current
obligations to long-term obligations as a result of the repayment of
indebtedness under the Credit Agreement from a portion of the net proceeds
from the Old Note Offering. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Historical Liquidity and
Capital Resources."
(2) Does not include (i) the MK Installment Note issued to the seller of
Merkle-Korff since this debt is supported with a $90,000 letter of credit
which, in turn, is secured by a $90,000 cash collateral account
thereunder, and (ii) obligations under the Contingent Earnout Agreement.
See "Description of Certain Other Indebtedness--MK Installment Note," "--
MK Installment Note LC Facility," "The Company--Imperial Acquisitions" and
Note 1 to the Company's Consolidated Financial Statements.
(3) For additional information, see "Description of Certain Indebtedness--
Credit Agreement."
(4) Includes the $5,000 Junior Seller Note (as defined) issued to the seller
of Merkle-Korff. See "Description of Certain Indebtedness--Junior Seller
Note." The pro forma amount also includes $508 of Imperial capital leases.
(5) The pro forma net capital deficiency reflects adjustments for (i) the
purchase price of the Imperial Acquisitions in excess of the net book
value of the assets of Imperial and its subsidiaries of $49,681
(equivalent to purchase price of $75,000, less (1) the net book value of
the assets of Imperial and its subsidiaries of $18,819, and (2) $6,500 of
liabilities of Imperial and its subsidiaries owed to JII), and (ii) $7,872
for the write-off of the unamortized balance of deferred financing costs
relating to the repayment of amounts owing under the Credit Agreement. See
"Use of Proceeds."
21
<PAGE>
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements (the
"Unaudited Pro Forma Condensed Financial Statements") are based on the
historical financial statements of the Company and the Predecessor included
elsewhere in this Prospectus. The Unaudited Pro Forma Condensed Statements of
Operations are adjusted to give effect to (i) the Old Note Offering, the
application of the net proceeds therefrom and the Refinancing Plan, (ii) the
Barber Colman Acquisition and the related headcount reductions and
administrative savings in connection therewith, (iii) the Imperial
Acquisitions, (iv) a reduction in executive compensation expense and the
elimination of non-recurring purchase accounting adjustments to the
inventories of Merkle-Korff in connection with its acquisition by the Company,
and (v) the adjustment for income taxes which would have been recorded if the
Predecessor had been a C corporation, as if all such transactions occurred on
January 1, 1995. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--General."
The Unaudited Pro Forma Condensed Balance Sheet at September 30, 1996 gives
effect to (i) the Old Note Offering, the application of the net proceeds
therefrom and the Refinancing Plan, (ii) the Imperial Acquisitions, and (iii)
adjustments for the write-off of the unamortized balance of deferred financing
costs relating to the repayment of the Credit Agreement, as if all such
transactions occurred on September 30, 1996.
The pro forma adjustments are based upon available information and certain
assumptions which management believes are reasonable. The Unaudited Pro Forma
Condensed Statements of Operations do not purport to represent what the
Company's results of operations would actually have been had the transactions
described above occurred on January 1, 1995. In addition, the Unaudited Pro
Forma Condensed Financial Statements do not purport to project the Company's
results of operations for any future date or period.
The Unaudited Pro Forma Condensed Financial Statements should be read in
conjunction with the Consolidated Financial Statements of the Company and the
related notes thereto included elsewhere in this Prospectus.
22
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------------------------------------------
PREDECESSOR
COMPANY HISTORICAL
HISTORICAL JANUARY 1,
SEPTEMBER 23, 1995
THROUGH THROUGH IMPERIAL,
DECEMBER 31, SEPTEMBER 22, COMBINED BARBER COLMAN SCOTT AND GEAR PRO FORMA
1995 1995 SUBTOTAL(1) ACQUISITION(2) ACQUISITION(3) ADJUSTMENTS TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $14,127 $39,295 $53,422 $23,325 $40,090 $ 0 $116,837
Cost of sales, excluding
depreciation........... 9,444 24,113 33,557 16,556 27,055 (462)(7) 76,706
------- ------- ------- ------- ------- -------- --------
Gross profit, excluding
depreciation........... 4,683 15,182 19,865 6,769 13,035 462 40,131
Selling general and
administrative
expenses, excluding
depreciation........... 1,000 3,465 4,465 4,655 2,239 (2,194)(8) 9,165
Depreciation and
amortization of
intangible assets...... 1,123 101 1,224 840 1,138 2,747 (9) 5,949
Management fees......... 141 0 141 0 2,168 (1,141)(10) 1,168
------- ------- ------- ------- ------- -------- --------
Operating income........ 2,419 11,616 14,035 1,274 7,490 1,050 23,849
Interest expense........ 1,902 0 1,902 321 85 17,502 (11) 19,810
Interest expense-JII.... 0 0 0 0 1,352 (1,352)(12) 0
Other (income) expense.. 0 (272) (272) 18 (9) 254 (13) (9)
------- ------- ------- ------- ------- -------- --------
Income (loss) before
income taxes........... 517 11,888 12,405 935 6,062 (15,354) 4,048
Income taxes 207 284 491 130 2,492 (1,494) 1,619
(credits)(14).......... ------- ------- ------- ------- ------- -------- --------
Net income (loss)....... $ 310 $11,604 $11,914 $ 805 $ 3,570 $(13,860) $ 2,429
======= ======= ======= ======= ======= ======== ========
OTHER DATA:
EBITDA(15).............. $ 3,542 $11,717 $15,259 $ 2,114 $ 8,628 -- $29,798
EBITDA margin(16)....... 25.1% 29.8% 28.6% 9.1% 21.5% -- 25.5%
Capital expenditures.... $ 139 $ 0 $ 139 $ 561 $ 731 -- $1,431
Ratio of earnings to
fixed charges(17)...... -- -- -- -- -- -- 1.2x
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
-------------------------------------------------------------------
IMPERIAL, SCOTT
COMPANY BARBER COLMAN AND GEAR PRO FORMA
HISTORICAL(4) ACQUISITION(5) ACQUISITION(6) ADJUSTMENTS TOTAL
------------- -------------- --------------- ----------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $57,734 $4,806 $32,420 $ 0 $94,960
Cost of sales, excluding
depreciation........... 35,985 3,559 22,022 0 61,566
------- ------ ------- ------- -------
Gross profit, excluding
depreciation........... 21,749 1,247 10,398 0 33,394
Selling, general and
administrative
expenses, excluding
depreciation........... 4,604 871 1,800 (421)(8) 6,854
Depreciation and amorti-
zation of intangible
assets................. 4,151 203 937 56 (9) 5,347
Management fees......... 577 0 1,708 (1,335)(10) 950
------- ------ ------- ------- -------
Operating income........ 12,417 173 5,953 1,700 20,243
Interest expense........ 6,684 66 58 8,110 (11) 14,918
Interest expense--JII... 0 0 672 (672)(12) 0
Other (income) expense.. 48 2 (46) (4) 0
------- ------ ------- ------- -------
Income (loss) before in-
come taxes............. 5,685 105 5,269 (5,734) 5,325
Income taxes (cred-
its)(14)............... 2,275 42 2,159 (2,346) 2,130
------- ------ ------- ------- -------
Net income (loss)....... $ 3,410 $ 63 $ 3,110 $(3,388) $ 3,195
======= ====== ======= ======= =======
OTHER DATA:
EBITDA(15).............. $16,568 $ 376 $ 6,890 -- $25,590
EBITDA margin(16)....... 28.7% 7.8% 21.3% -- 26.9%
Capital expenditures.... $ 348 $ 118 $ 459 -- $ 925
Ratio of earnings to
fixed charges(17)...... -- -- -- -- 1.3x
</TABLE>
- -------
(1) Reflects the results of operations for the Predecessor from January 1,
1995 to September 22, 1995, the date of its acquisition by the Company,
and the results of operations of the Company from September 23, 1995 to
December 31, 1995.
(2) Reflects the historical results of operations of Barber Colman Motors for
the year ended December 31, 1995.
(3) Reflects the historical consolidated results of operations of Imperial,
Scott, and Gear for the year ended December 31, 1995.
(4) The Company's historical results of operations include the results of
Barber Colman Motors since its acquisition by the Company on March 8,
1996.
(5) Reflects the historical results of operations of Barber Colman Motors
from January 1, 1996 to March 8, 1996, the date of its acquisition by the
Company.
(6) Reflects the historical consolidated results of operations of Imperial,
Scott, and Gear for the nine-months ended September 30, 1996.
(7) Gives effect to the elimination in the year ended December 31, 1995 of
non-recurring purchase accounting adjustments to the inventories of
Merkle-Korff in connection with its acquisition by the Company.
(8) Gives effect to the elimination of $2,194 and $421 in the year ended
December 31, 1995, and the nine months ended September 30, 1996,
respectively, in selling, general and administrative expenses for
completed headcount reductions, administrative savings and a reduction in
executive compensation expense in connection with the Barber Colman
Acquisition and the acquisition of Merkle-Korff by the Company.
(9) Includes incremental goodwill amortization and depreciation as a result
of the acquisitions of Barber Colman Motors and Merkle-Korff as if such
companies were acquired on January 1, 1995.
(10) Gives effect to an adjustment to reduce management fee expense to 1% of
the Company's net sales. See "Certain Transactions--JII Services".
(11) Gives effect to an adjustment in interest expense had the Old Note
Offering occurred on January 1, 1995, and (ii) an increase in the
amortization of deferred financing costs resulting from the Old Note
Offering.
24
<PAGE>
(12) Gives effect to the elimination of intercompany interest for Imperial had
the Imperial Acquisitions occurred on January 1, 1995 and had the
proceeds from the Old Note Offering been used to reduce Imperial's
indebtedness to JII.
(13) Gives effect to an adjustment to eliminate interest income on investments
held by Merkle-Korff prior to its acquisition by the Company on September
22, 1995.
(14) Pro forma net income (loss) reflects income taxes at the tax rate of 40%.
For the Predecessor, reflects only certain state income taxes
attributable to Merkle-Korff's income for the historical periods
presented prior to its acquisition by the Company on September 22, 1995,
during which it elected to be a subchapter S corporation and therefore
was not subject to federal and certain state income taxes. For the
Company, reflects income taxes attributable to the Company for the
historical periods presented subsequent to September 1995 at the tax rate
(40%) attributed to it as a C corporation pursuant to the Tax Sharing
Agreement. See "Certain Transactions--Tax Sharing Agreement."
(15) EBITDA for any relevant period presented above represents net income plus
interest, income taxes, depreciation, amortization of goodwill and other
intangibles and other income and expenses reflected in the determination
of net income. See "Selected Historical Financial Data." While EBITDA
should not be construed as a substitute for operating income or a better
indicator of liquidity than cash flow from operating activities, which
are determined in accordance with generally accepted accounting
principles, it is included herein to provide additional information with
respect to the ability of the Company to meet its future debt service,
capital expenditure and working capital requirements. EBITDA is included
herein because management believes that certain investors find it to be a
useful tool for measuring the ability of the Company to service its debt.
EBITDA is not necessarily a measure of the Company's ability to fund its
cash needs. See the Consolidated Statements of Cash Flows of the Company
and the related notes to the Consolidated Financial Statements thereto
included in this Prospectus.
(16) EBITDA margin for any relevant period reflects EBITDA over net sales.
(17) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before income taxes, plus fixed charges.
Fixed charges consist of interest expense on all indebtedness and
capitalized interest (which the Company and Predecessor have not incurred
in the respective periods), amortization of deferred financing costs, and
rental expense on operating leases, representing that portion of rental
expense deemed by the Company to be attributable to interest.
25
<PAGE>
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996
------------------------------------------------------------
COMPANY IMPERIAL,
HISTORICAL SCOTT AND
AT SEPTEMBER 30, GEAR PRO FORMA
1996 ACQUISITION(1) ADJUSTMENTS TOTAL
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 4,636(5) $ 0 $ (137)(3) $ 4,499
Accounts receivable--
net.................. 8,463 6,914 0 15,377
Inventories........... 8,473 8,651 0 17,124
Prepaid expenses and
other current
assets............... 853 111 0 964
-------- ------- -------- --------
Total current
assets............. 22,425 15,676 (137) 37,964
Property, plant and
equipment--net......... 8,254 3,462 0 11,716
Intangibles--net........ 93,196 12,682 0 105,878
Other non-current
assets................. 8,753 26 2,128 (2) 10,907
-------- ------- -------- --------
Total assets........ $132,628 $31,846 $ 1,991 $166,465
======== ======= ======== ========
LIABILITIES AND
STOCKHOLDER'S EQUITY
Current liabilities..... $ 8,195 $ 7,465 $ (1,930)(3) $ 13,730
Current portion of long-
term obligations....... 0(5)(6) 126 0 126
Long-term obligations:
Credit Agreement...... 84,849 0 (84,849)(4) 0
Senior Notes.......... 0 0 170,000 (4) 170,000
Note payable to JII... 0 4,799 (4,799)(3) 0
Other debt............ 5,059 508 (59)(4) 5,508
-------- ------- -------- --------
Total long-term
obligations........ 89,908(5)(6) 5,307 85,105 175,508
Other non-current
liabilities and
deferred income taxes.. 899 129 0 1,028
Stockholder's equity
(net capital
deficiency)............ 33,626 18,819 (76,372)(4)(7) (23,927)
-------- ------- -------- --------
Total liabilities
and stockholder's
equity............. $132,628 $31,846 $ 1,991 $166,465
======== ======= ======== ========
</TABLE>
- --------
(1) Reflects the historical consolidated balance sheet of Imperial Scott, and
Gear as of September 30, 1996. See "Use of Proceeds," "Certain
Transactions--The Company Formation and Proceeds From the Old Note
Offering."
(2) Gives effect to adjustments for (i) the write-off of the unamortized
balance of deferred financing costs of $7,872 relating to the repayment of
amounts owing under the Credit Agreement, and (ii) the addition of $10,000
of estimated fees and expenses associated with the Old Note Offering, as
if such transactions occurred on September 30, 1996. See "Use of Proceeds"
and "Certain Transactions--The Company Formation and Proceeds From the Old
Note Offering."
(3) Gives effect to an adjustment to repay certain amounts owing to JII from
the proceeds of the Old Note Offering.
(4) Gives effect to the application of the net proceeds from the Old Note
Offering to the repayment of amounts owing under the Credit Agreement,
Certain Lease Obligations and the Imperial acquisitions. See "Use of
Proceeds" and "Certain Transactions--The Company Formation and Proceeds
From the Old Note Offering."
(5) Does not include (i) the MK Installment Note issued to the seller of
Merkle-Korff since this debt is supported with a $90,000 letter of credit
which, in turn, is secured by a $90,000 cash collateral account
thereunder, and (ii) obligations under the Contingent Earnout Agreement.
See "Description of Certain Indebtedness--MK Installment Note," "--MK
Installment Note LC Facility," and "The Company--Imperial Acquisitions."
(6) Reflects the reclassification of $7,163 of indebtedness from current
obligations to long-term obligations as a result of the repayment of
indebtedness under the Credit Agreement from a portion of the net proceeds
from the Old Note Offering. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Historical Liquidity and
Capital Resources."
(7) The pro forma net capital deficiency gives effect to adjustments for (i)
the purchase price of the Imperial Acquisitions in excess of the net book
value of the assets of Imperial and its subsidiaries of $49,681
(equivalent to purchase price of $75,000, less (1) the net book value of
the assets of Imperial and its subsidiaries of $18,819, and (2) $6,500 of
liabilities of Imperial and its subsidiaries owed to JII), and (ii) $7,872
for the write-off of the unamortized balance of deferred financing costs
relating to the repayment of amounts owing under the Credit Agreement. See
"Use of Proceeds" and "Certain Transactions--The Company Formation and
Proceeds From the Old Note Offering."
26
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table presents summary (i) historical operating and other data
of the Company's predecessor, Merkle-Korff, for the years ended December 31,
1991, 1992, 1993, 1994 and the period from January 1, 1995 to September 22,
1995, and (ii) historical operating and other data of the Company for the
period September 23, 1995 to December 31, 1995 and for the nine months ended
September 30, 1996. The historical data of the Predecessor and the Company
reflect the results of the Company's wholly-owned subsidiary, Merkle-Korff,
for all periods presented, together with its wholly-owned subsidiary, Barber
Colman Motors, from the date of its acquisition by the Company on March 8,
1996. The financial data of the Predecessor as of and for the years ended
December 31, 1992 through 1994 and the period from January 1, 1995 to
September 22, 1995 were derived from the Combined Financial Statements of the
Predecessor, and the financial data of the Company as of December 31, 1995 and
for the period from September 23, 1995 to December 31, 1995 were derived from
the Consolidated Financial Statements of the Company, all of which have been
audited by Ernst & Young LLP. The financial data of the Predecessor as of and
for the year ended December 31, 1991 and of the Company as of and for the nine
months ended September 30, 1996 were derived from the unaudited financial
statements of the Predecessor and the Company, respectively, which, in the
opinion of the Company, reflect all adjustments, which are of a normal and
recurring nature, necessary for a fair presentation of the results for the
unaudited periods. The results of operations for the nine months ended
September 30, 1996 are not necessarily indicative of the results of operations
to be expected for the full year. The financial data set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
of the Company, the Predecessor and Barber Colman Motors and the related notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR
AND COMPANY
PREDECESSOR(1) COMPANY(2) COMBINED(3) PREDECESSOR(1) COMPANY(4)
--------------------------------------------- ------------- ------------ -------------- -------------
JANUARY 1, SEPTEMBER 23, JANUARY 1, JANUARY 1,
YEAR ENDED DECEMBER 31, THROUGH THROUGH YEAR ENDED THROUGH THROUGH
------------------------------- SEPTEMBER 22, DECEMBER 31, DECEMBER 31, SEPTEMBER 22, SEPTEMBER 30,
1991 1992 1993 1994 1995 1995 1995 1995 1996
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales........ $37,313 $39,801 $43,766 $49,340 $39,295 $14,127 $53,422 $39,295 $57,734
Gross profit,
excluding
depreciation.... 12,768 13,828 16,315 18,022 15,182 4,683 19,865 15,182 21,749
Operating
income.......... 5,924 7,241 8,547 12,309 11,616 2,419 14,035 11,616 12,417
Interest
expense......... 0 0 0 0 0 1,902 1,902 0 6,684
Income taxes(5).. 89 116 143 171 284 207 491 284 2,275
Net income....... 5,899 6,929 8,122 11,921 11,604 310 11,914 11,604 3,410
SUPPLEMENTAL PRO
FORMA AND OTHER
DATA:
Pro forma income
taxes(6)........ 2,395 2,818 3,306 4,837 4,755 0 4,962 4,755 0
Pro forma net
income.......... 3,593 4,227 4,959 7,255 7,133 310 7,443 7,133 3,410
Ratio of earnings
to fixed
charges(7)...... 22.4x 26.2x 29.4x 41.7x 57.3 -- 6.7x 57.3 1.8
BALANCE SHEET DATA
(AT END OF
PERIOD):
Working
capital(8)...... $ 9,534 $ 9,646 $ 9,944 $11,546 $ 7,697 $ 1,087 $ 1,087 $7,697 $14,230
Total assets..... 16,178 16,630 16,421 18,952 14,409 111,887 111,887 14,409 132,628
Long-term
obligations,
including
current
portion(8)...... 0 0 0 0 0 74,375 74,375 0 89,908
Stockholder's
equity.......... 11,950 12,057 12,515 14,332 9,218 30,216 30,216 9,218 33,626
</TABLE>
(footnotes on following page)
27
<PAGE>
- --------
(1) Reflects the results of operations of the Predecessor for the periods
prior to its acquisition by the Company on September 22, 1995.
(2) Reflects the Company's results of operations from September 23, 1995
through December 31, 1995.
(3) Reflects the combined results of operations of the Predecessor from
January 1, 1995 to September 22, 1995 and the Company from September 23,
1995 to December 31, 1995.
(4) The Company's results of operations for the nine months ended September
30, 1996 include the results of operations of Barber Colman Motors since
its acquisition by the Company on March 8, 1996.
(5) For the Predecessor, reflects only certain state income taxes attributable
to Merkle-Korff's income for the historical periods presented prior to its
acquisition by the Company on September 22, 1995, during which it elected
to be a subchapter S corporation and therefore was not subject to federal
and certain state income taxes. For the Company, reflects income taxes
attributable to the Company for the historical periods presented
subsequent to September 1995 at the tax rate (40%) attributed to it as a C
corporation pursuant to the Tax Sharing Agreement. See "Certain
Transactions--Tax Sharing Agreement."
(6) Prior to its acquisition by the Company, the Predecessor was an S
corporation and therefore was not subject to federal and certain state
income taxes. The pro forma data presented includes an unaudited pro forma
adjustment for income taxes which would have been recorded if the
Predecessor had been a C corporation.
(7) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before income taxes, plus fixed charges.
Fixed charges consist of interest expense on all indebtedness and
capitalized interest (which the Company and Predecessor have not incurred
in the respective periods), amortization of deferred financing costs, and
rental expense on operating leases, representing that portion of rental
expense deemed by the Company to be attributable to interest.
(8) Does not include (i) the MK Installment Note issued to the seller of
Merkle-Korff since this debt is supported with a $90,000 letter of credit
which, in turn, is secured by a $90,000 cash collateral account
thereunder, and (ii) obligations under the Contingent Earnout Agreement.
See "Description of Certain Indebtedness--MK Installment Note," "--MK
Installment Note LC Facility," and "The Company--Imperial Acquisitions."
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following financial information presents, for the fiscal years ended
December 31, 1993 and 1994, and the period from January 1, 1995 to September
22, 1995, the results of the Predecessor, for the year ended December 31,
1995, the combined results of the Predecessor and the Company, and for the
nine months ended September 30, 1996, the results of the Company, including
Barber Colman Motors (from its acquisition in March 1996). The financial data
after September 22, 1995 is not directly comparable to prior periods because
the acquired assets and liabilities assumed were revalued and adjusted to
reflect their estimated fair market values at the date of the acquisition.
This discussion does not reflect the Imperial Acquisitions, the Old Note
Offering or the Refinancing Plan. See the Financial Statements and the notes
thereto included elsewhere in this Prospectus and "Risk Factors--Limited
Operating History and Limited Relevance of Historical Financial Information."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
PREDECESSOR JANUARY 1, JANUARY 1,
AND COMPANY THROUGH THROUGH
PREDECESSOR PREDECESSOR COMBINED SEPTEMBER 22, SEPTEMBER 30,
1993 1994 1995 1995 1996
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales............... $43,766 $49,340 $53,422 $39,295 $57,734
Gross profit (excluding
depreciation).......... 16,315 18,022 19,865 15,182 21,749
EBITDA.................. 8,882 12,633 15,259 11,717 16,568
Operating income........ 8,547 12,309 14,035 11,616 12,417
Gross margin (excluding
depreciation)(1)....... 37.3% 36.5% 37.2% 38.6% 37.7%
EBITDA margin(1)........ 20.3 25.6 28.6 29.8 28.7
Operating margin(1)..... 19.5 24.9 26.3 29.6 21.5
</TABLE>
- ------------
(1) All margins are calculated as a percentage of net sales.
PERIOD FROM JANUARY 1, 1996 THROUGH SEPTEMBER 30, 1996 COMPARED TO PERIOD
FROM JANUARY 1, 1995 THROUGH SEPTEMBER 22, 1995
Net Sales. Net sales increased $18.4 million or 46.9% during the first nine
months of 1996 as compared to the same period in 1995. This increase was due
to higher vending machine motor and distribution net sales of $13.1 million
resulting from the Barber Colman Acquisition in March 1996 and higher
appliance motor net sales of $1.5 million with the remainder of the increase
due to higher unit volumes and price increases in treadmill motors.
Gross Profit. Gross profit increased $6.6 million or 43.3% during the first
nine months of 1996 as compared to the same period in 1995. The Barber Colman
Acquisition accounted for $4.3 million of the increase. Gross profit in the
first nine months of 1995 was reduced due to an increase in raw material
prices, primarily copper. Gross margin decreased from 38.6% in the first nine
months of 1995 to 37.7% in the same period in 1996 primarily due to the Barber
Colman Acquisition, which operates at a slightly lower margin than Merkle-
Korff.
EBITDA. EBITDA increased by $4.9 million or 41.4% during the first nine
months of 1996 as compared to the same period in 1995. The Barber Colman
Acquisition accounted for $2.6 million of the increase with the remainder of
the increase due to the increased gross profit mentioned above.
Operating Income. Operating income increased by $.8 million or 6.9% during
the first nine months of 1996 as compared to the same period in 1995. This
increase was due to higher gross profit which was partially offset by an
additional $4.1 million of depreciation and amortization expense incurred from
the acquisition of Merkle-Korff in September 1995, and the Barber Colman
Acquisition. The depreciation and amortization expense associated with these
acquisitions caused operating margin to drop from 29.6% in the first nine
months of 1995 to 21.5% in the same period in 1996.
29
<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net Sales. Net sales increased $4.1 million or 8.3% in 1995 as compared to
1994. This increase was due to higher appliance motor net sales of $1.5
million, higher vending machine motor net sales of $1.6 million and higher net
sales of recreational equipment motors of $0.8 million, all of which were
driven by both higher unit volumes and price increases.
Gross Profit. Gross profit increased $1.8 million or 10.2% in 1995 as
compared to 1994. This increase was due to increased net sales. Gross margin
increased from 36.5% in 1994 to 37.2% in 1995. The gross margin increase was
due to a favorable sales product mix and the absorption of plant overhead at a
higher sales level.
EBITDA. EBITDA increased $2.6 million or 20.8% in 1995 as compared to 1994.
This increase was due to the $1.8 million increase in gross profit noted above
along with a $0.9 million decrease in selling, general and administrative
expenses primarily due to a reduction in executive compensation.
Operating Income. Operating income increased $1.7 million or 14.0% in 1995
as compared to 1994. This increase was due to the increase in gross profit
noted above, partially offset by a $1.0 million increase in additional
depreciation and amortization expense related to the acquisition of Merkle-
Korff. The EBITDA increases noted above caused the operating margin to
increase from 24.9% in 1994 to 26.3% in 1995.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Net Sales. Net sales increased $5.6 million or 12.7% in 1994 as compared to
1993. This increase was due to higher appliance motor net sales of $2.5
million, higher vending machine motor net sales of $1.5 million, higher net
sales of controls and pumps of $0.8 million and higher net sales of photocopy
machine motors of $0.3 million, all of which were driven by both higher unit
volumes and price increases.
Gross Profit. Gross profit increased $1.7 million or 10.5% in 1994 as
compared to 1993. This increase was due to increased net sales. Gross margin,
however, decreased from 37.3% in 1993 to 36.5% in 1994. This decrease in gross
margin was due to an unfavorable sales product mix, and higher raw material
costs, primarily copper.
EBITDA. EBITDA increased $3.8 million or 42.2% in 1994 as compared to 1993.
This increase was primarily due to higher gross profit of $1.7 million and a
$2.0 million decrease in selling, general and administrative expenses
attributable to a reduction in executive compensation.
Operating Income. Operating income increased $3.8 million or 44.0% in 1994
as compared to 1993. This increase was due to higher gross profit and
decreased selling, general and administrative expenses noted above. Operating
margin also increased from 19.5% in 1993 to 24.9% in 1994.
HISTORICAL LIQUIDITY AND CAPITAL RESOURCES
The Company had $14.2 million of working capital at September 30, 1996 as
compared to $1.1 million at the end of 1995. The increase is partially due to
the Barber Colman Acquisition on March 8, 1996, which had $3.0 million of
receivables, $3.2 million of inventory, $0.7 million of prepaid expenses and
$1.8 million of accounts payable and accrued expenses at September 30, 1996.
In addition, simultaneously with the consummation of the Old Note Offering,
Merkle-Korff repaid its indebtedness under the Credit Agreement from a portion
of the net proceeds from the Old Note Offering. In connection with the
repayment of indebtedness under the Credit Agreement, $7.1 million of
indebtedness under the Credit Agreement was reclassified from current
obligations to long-term obligations, as the Senior Notes are long-term
obligations of the Company.
The Company had $1.1 million of working capital at December 31, 1995
compared to $11.5 million of working capital at December 31, 1994. Short term
investments decreased by $5.5 million, accounts payable
30
<PAGE>
increased by $1.7 million, accrued expenses increased by $0.5 million, and
current portion of long-term debt increased by $5.8 million, partially offset
by a cash increase of $2.7 million and an inventory decrease of $0.4 million.
The Company had $11.5 million of working capital at December 31, 1994
compared to $9.9 million at December 31, 1993. Short-term investments
increased by $0.8 million, accounts receivable increased $1.0 million,
inventories increased by $0.5 million, partially offset by a $0.7 million
increase in accounts payable.
During the nine months ended September 30, 1996, net cash provided by
operating activities was $8.9 million. Net income was $3.4 million and
depreciation and amortization was $5.0 million. Net cash used in investing
activities was $22.0 million. Barber Colman Motors was acquired on March 8,
1996 for $21.7 million and capital expenditures were $0.3 million. Net cash
provided by financing activities was $15.1 million. The Company borrowed $21.7
million for the Barber Colman Acquisition, but repaid $6.7 million under the
Credit Agreement.
During the period from January 1, to September 22, 1995, net cash provided
by operating activities was $10.5 million. Net income was $11.6 million,
partially offset by an accounts receivable, inventory and prepaid expenses
increase of $1.8 million. Net cash provided by investing activities was $5.6
million due to a decrease in short-term investments of $5.5 million. Net cash
used in financing activities was $15.5 million due to a dividend paid to the
former Merkle-Korff owner for subchapter S taxes.
During 1995, the Company had net cash provided by operating activities of
$15.3 million. Net income was $11.9 million, depreciation and amortization was
$1.2 million, and accounts payable and accrued expenses increased $2.3
million. Net cash used in investing activities was $101.9 million. Merkle-
Korff was acquired for $107.4 million, partially offset by a decrease in short
term investments of $5.5 million. Net cash provided by financing activities
was $89.3 million. Debt related to the acquisition of Merkle-Korff increased
$77.5 million, common stock proceeds related to the transaction was $29.9
million, partially offset by $16.7 million of dividends paid to the Merkle-
Korff seller for subchapter S taxes.
During 1994, the Company had net cash provided by operating activities of
$11.2 million. Net income was $11.9 million and depreciation and amortization
was $0.3 million, partially offset by a $1.4 million increase in accounts
receivable and inventories. Net cash used in investing activities was $1.0
million. Capital expenditures were $0.2 million and short-term investments
increased $0.8 million. Net cash used in financing activities was $10.1
million due to a dividend paid to the Merkle-Korff seller for subchapter S
taxes.
During 1993, the Company had net cash provided by operating activities of
$7.0 million. Net income was $8.1 million, amortization and depreciation was
$0.3 million, partially offset by an accounts receivable increase of $0.7
million and an accounts payable decrease of $0.8 million. Net cash provided by
investing activities was $0.7 million. A $1.0 million decrease in short-term
investments was partially offset by capital expenditures of $0.3 million. Net
cash used in financing activities of $7.7 million represented a dividend paid
to the Merkle-Korff seller for subchapter S taxes.
ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." SFAS 121 addresses the accounting for the impairment of
long-lived assets, certain identifiable intangibles and goodwill when events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. SFAS 121 was adopted in 1995. The adoption of SFAS 121 did
not have a material impact on the Company's results of operations or financial
position.
SEASONALITY AND INFLATION
The Company's net sales typically show no significant seasonal variations.
The impact of inflation on the Company's operations has not been significant
to date. However, there can be no assurance that a high rate of inflation in
the future would not have an adverse effect on the Company's operating
results.
31
<PAGE>
BUSINESS
GENERAL
The Company is a leading domestic manufacturer of specialty purpose electric
motors, gearmotors, gearboxes and gears for a wide variety of consumer,
commercial and industrial markets. The Company has a diverse base of customers
and its products are utilized in a broad range of applications including
refrigerator ice dispensers, vending machines, commercial floor care
equipment, elevators and photocopy machines. The Company's subsidiaries have
sold their brand name products to their customers for an average of over 70
years. The Company believes that it has created strong customer loyalty for
its products primarily through its emphasis on high quality, custom engineered
products, competitive prices and customer service. For the year ended December
31, 1995, the Company had pro forma net sales, EBITDA, and net income of
$116.8 million, $29.8 million and $2.4 million, respectively.
Shipments of electric motors and generators are estimated by industry
sources to have been approximately $7.0 billion in 1995 and to have been
growing at a compound annual growth rate of approximately 2% to 3% over the
last five years. Although the industry has experienced substantial
consolidation in recent years, the industry remains highly fragmented with
over 200 manufacturers serving the U.S. market in 1995, according to industry
sources. The Company believes that continuing competitive pressures will lead
to further consolidation in the electric motor industry and create
opportunities for the Company to extend its product lines and business through
strategic acquisitions.
Within this industry, the Company operates in specialized niche markets,
which typically consist of high value-added motor applications requiring
custom engineered, non-standardized motors and generate relatively small
annual dollar volumes. The Company has an active new product development
effort and constantly seeks to find new applications for its products and new
niche markets to enter. As a result of these efforts, the Company has
historically been able to achieve sales growth in excess of industry trends.
The Company's products typically require small manufacturing runs and frequent
line changeovers. These markets are generally unattractive to large integrated
manufacturers which target larger markets and long-run, standardized product
lines.
The Company constantly seeks to reduce its costs through redesigning its
manufacturing processes to minimize labor and material costs without
sacrificing quality. In addition, the Company works closely with its customers
to engineer its products in ways that enable the Company to manage costs and
increase value to the customer. In addition, the Company's operations have
historically generated significant free cash flow. The Company outsources its
most capital intensive processes and strives to minimize its capital
investment through purchasing and updating used equipment.
COMPETITIVE STRENGTHS
The Company believes that it benefits from the following competitive
strengths:
Leading Position in Niche Markets. The Company has targeted niche markets in
which it has achieved leading market positions and which are generally
unattractive to large manufacturers due to their small size and specialized
nature. The Company believes that it has attained market shares in excess of
50% in markets which comprise over 65% of its net sales. These leading market
positions have provided a high level of predictability to the Company's net
sales. The Company believes that it has succeeded in these markets due to its
product design capabilities, reputation, competitive prices, quality and
service.
Diverse Markets and Customers. The Company serves numerous end user markets
and a diverse base of over 1300 customers. In 1995, the Company's largest
single customer represented less than 6% of net sales and the Company's top
ten customers represented less than 35% of net sales. The Company's customers
include leading OEMs such as General Electric, Whirlpool Corporation, Clarke
Industries Inc., Siebe, plc and Vendo Company Inc. The diversity of products,
markets and customers minimizes the Company's exposure to economic cycles or
geographic markets and provides a broad base from which to grow sales through
continued development of new products.
32
<PAGE>
Active Product Development. The Company focuses on developing value-added
products with its customers by utilizing its extensive product development
expertise and manufacturing process capabilities to meet specific application
requirements. The Company's sales and technical staff work with existing
customers to identify specific needs and develop innovative solutions. As a
result, this custom application capability has also been a key driver of new
customer development. Indicative of this strength, the Company added
approximately 70 new customers in 1995.
Quality Product and High Level of Service. The Company sells into end
product applications which have long life cycles and require durability. In
response, the Company has established itself as a reliable manufacturer of
high-quality products. The Company maintains close contact with its customers
during both the original motor design and the continuous redesign processes to
ensure that the most reliable product is manufactured. The Company
aggressively redesigns its motors to improve performance and reduce production
costs. This entrenches the Company with its customers and minimizes
competition. In addition, the Company is dedicated to on-time delivery as
evidenced by its 100% on-time delivery record with General Electric, its
largest customer, in 1995.
Experienced Management Team. The Company's five senior managers together
have over 140 years of experience in the motors and gears industry and over
time have substantially improved operating efficiencies. The experience of
senior management has been critical to developing strong relationships with
the Company's customers and has resulted in significant new product
development opportunities. The Company's President, Ron Sansom, gained
extensive experience in this industry during his 15 years with General
Electric.
BUSINESS STRATEGY
The Company's business strategy includes the following key elements:
Expand Product Lines and Increase Distribution. The Company focuses on
developing value-added products with its customers by utilizing its extensive
product development expertise. The Company's sales, technical service and
development staff work with customers to identify specific needs and develop
innovative solutions. New product developments can often be profitably applied
to other high-margin niche markets. In addition, the Company intends to expand
its distribution sales effort to capture additional sales opportunities.
Reduce Costs. The Company's manufacturing cost reduction effort is
accomplished through redesigning the Company's products in cooperation with
its customers and through incremental production process improvements. The
Company also seeks to reduce costs through acquisitions by centralizing
administration, finance, legal service and long-range strategic planning
functions. This has been demonstrated by annual cost savings from completed
headcount reductions and administrative savings relating to the Barber Colman
Acquisition.
Pursue Strategic Acquisitions. The U.S. electric motor and gear market
remains highly fragmented, with many specialized manufacturers serving
numerous market niches. The Company will continue to search for strategic
acquisitions that support its current product groups by adding complementary
product lines, expanding technological capabilities or entering new geographic
markets. In addition, the Company believes there are other areas in the motion
control industry which offer acquisition opportunities. The Company defines
the motion control industry as having the following major business segments:
motors, gears and gear drives, controls and sensors, drives and drive systems,
and couplings. Acquisitions in other areas of the motion control industry
would allow the Company to access new markets and develop higher value-added
products by combining an existing motor product with additional motion control
features.
PRODUCTS
An electric motor is a device that converts electric power into rotating
mechanical energy. The amount of energy delivered is determined by the level
of input power supplied to the electric motor and the size of the motor
itself. An electric motor can be powered by alternating current ("AC") or
direct current ("DC"). AC power is generally supplied by power companies
directly to homes, offices and industrial sites whereas DC power is supplied
either through the use of batteries or by converting AC power to DC power.
Both AC motors and DC motors can be used to power most applications; the
determination is made through the consideration of power source availability,
speed variability requirements, torque considerations, and noise constraints.
33
<PAGE>
The power output of electric motors is measured in horsepower. Motors are
produced in power outputs that range from less than one horsepower up to
thousands of horsepower. The Company's subfractional horsepower products are
comprised of AC and DC motors that power applications up to 30 watts ( 1/25
horsepower). The Company's fractional/integral horsepower products are
comprised of AC and DC motors and gearmotors having power ranges from 1/8
horsepower up to 300 horsepower.
Gears and gearboxes are mechanical components used to transmit mechanical
energy from one source to another source. They are normally used to change the
speed and torque characteristics of a power source such as an electric motor.
Gears and gearboxes come in various configurations such as helical gears,
bevel gears, planetary gearboxes, and right-angle gearboxes. For certain
applications, an electric motor and a gear box are combined to create a
gearmotor.
The Company has established itself as a reliable niche manufacturer of high-
quality, economical, custom electric motors, gearmotors and gears used in a
wide variety of applications including vending machines, refrigerator ice
dispensers, commercial floor care equipment and elevators. The Company's
products are custom designed to meet specific application requirements. Less
than 5% of the Company's products are sold as stock products.
The Company offers a wide variety of options to provide greater flexibility
in its custom designs. These options include thermal protectors, special
mounting brackets, custom leads and terminals, single or double shaft
extensions, brakes, cooling fans, special heavy gearing, and custom shaft
machining. The Company also provides value-added assembly work, incorporating
some of the above options into its final motor products. All of the custom-
tailored motors and gearmotors are designed for long life, quiet operation,
and superior performance.
34
<PAGE>
The Company operates in three product categories: (i) subfractional motors,
which represent 65.7% of pro forma net sales for the year ended December 31,
1995, (ii) fractional/integral motors, which represent 28.8% of pro forma net
sales for the year ended December 31, 1995, and (iii) gears and gearboxes,
which represent 5.5% of pro forma sales for the year ended December 31, 1995.
The following chart sets forth these three product categories indicating the
pro forma net sales for the year ended December 31, 1995:
PRODUCT CATEGORIES
<TABLE>
<CAPTION>
SUBFRACTIONAL FRACTIONAL/INTEGRAL GEAR AND
HORSEPOWER PRODUCTS HORSEPOWER PRODUCTS GEARBOX PRODUCTS
NET SALES: $76.7 NET SALES: $33.6 NET SALES: $6.5
MILLION MILLION MILLION
% OF TOTAL NET SALES: 65.7% % OF TOTAL NET SALES: 28.8%SALES: 5.5%
<S> <C> <C>
PRODUCTS: PRODUCTS: PRODUCTS:
.AC Motors .AC Motors .Gears
.DC Motors .DC Motors .Gearboxes
.AC & DC Gearmotors .DC Permanent Magnet
Motors
.AC and DC Gearmotors
APPLICATIONS: APPLICATIONS: APPLICATIONS:
.Refrigerator Ice Dispensers .Commercial Floor Care .Commercial Floor Care
.Vending Machines Equipment Equipment
--Bill Validators .Elevator Lift Motors .Hydraulic Pumps
--Product Delivery Systems .Automatic Hose Reel .Food Processing Equipment
.Photocopy Machines Winding Mechanisms
--Paper Delivery Systems
.Commercial and
Industrial Controls
--HVAC Controls
--RV Vent Actuators
</TABLE>
SUBFRACTIONAL HORSEPOWER PRODUCTS
Subfractional horsepower products are "fist-size" motors used in light duty
applications up to 30 watts. Most of the Company's products are custom
designed and manufactured in-house. The Company produces AC and DC
subfractional horsepower motors and gearmotors which have output speeds from 1
to 6,000 RPM and torque ratings up to 200 pounds per inch.
The Company sells its subfractional horsepower products into a variety of
specialized applications including motors used in certain refrigeration units,
vending machine mechanisms, business machines, and HVAC and medical
applications.
The Company defines its refrigeration market as ice dispensing subfractional
motors for "through the door" ice dispensing refrigerators and supplies
General Electric, as well as other refrigerator manufacturers. Similarly, the
Company's vending machine customers purchase subfractional horsepower AC or DC
motors in products which are incorporated in snack, beverage, game and bill
changer (currency validation) machines. The Company serves virtually every
major player in the vending market. The Company's business equipment market
focuses
35
<PAGE>
upon the paper handling function of photocopier machinery. The Company's share
of the business equipment market has been established by utilizing the
Company's expertise in motor design and targeting high volume office equipment
customers. Finally, the Company services a diverse array of HVAC, medical and
industrial companies that manufacture equipment for a wide range of
applications.
FRACTIONAL/INTEGRAL HORSEPOWER PRODUCTS
Fractional/integral horsepower products are defined as motors and gearmotors
having power ranges from 1/8 horsepower up to 300 horsepower. The most common
application for the Company's AC and DC fractional motors are commercial floor
care equipment, elevators, automatic hose reels, lifts and hydraulic pumps.
The Company has carved a strong niche in the commercial floor care market
through its strength in providing permanent magnet DC motors and gearboxes to
commercial floor care equipment manufacturers. The Company believes that the
DC gearmotor product has replaced and will continue to replace the AC product
in commercial floor care equipment because of its superior operating
characteristics, particularly its variable speed capability, which makes it
easier for the floor care equipment manufacturers to optimize the performance
of its machine.
The Company also has a strong position in the DC elevator motor market.
During the past several years, the Company has expanded its elevator motor
sales as a result of the trend by elevator manufacturers to outsource their
motor manufacturing. The Company's permanent magnet motors and gearmotors for
automatic hose reels are highly specialized and are used on oil trucks, fire
engines, lawn care trucks, and similar vehicles which require an automatic
reel motor. The Company also manufactures low voltage permanent magnet motors
and gearmotors for commercial and industrial lift applications, hydraulic
pumps and lift truck power steering. Low voltage motors are used in portable
applications requiring high torque, long life and high efficiencies.
GEAR AND GEARBOX PRODUCTS
The Company manufactures precision gears and gearboxes for various OEMs in
sizes of up to 16 inches in diameter and in various configurations such as
bevel gears and helical gears, for various drive and speed reduction
applications and systems. The Company's gear products are characterized by
their durability, accuracy, and low noise generation. The Company's planetary
gearbox line is primarily manufactured for the commercial floor care equipment
industry which requires durability. The Company supplies gearboxes to
Imperial, for assembly into a gearmotor before being shipped to the end user,
and to end users directly. The Company also produces gears for the food
processing industry and hydraulic pumps used on garbage trucks, snowplows and
tailgate lifters.
36
<PAGE>
MARKETS
The Company produces motors, gears and gearmotors for a wide variety of
consumer, commercial and industrial products. The diversity of markets,
products and customers minimize the Company's exposure to economic cycles and
geographic markets. The diagram below illustrates the percentage of pro forma
net sales for 1995 of the Company attributable to each of these markets:
[GRAPH APPEARS HERE]
1995 PRO FORMA NET SALES BY MARKET
TOTAL=$116.8
(DOLLARS IN MILLIONS)
CONSUMER INDUSTRIAL COMMERICAL
$54.5 $16.7 $45.6
- --Refrigerator Ice Dispensers --Elevators --Floor Care
- --Vending Machines --Lifts --Photocopy Machines
- --Treadmills --Machine Tools --Hose Reels
OPERATIONS
The Company is a fully integrated manufacturer performing practically every
aspect of motor and gear manufacturing with the exception of certain capital-
intensive functions such as casting and lamination punching for subfractional
horsepower motors which it subcontracts. Capital expenditure requirements are
kept low by purchasing used equipment and updating the equipment for the
Company's specific requirements. The Company also outsources all die
production to further reduce capital expenditures and future maintenance
requirements. All other processes such as stamping, machining, endshield
machining, winding, injection molding, assembly, painting, and testing are
completed in-house.
The Company is capable of producing specialized products at very low volumes
as well as high volume products such as refrigerator ice dispenser motors. The
products are generally built to order; hence, a small warehouse/shipping area
at each plant is adequate to serve its customer base.
The Company is constantly redesigning its products and improving its
processes to reduce material and labor costs and improve quality. In many
instances, the Company initiates a product application with a custom product
which is designed from standard parts. As the application grows in volume, the
Company further customizes the product by redesigning the standard components
to reduce costs. The Company's manufacturing processes are improved using a
similar approach.
RAW MATERIALS
The primary raw materials used by the Company to produce its products are
steel, copper, and miscellaneous purchased parts such as endshield castings,
powdered metal gears, commutators and packaging supplies. All materials are
readily available in the marketplace. The Company is not dependent upon any
single supplier in its operations for any materials essential to its business
or not otherwise commercially available to the Company. The Company has been
able to obtain an adequate supply of raw materials, and no shortage of raw
materials is currently anticipated. Surcharges and/or raw material price
escalation clauses are often used to insulate the Company from fluctuations in
prices.
37
<PAGE>
SALES AND MARKETING
The Company's sales and marketing success is characterized by long-term
customer relationships which are the result of continuity of management,
outstanding delivery records, high-quality products, and competitive pricing.
The Company utilizes a combination of direct sales personnel and
manufacturers' representatives to market the Company's product lines.
Generally, the inside sales organization is compensated through a fixed salary
while the manufacturers' representative organizations receive commission.
The Company's subfractional horsepower product line is served through a
Vice-President of Sales who oversees a Field Sales Manager, a National
Accounts Manager and a Distribution Sales Manager. The Field Sales Manager
leads the efforts of seven Area Sales Managers who direct 18 manufacturers'
representatives. The manufacturers' representatives serve as the "front line"
sales force for the Company. The National Accounts Manager serves large
national OEMs such as General Electric, Whirlpool Corporation and Vendo
Company Inc. More than 95% of the Company's sales are to OEM customers;
however, the Company has begun a distribution program with four distributors
in its subfractional horsepower product line to increase coverage and generate
more revenue growth. The Distribution Sales Manager is responsible for this
program.
The Company's fractional/integral horsepower product line is served by three
Sales Managers and two manufacturers' representatives. This product line
requires fewer sales resources because the Company serves fewer markets than
in the subfractional horsepower product line. This product line serves OEMs
exclusively.
The Company's gear and gearbox products are served through an inside sales
manager and one manufacturers' representative. These products are also sold
exclusively to OEMs.
The Company's advertising efforts consist of specific product literature
which is printed and provided to customers as applications are developed. In
addition, the Company attends various trade shows to market its products and
to stay abreast of industry trends. It also advertises in trade magazines on a
periodic basis.
BACKLOG
The Company's approximate backlog of unfilled orders at the dates specified
was as follows:
<TABLE>
<CAPTION>
YEAR ENDED BACKLOG
DECEMBER 31, (DOLLARS IN THOUSANDS)
<S> <C>
1993.................. $32,258
1994.................. 36,043
1995.................. 43,220
</TABLE>
The Company will ship substantially all of the 1995 year end backlog during
1996.
ENVIRONMENTAL REGULATION
The Company is subject to a variety of Federal, state and local governmental
regulations related to the storage, use, discharge and disposal of toxic,
volatile or otherwise hazardous materials used in its manufacturing processes.
Moreover, the Company anticipates that such laws and regulations will become
increasingly stringent in the future. The Company does not currently
anticipate any material adverse effect on its business, financial condition or
results of operations as a result of compliance with U.S. Federal, state,
provincial, local or foreign environmental laws or regulations or remediation
costs. However, some risk of environmental liability and other costs is
inherent in the nature of the Company's business. For example, pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
the Company could be responsible for the necessary costs responding to any
releases of hazardous substances at facilities that it has owned or operated,
or facilities to which it sent hazardous substances for disposal. In addition,
any failure by the Company to obtain and maintain permits that may be required
for manufacturing operations could subject the Company to suspension of its
operations. Such liability or suspension of manufacturing operations could
have a material adverse effect on the Company's results of operations and
financial condition.
38
<PAGE>
Barber Colman Motors, leases property that has been the subject of remedial
investigation and corrective action following the removal of a small,
underground waste oil tank in 1994. Contaminated soils were removed up to the
edge of the foundation of an overlying structure and the Wisconsin Department
of Natural Resources has advised the Company that no further action is
necessary at this time with respect to any contaminated soil remaining beneath
the structure, if the property owner records a notice of the contamination in
the deed. In connection with the Barber Colman Acquisition, the Company
obtained indemnification from the former owner of Barber Colman Motors for
environmental liability resulting from its prior operations.
COMPETITION
The U.S. electric motor and gear markets are highly fragmented with a
multitude of manufacturing companies servicing numerous markets. Motor
manufacturers range from small local producers serving a specific application
or end user, to high volume manufacturers offering general-purpose "off the
shelf" motors to a wide variety of end users. The Company believes there are
over 200 fractional and subfractional horsepower motor manufacturers serving
the U.S. market. While there are numerous manufacturers of gears and gearboxes
that service a wide variety of industries and applications, the Company
competes in certain niche markets.
The principal competitive factors in the motor and gear markets include
price, quality and service. Major motor manufacturers include General
Electric, Baldor Electric Company, Emerson Electric Company and Reliance
Electric Company; however, the Company generally competes with smaller,
specialized manufacturers. While many of the major motor manufacturers have
substantially greater assets and financial resources, the Company believes
that its leading position in certain niche markets, its high-quality products
and its value-added custom applications are adequate to meet competition.
INTELLECTUAL PROPERTY
The Company's patents and trademarks taken individually and as a whole, are
not critical to the ongoing success of its business. The proprietary nature of
the Company's products is attributable to the custom application designs for
particular customers' needs rather than attributable to proprietary patented
or licensed technology.
PROPERTIES
The Company's headquarters are located in an approximately 12,750 square
foot office space in Deerfield, Illinois that is provided by JII.
Manufacturing, design and distribution are located in 11 facilities across the
United States.
<TABLE>
<CAPTION>
SQUARE OWNED/ LEASE
LOCATION USE FEET LEASED EXPIRATION
<S> <C> <C> <C> <C> <C>
Des Plaines, IL Design/ 38,000 Leased September 2000
Administration
Des Plaines, IL Manufacturing/ 45,000 Leased September 2000
SUBFRACTIONAL Distribution
HORSEPOWER Crystal Lake, IL Manufacturing 46,000 Leased April 1998
PRODUCTS Darlington, WI Manufacturing 68,000 Leased July 2000
Richland Center, WI Manufacturing 45,000 Leased September 2000
Belvedere, IL Design/ 12,000 Leased March 1997
Administration
Akron, OH Administration/ 43,000 Owned
FRACTIONAL/ Manufacturing
INTEGRAL Middleport, OH Manufacturing 85,000 Owned
HORSEPOWER Cuyahoga Falls, OH Manufacturing 63,000 Leased October 2003
PRODUCTS Alamagordo, NM Manufacturing 15,000 Leased October 1997
GEARS AND Grand Rapids, MI Manufacturing/ 39,000 Owned
GEARBOXES Administration
</TABLE>
39
<PAGE>
The Company believes all its facilities are in good operating condition and
adequate for their present purposes. Its production facilities are capable of
being utilized at a higher capacity to support increased demand, if necessary.
EMPLOYEES AND LABOR RELATIONS
As of September 30, 1996, the Company employed 883 employees, of which 544
were non-union, and 339 were represented by the following six unions:
<TABLE>
<CAPTION>
NUMBER OF CONTRACT
UNION EMPLOYEES EXPIRATION
<S> <C> <C>
International Workers Union..................... 135 September 1998
United Steelworkers............................. 63 September 1996*
International Union of Electrical Workers....... 26 October 1998
International Brotherhood of Electrical
Workers........................................ 54 November 1997
United Auto Workers............................. 47 October 2001
International Association of Machinists......... 14 October 2000
</TABLE>
---------------------
* Currently being re-negotiated.
The Company has experienced no work stoppages over the past 10 years. It
considers its relations with its employees to be excellent.
LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceeding the resolution of
which, the management of the Company believes, would have a material adverse
effect on the Company's results of operations or financial condition, nor to
any other pending legal proceedings other than ordinary, routine litigation
incidental to its business.
40
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES
The following sets forth the names and ages of the Company's directors,
executive officers and other key employees and the positions they hold as of
the date of this Offering Memorandum:
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
<S> <C> <C>
Thomas H. Quinn.......... 49 Chairman, Chief Executive Officer, and a Director
Ron A. Sansom............ 37 President, Chief Operating Officer and a Director
Thomas C. Spielberger.... 34 Chief Financial Officer
Frank A. Collins......... 65 President, Imperial (Fractional/Integral Products)
G. Barry Lawrence........ 45 President, Gear (Gears and Gear Boxes)
John D. Simms, Sr........ 70 Chairman and Chief Executive Officer, Merkle-Korff
and Barber Colman Motors (Subfractional Products)
John W. Brown............ 58 President, Merkle-Korff and Barber Colman Motors
(Subfractional Products)
Jonathan F. Boucher...... 39 Vice President and a Director
John W. Jordan, II....... 48 Director
David W. Zalaznick....... 42 Director
</TABLE>
Set forth below is a brief description of the business experience of each
director and executive officer of the Company.
MR. QUINN has served as Chairman, Chief Executive Officer, and a director of
the Company since its inception. Since 1988, Mr. Quinn has been President,
Chief Operating Officer and a director of JII. Mr. Quinn is also the Chairman
of the Board and Chief Executive Officer of American Safety Razor Company and
Welcome Home, Inc. as well as a director of a number of privately held
companies.
MR. SANSOM has served as President, Chief Operating Officer and a director
of the Company since June 1996. Prior to joining the Company, Mr. Sansom held
several senior management positions with General Electric from 1981 to 1996,
including General Manager of General Electric's Appliance Components business.
MR. SPIELBERGER has served as the Company's Chief Financial Officer since
June 1996. Since 1989, Mr. Spielberger has been employed by JII and has served
as the Vice President, Controller of JII since 1993.
MR. COLLINS has served as President, Imperial since 1980. Prior to that, Mr.
Collins held several senior management positions with Imperial, including Vice
President and General Manager.
MR. LAWRENCE has served as President, Gear since 1991. Prior to that, Mr.
Lawrence held several senior management positions with Gear since 1978.
MR. SIMMS has served as Chairman and Chief Executive Officer, Merkle-Korff
since 1993 and of Barber Colman Motors since March 1996. Prior to that, Mr.
Simms held several senior management positions with Merkle-Korff since the
1950's, including as President until 1993.
MR. BROWN has served as President, Merkle-Korff since 1993 and of Barber
Colman Motors since March 1996. Prior to that, Mr. Brown held several senior
management positions with Merkle-Korff since the 1950's, including Executive
Vice President until 1993.
41
<PAGE>
MR. BOUCHER has served as a Vice President and a director of the Company
since its inception. Since 1983, Mr. Boucher has been a partner of The Jordan
Company, a private merchant banking firm. Mr. Boucher is also a director of
Jordan Industries, Welcome Home, Inc., and American Safety Razor Company as
well as other privately held companies.
MR. JORDAN has served as a director of the Company since its inception. Mr.
Jordan is a managing partner of The Jordan Company, a private merchant banking
firm which he founded in 1982. Mr. Jordan is also a director of JII, American
Safety Razor Company, Carmike Cinemas, Inc., Welcome Home, Inc. and Apparel
Ventures, Inc. as well as other privately held companies.
MR. ZALAZNICK has served as a director of the Company since June 1996. Since
1982, Mr. Zalaznick has been a managing partner of The Jordan Company. Mr.
Zalaznick is also a director of JII, Carmike Cinemas, Inc., American Safety
Razor Company, Marisa Christina, Inc., and Apparel Ventures, Inc. as well as
other privately held companies.
BOARD OF DIRECTORS
Liability Limitation. The Certificate of Incorporation provides that a
director of the Company shall not be personally liable to it or its
stockholders for monetary damages to the fullest extent permitted by Delaware
Corporation Law. In accordance with Delaware Corporation Law, the Certificate
of Incorporation does not eliminate or limit the liability of a director for
acts or omissions that involve intentional misconduct by a director or a
knowing violation of law by a director for voting or assenting to an unlawful
distribution, or for any transaction from which the director will personally
receive a benefit in money, property, or services to which the director is not
legally entitled. Delaware Corporation Law does not affect the availability of
equitable remedies such as an injunction or rescission based upon a director's
breach of his duty of care. Any amendment to these provisions of the Delaware
Corporation Law will automatically be incorporated by reference into the
Certificate of Incorporation and the Bylaws, without any vote on the part of
its stockholders, unless otherwise required.
Indemnification Agreements. The Company and each of its directors and
certain executive officers have entered into indemnification agreements. The
indemnification agreements provide that the Company will indemnify the
directors against certain liabilities (including settlements) and expenses
actually and reasonably incurred by them in connection with any threatened or
pending legal action, proceeding or investigation (other than actions brought
by or in the right of the Company) to which any of them is, or is threatened
to be, made a party by reason of their status as a director, officer or agent
of the Company, or serving at the request of the Company in any other capacity
for or on behalf of the Company; provided that (i) such director acted in good
faith and in a manner not opposed to the best interest of the Company, (ii)
with respect to any criminal proceedings had no reasonable cause to believe
his or her conduct was unlawful, (iii) such director is not finally adjudged
to be liable for negligence or misconduct in the performance of his or her
duty to the Company, unless the court views in light of the circumstances the
director is nevertheless entitled to indemnification, and (iv) the
indemnification does not relate to any liability arising under Section 16(b)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
the rules or regulations promulgated thereunder. With respect to any action
brought by or in the right of the Company, directors are also indemnified to
the extent not prohibited by applicable laws or as determined by a court of
competent jurisdiction, against expenses actually and reasonably incurred by
them in connection with such action if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests
of the Company.
Director Compensation. Directors of the Company receive $10,000 per year for
serving as a director of the Company. In addition, the Company reimburses
directors for their travel and other expenses incurred in connection with
attending meetings of the Board of Directors.
COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION
The Board of Directors does not maintain a Compensation Committee. During
fiscal 1996, however, Messrs. Boucher, Jordan and Quinn participated in
deliberations of the Board of Directors concerning executive officer
42
<PAGE>
compensation. During 1996, certain of the foregoing executive officers of the
Company served and currently serve as directors, executive officers and
members of a compensation committee of another entity, one of whose executive
officers served and currently serves as a director of the Company. See
"Certain Transactions."
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth a summary of certain information regarding
compensation paid or accrued by the Company for services rendered to the
Company for the fiscal year ended December 31, 1996 to those persons who were,
at December 31, 1996: (i) the Company's chief executive officer and (ii) the
Company's four most highly compensated executive officers other than the chief
executive officer whose total salary and bonus exceeded $100,000 during such
period. The following table does not include payments made by JII to Mr. Frank
A. Collins. See "Certain Transactions."
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(/1/)
--------------------------- ---- ------ ----- -----------------
<S> <C> <C> <C> <C>
Thomas H. Quinn(/2/)....................... 1996 $ 0 $ 0 $--
Chairman of the Board and Chief Executive
Officer
Ron A. Sansom(/2/)......................... 1996 0 0 --
President and Chief Operating Officer
</TABLE>
- --------
(/1/) For the periods indicated, no executive officer named in the table
received any Other Annual Compensation in an amount in excess of the lesser
of either $50,000 or 10% of the total of Annual Salary and Bonus reported for
him in the two preceding columns.
(/2/) Does not reflect compensation paid to Messrs. Quinn and Sansom by JII.
See "Certain Transactions--JII Services Agreement."
The Company does not maintain a stock option or stock purchase plan and has
not awarded any of its employees individual stock option grants.
43
<PAGE>
PRINCIPAL STOCKHOLDERS
All of the outstanding common stock of the Company is owned by Parent. The
table below sets forth as of November 30, 1996 certain information regarding
beneficial ownership of the common stock of Parent held by (i) each of its
directors and executive officers who own shares of common stock of Parent,
(ii) all directors and executive officers of Parent as a group and (iii) each
person known by Parent to own beneficially more than 5% of its common stock.
The Company believes that each individual or entity named has sole investment
and voting power with respect to shares of common stock of Parent indicated as
beneficially owned by them, except as otherwise noted. See "The Company--
General."
<TABLE>
<CAPTION>
AMOUNT OF BENEFICIAL OWNERSHIP(1)
--------------------------------------
NUMBER OF PERCENTAGE
SHARES OWNED
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Thomas H. Quinn(2)...................... 75.00000 0.7%
Ron A. Sansom........................... 150.00000 1.5
John W. Jordan II(2).................... 118.78125 1.2
David W. Zalaznick(2)................... 118.78125 1.2
Jonathan F. Boucher(2).................. 101.81250 1.0
All directors and executive officers as
a group (10 persons)................... 564.37500 5.7
OTHER PRINCIPAL STOCKHOLDERS:
Jordan Industries, Inc(3)............... 8,125.00000 82.5%
JI Partners(4).......................... 750.00000 7.6
</TABLE>
- --------
(1) Calculated pursuant to Rule 13d-3(d) under the Exchange Act. Under Rule
13d-3(d), shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage owned
by such person, but not deemed outstanding for the purpose of calculating
the percentage owned by each other person listed. As of November 30, 1996,
there were 9,850 shares of common stock of Parent issued and outstanding.
(2) Does not include shares of common stock of Parent owned by JII and JI
Partners as to which the named individuals disclaim beneficial ownership.
(3) The principal address of Jordan Industries, Inc. is ArborLake Centre,
Suite 550, 1751 Lake Cook Road, Deerfield, IL 60015.
(4) JI Partners is an investment partnership whose partners include certain
officers and employees of Jordan Industries, Inc. and its affiliates. Does
not include shares of common stock of Parent owned by JII as to which JI
Partners disclaims beneficial ownership. The principal address of JI
Partners is ArborLake Centre, Suite 550, 1751 Lake Cook Road, Deerfield,
IL 60015.
44
<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Exchange Offer is being made by the Company to satisfy its obligations
pursuant to the Registration Rights Agreement, which requires the Company to
use its best efforts to effect the Exchange Offer. See "--Registration
Rights."
The Company is making the Exchange Offer in reliance upon the position of
the staff of the Commission set forth in certain no-action letters addressed
to other parties in other transactions. However, the Company has not sought
its own no-action letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange
Offer as in such other circumstances. Based on these interpretations by the
staff of the Commission, the New Notes issued pursuant to the Exchange Offer
may be offered for resale, resold and otherwise transferred by holders thereof
(other than (i) any such holder that is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act, (ii) an Initial Purchaser
who acquired the Old Notes directly from the Company solely in order to resell
pursuant to Rule 144A of the Securities Act or any other available exemption
under the Securities Act, or (iii) a broker-dealer who acquired the Old Notes
as a result of market making or other trading activities) without compliance
with the registration and prospectus delivery requirements of the Securities
Act, provided that such New Notes are acquired in the ordinary course of such
holder's business and such holder is not participating and has no arrangement
or understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes. Any Holder who tenders Old
Notes in the Exchange Offer for the purpose of participating in a distribution
of the New Notes could not rely on such interpretations by the staff of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction, unless such sale is made pursuant to an exemption from such
requirements.
Holders of Old Notes not tendered will not have any further registration
rights and the Old Notes not exchanged will continue to be subject to certain
restrictions on transfer. Accordingly, the liquidity of the markets for the
Old Notes could be adversely affected.
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE
OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH
RECOMMENDATION. HOLDERS OF OLD NOTES MUST MAKE THEIR OWN DECISION WHETHER TO
TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD
NOTES TO TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL
AND CONSULTING THEIR ADVISERS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION
AND REQUIREMENTS.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
In connection with the issuance of the Old Notes, the Company entered into
the Registration Rights Agreement with the Initial Purchasers of the Old
Notes.
Holders of New Notes (other than as set forth below) are not entitled to any
registration rights with respect to the New Notes. Pursuant to the
Registration Rights Agreement, Holders of Old Notes are entitled to certain
registration rights. Under the Registration Rights Agreement, the Company has
agreed, for the benefit of the Holders of the Old Notes, that it will, at its
cost, (i) within 60 days after the date of the original issue of the Old
Notes, file the Registration Statement with the Commission and (ii) within 120
days after the date of original issuance of the Old Notes, use its best
efforts to cause such Registration Statement to be declared effective under
the Securities Act. The Registration Statement of which this Prospectus is a
part constitutes the Registration Statement. If (i) the Company is not
permitted to consummate the Exchange Offer because the Exchange Offer is not
permitted by applicable law or Commission policy or (ii) any Holder of
Transfer Restricted Securities (as
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defined) notifies the Company within the specified time period that (A) due to
a change in law or policy it is not entitled to participate in the Exchange
Offer, (B) due to a change in law or policy it may not resell the New Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the Registration Statement is not
appropriate or available for such resales by such holder or (C) it is a
broker-dealer and acquired the Senior Notes directly from the Company or an
affiliate of the Company, the Company will file with the Commission a Shelf
Registration Statement to cover resales of the Transfer Restricted Securities
by the Holders thereof who satisfy certain conditions relating to the
provision of information in connection with the Shelf Registration Statement.
The Company will use its best efforts to cause the applicable registration
statement to be declared effective as promptly as possible by the Commission.
For purposes of the foregoing, "Transfer Restricted Securities" means each
Senior Note, until (i) the date of which such Transfer Restricted Security has
been exchanged by a person other than a broker-dealer for a New Note in the
Exchange Offer, (ii) following the exchange by a broker-dealer in the Exchange
Offer of a Transfer Restricted Security for a New Note, the date on which such
New Note is sold to a purchaser who receives from such broker-dealer on or
prior to the date of such sale a copy of the Prospectus contained in the
Registration Statement, (iii) the date on which such security has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (iv) the date on which such security
is distributed pursuant to Rule 144 under the Act.
The Registration Rights Agreement also provides that, (i) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
the Company will commence the Exchange Offer and use its best efforts to issue
on or prior to 30 business days after the date on which the Registration
Statement was declared effective by the Commission, New Securities in exchange
for all Transfer Restricted Securities tendered prior thereto in the Exchange
Offer and (ii) if obligated to file the Shelf Registration Statement, the
Company will file the Shelf Registration Statement with the Commission on or
prior to 60 days after such filing obligation arises (and in any event within
90 days after November 7, 1996) and use its best efforts to cause the Shelf
Registration to be declared effective by the Commission on or prior to 120
days after such obligation arises. The Company shall use its best efforts to
keep such Shelf Registration Statement continuously effective, supplemented
and amended until the third anniversary of the Closing Date or such shorter
period that will terminate when all the Senior Notes covered by the Shelf
Registration Statement have been sold pursuant to the Shelf Registration
Statement. If (a) the Company fails to file any of the registration statements
required by the Registration Rights Agreement on or before the date specified
for such filing, (b) any of such registration statements are not declared
effective by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), (c) the Company fails to
consummate the Exchange Offer within 30 business days of the Effectiveness
Target Date with respect to the Registration Statement, or (d) the Shelf
Registration Statement or the Registration Statement is declared effective but
thereafter, subject to certain exceptions, ceases to be effective or usable in
connection with resales of Transfer Restricted Securities during the periods
specified in the Registration Rights Agreement (each such event referred to in
clauses (a) through (d) above a "Registration Default"), then the Company will
pay Liquidated Damages to each Holder of Transfer Restricted Securities, with
respect to the first 90-day period immediately following the occurrence of
such Registration Default in an amount equal to $.05 per week for each $1,000
principal amount of Senior Notes held by such Holder. The amount of the
Liquidated Damages will increase by an additional $.05 per week with respect
to each subsequent 90-day period until all Registration Defaults have been
cured, up to a maximum amount of Liquidated Damages of $.40 per week for each
$1,000 principal amount of Senior Notes, as applicable. Following the cure of
all Registration Defaults, the accrual of Liquidated Damages will cease.
Holders of Transfer Restricted Securities will be required to deliver
information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the time
periods set forth in the Registration Rights Agreement in order to have their
Transfer Restricted Securities included in the Shelf Registration Statement
and benefit from the provisions regarding Liquidated Damages set forth above.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Registration
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<PAGE>
Rights Agreement, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus constitutes a part.
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means the earlier
of (i) 5:00 p.m., New York City time, on , 1997 or (ii) the date when all
Old Notes have been tendered; provided, however, that if the Company, in its
sole discretion, has extended the period of time for which the Exchange Offer
is open, the term "Expiration Date" means the latest time and date to which
the Exchange Offer is extended; provided further that in no event will the
Exchange Offer be extended beyond , 1997. The Company may extend the
Exchange Offer at any time and from time to time by giving oral or written
notice to the Exchange Agent and by timely public announcement. Without
limiting the manner in which the Company may choose to make any public
announcement and subject to applicable law, the Company shall have no
obligation to publish, advertise or otherwise communicate any such public
announcement other than by issuing a release to an appropriate news agency.
During any extension of the Exchange Offer, all Old Notes previously tendered
pursuant to the Exchange Offer will remain subject to the Exchange Offer. The
Company intends to conduct the Exchange Offer in accordance with the
applicable requirements of the Exchange Act and the rules and regulations
thereunder.
As of the date of this Prospectus, $170,000,000 aggregate principal amount
of the Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about , 1997, to all Holders of
Old Notes known to the Company. The Company's obligation to accept Old Notes
for exchange pursuant to the Exchange Offer is subject to certain conditions
as set forth under "--Certain Conditions to the Exchange Offer" below.
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions and registration rights
relating to the Old Notes and rights to receive Liquidated Damages. See "--
Registration Rights; Liquidated Damages." The Old Notes were, and the New
Notes will be, issued under the Indenture and all such Senior Notes are
entitled to the benefits of the Indenture.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof. Any Old Notes
not accepted for exchange for any reason will be returned without expense to
the tendering Holder thereof as promptly as practicable after the expiration
or termination of the Exchange Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted
for exchange, upon the occurrence of any of the conditions of the Exchange
Offer specified below under "--Certain Conditions to the Exchange Offer". The
Company will give oral or written notice of any amendment, nonacceptance or
termination to the Holders of the Old Notes as promptly as practicable. Any
amendment to the Exchange Offer will not limit the right of Holders to
withdraw tendered Old Notes prior to the Expiration Date. See "--Withdrawal
Rights."
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a Holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering Holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a Holder who wishes to
tender Old Notes for exchange pursuant to the Exchange
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Offer must transmit a properly completed and duly executed Letter of
Transmittal, including all other documents required by such Letter of
Transmittal, to Fleet National Bank (the "Exchange Agent") at one of the
addresses set forth below under "Exchange Agent" on or prior to the Expiration
Date. In addition, either (i) certificates for such Old Notes must be received
by the Exchange Agent along, with the Letter of Transmittal, or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such
Old Notes, if such procedure is available, into the Exchange Agent's account
at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant
to the procedure for book-entry transfer described below, must be received by
the Exchange Agent prior to the Expiration Date, or (iii) the Holder must
comply with the guaranteed delivery procedures described below. THE METHOD OF
DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS
IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered Holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust
company having an office or correspondent in the United States (collectively,
"Eligible Institutions"). If Old Notes are registered in the name of a person
other than the signer of the Letter of Transmittal, the Old Notes surrendered
for exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by the
Company in its sole discretion, duly executed by the registered Holder with
the signature thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined
by the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to
waive any defects or irregularities or conditions of the Exchange Offer as to
any particular Old Notes either before or after the Expiration Date (including
the right to waive the ineligibility of any Holder who seeks to tender Old
Notes in the Exchange Offer). The interpretation of the terms and conditions
of the Exchange Offer as to any particular Old Notes either before or after
the Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, all defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes for exchange, nor shall
any of them incur any liability for failure to give such notification. The
Exchange Agent intends to use reasonable efforts to give notification of such
defects and irregularities.
If the Letter of Transmittal is signed by a person or persons other than the
registered Holder or Holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered Holder or Holders that appear on the
Old Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of a corporation or others acting in a fiduciary or representatives
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
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By tendering, each Holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the Holder and such person has no
arrangement with any person to participate in the distribution of the New
Notes. If any Holder or any such other person is an "affiliate," as defined
under Rule 405 of the Securities Act, of the Company, is engaged in or intends
to engage in or has an arrangement or understanding with any person to
participate in a distribution of such New Notes to be acquired pursuant to the
Exchange Offer, or acquired the Old Notes as a result of market making or
other trading activities, such Holder or any such other person (i) could not
rely on the applicable interpretations of the staff of the Commission and (ii)
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. Each broker-dealer
that receives New Notes for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in connection with any
resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of
the Old Notes. See "--Certain Conditions to the Exchange Offer." For purposes
of the Exchange Offer, the Company shall be deemed to have accepted properly
tendered Old Notes for exchange when, as and if the Company has given oral or
written notice thereof to the Exchange Agent, with written confirmation of any
oral notice to be given promptly thereafter.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. Accordingly, registered Holders of New Notes on the relevant record
date for the first interest payment date following the consummation of the
Exchange Offer will receive interest accruing from the most recent date to
which interest has been paid on the Old Notes, or, if no interest has been
paid on the Old Notes, from November 7, 1996. Old Notes accepted for exchange
will cease to accrue interest from and after the date of consummation of the
Exchange Offer. Holders of Old Notes whose Old Notes are accepted for exchange
will not receive any payment in respect of accrued interest on such Old Notes
otherwise payable on any interest payment date the record date for which
occurs on or after consummation of the Exchange Offer.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of (i) certificates for such Old Notes or a timely Book-
Entry Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, (ii) a properly completed and duly executed
Letter of Transmittal and (iii) all other required documents. If any tendered
Old Notes are not accepted for any reason set forth in the terms and
conditions of the Exchange Offer, or if Old Notes are submitted for a greater
amount than the Holder desires to exchange, such unaccepted or nonexchanged
Old Notes will be returned without expense to the tendering Holder thereof
(or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry procedures described below, such nonexchanged Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility)
designated by the tendering Holder as promptly as practicable after the
expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the Book-
Entry Transfer Facility, the Letter of Transmittal or facsimile thereof, with
any
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<PAGE>
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "--Exchange Agent" on or prior to the
Expiration Date or the guaranteed delivery procedures described below must be
complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered Holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
Holder's Old Notes or other required documents to reach the
Exchange Agent before the Expiration Date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if
(i) the tender is made through an Eligible Institution, (ii) prior to the
Expiration Date, the Exchange Agent has received from such Eligible
Institution a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof) and Notice of Guaranteed Delivery, substantially in the
form of the corresponding exhibit to the Registration Statement of which this
Prospectus constitutes a part (by telegram, telex, facsimile transmission,
mail or hand delivery), setting forth the name and address of the Holder of
Old Notes and the amount of Old Notes tendered, stating that the tender is
being made thereby and guaranteeing that within three New York Stock Exchange
("NYSE") trading days after the date of execution of the Notice of Guaranteed
Delivery, the certificates for all physically tendered Old Notes, in proper
form for transfer, or a Book-Entry Confirmation, as the case may be, and any
other documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) the certificates for
all physically tendered Old Notes, in proper form for transfer, or a Book-
Entry Confirmation, as the case may be, and all other documents required by
the Letter of Transmittal, are received by the Exchange Agent within three
NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes
to be withdrawn (including the amount of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which
such Old Notes are registered, if different from that of the withdrawing
Holder. If certificates for Old Notes have been delivered or otherwise
identified to the Exchange Agent, then, prior to the release of such
certificates the withdrawing Holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such Holder is an
Eligible Institution. If Old Notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal
must specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Old Notes and otherwise comply with
the procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the Holder thereof without cost to such Holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account with
such Book-Entry Transfer Facility specified by the Holder) as soon as
practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following
one of the procedures described under "--Procedures for Tendering Old Notes"
above at any time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the Exchange
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Offer, if at any time before the acceptance of such Old Notes for exchange or
the exchange of the New Notes for such Old Notes, any of the following events
shall occur:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission, (i) seeking to restrain
or prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, or assessing or seeking any
damages as a result thereof, or (ii) resulting in a material delay in the
ability of the Company to accept for exchange or exchange some or all of
the Old Notes pursuant to the Exchange Offer; or any statute, rule,
regulation, order or injunction shall be sought, proposed, introduced,
enacted, promulgated or deemed applicable to the Exchange Offer or any of
the transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority,
agency or court, domestic or foreign, that in the sole judgment of the
Company might directly or indirectly result in any of the consequences
referred to in clauses (i) or (ii) above or, in the sole judgment of the
Company, might result in the holders of New Notes having obligations with
respect to resales and transfers of New Notes which are greater than those
described in the interpretation of the Commission referred to on the cover
page of this Prospectus, or would otherwise make it inadvisable to proceed
with the Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any limitation
by any governmental agency or authority which may adversely affect the
ability of the Company to complete the transactions contemplated by the
Exchange Offer, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely affects
the extension of credit or (iv) a commencement of a war, armed hostilities
or other similar international calamity directly or indirectly involving
the United States, or, in the case of any of the foregoing existing at the
time of the commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(c) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Company and its subsidiaries taken as a whole that, in the
sole judgment of the Company, is or may be adverse to the Company, or the
Company shall have become aware of facts that, in the sole judgment of the
Company, have or may have an adverse effect on the value of the Old Notes
or the New Notes.
Holders of Old Notes will have registration rights and the right to Liquidated
Damages as described under "--Registration Rights; Liquidated Damages" if the
Company fails to consummate the Exchange Offer.
To the Company's knowledge as of the date of this Prospectus, none of the
above events has occurred.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
and from time to time in its sole discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver
of any such right and each such right shall be deemed an ongoing right which
may be asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes,
if at such time any stop order shall be threatened or in effect with respect
to the Registration Statement of which this Prospectus constitutes a part or
the qualification of the Indenture under the Trust Indenture Act of 1939.
EXCHANGE AGENT
Fleet National Bank has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal and Notices of Guaranteed
Delivery should be directed to the Exchange Agent at the addresses
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set forth below. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
Deliver to: Fleet National Bank, Exchange Agent:
By Mail: By Overnight Courier: By Hand:
Fleet National Bank Fleet National Bank Fleet National Bank
Mail Code: CTOPT06D Mail Code: CTOPT06D Corporate Trust
Corporate Trust Corporate Trust Operations Operations
Operations Department Department
Department 1 Talcott Plaza, 6th Floor Customer Service
P.O. Box 1440 Hartford, Connecticut 06120 Window
Hartford, 1 Talcott Plaza,
Connecticut 06143 5th Floor
By Facsimile:
Hartford,
Connecticut 06120
(860) 986-7908
DELIVERY OF A LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer.
The Company will, however, pay the Exchange Agent reasonable and customary
fees for its services and will reimburse it for reasonable out-of-pocket
expenses in connection therewith. The Company will also pay brokerage houses
and other custodians, nominees and fiduciaries the reasonable out-of-pocket
expenses incurred by them in forwarding copies of this Prospectus and related
documents to the beneficial owners of Old Notes, and in handling tenders for
their customers. The expenses to be incurred in connection with the Exchange
Offer, including the fees and expenses of the Exchange Agent and printing,
accounting, registration, and legal fees, will be paid by the Company and are
estimated to be approximately $60,000.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct
the Company to register New Notes in the name of, or request that Old Notes
not tendered or not accepted in the Exchange Offer be returned to, a person
other than the registered tendering holder will be responsible for the payment
of any applicable transfer tax thereon.
APPRAISAL RIGHTS
HOLDERS OF OLD NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL RIGHTS IN
CONNECTION WITH THE EXCHANGE OFFER.
CONSEQUENCES OF NOT EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may
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not be offered or sold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Old Notes under the Securities
Act. Based upon no-action letters issued by the staff of the Commission to
third parties, the Company believes the New Notes issued pursuant to the
Exchange Offer in exchange for the Old Notes may be offered for resale, resold
or otherwise transferred by a Holder thereof (other than any (i) Holder which
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act), (ii) an Initial Purchaser who acquired the Old Notes directly
from the Company solely in order to resell pursuant to Rule 144A of the
Securities Act or any other available exemption under the Securities Act, or
(iii) a broker-dealer who acquired the Old Notes as a result of market making
or other trading activities) without compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and such
holder is not participating and has no arrangement or understanding with any
person to participate in a distribution (within the meaning of the Securities
Act) of such New Notes. However, the Company has not sought its own no-action
letter and there can be no assurance that the staff of the Commission would
make a similar determination with respect to the Exchange Offer as in such
other circumstances. Each Holder, other than a broker-dealer, must acknowledge
that it is not engaged in, and does not intend to engage in, a distribution of
New Notes, and has no arrangement or understanding to participate in a
distribution of New Notes. If any Holder is an affiliate of the Company, is
engaged in or intends to engage in or has any arrangement or understanding
with respect to the distribution of the New Notes to be acquired pursuant to
the Exchange Offer, or required the Old Notes as a result of market making or
other trading activities, such Holder (i) could not rely on the relevant
determinations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes must
acknowledge that such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities and that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution." In addition, to comply with the securities laws of
certain jurisdictions, if applicable, the New Notes may not be offered or sold
unless they have been registered or qualified for sale in such jurisdiction or
an exemption from registration or qualification is available and is complied
with. The Company has agreed to register or qualify the sale of the New Notes
in such jurisdictions only in limited circumstances and subject to certain
conditions.
ACCOUNTING TREATMENT
The exchange of the New Notes for the Old Notes will have no impact on the
Company's accounting records on the date of the exchange. Accordingly, no gain
or loss for accounting purposes will be recognized. Expenses of the Exchange
Offer and expenses related to the Old Notes will be amortized, pro rata, over
the term of the New Notes.
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DESCRIPTION OF SENIOR NOTES
GENERAL
The Old Notes were and the New Notes will be issued pursuant to an indenture
(the "Indenture"), dated as of November 7, 1996, between the Company and Fleet
National Bank, as trustee (the "Trustee"), in a private transaction that is
not subject to the registration requirements of the Securities Act. See
"Notice to Investors." The terms of the Senior Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), as in effect on
the date of original issuance of the Senior Notes. The Senior Notes are
subject to all such terms, and holders of the Senior Notes are referred to the
Indenture and the Trust Indenture Act for a statement thereof. The following
summary of the material provisions of the Indenture does not purport to be
complete and is qualified in its entirety by reference to the Indenture,
including the definitions therein of certain terms used below.
As of the date of the Indenture, all of the Company's subsidiaries will be
Restricted Subsidiaries. However, under certain circumstances, the Company
will be able to designate each of its existing subsidiaries, subsidiaries
formed by the Company or subsidiaries acquired by the Company after the
original issuance of the Senior Notes as Non-Restricted Subsidiaries. Non-
Restricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture.
The Old Notes were and the New Notes will be limited to $170,000,000 in
aggregate principal amount and will mature on November 15, 2006. The Old Notes
have and the New Notes will bear interest at the rate of 10 3/4% per annum.
Interest on the Senior Notes is payable semi-annually in cash in arrears on
May 15 and November 15 in each year, commencing May 15, 1997, to holders of
record of Senior Notes at the close of business on the May 1 or November 1
immediately preceding such interest payment date. Interest on the Senior Notes
will accrue from the most recent date to which interest has been paid or, if
no interest has been paid, from the date of original issuance. Interest will
be computed on the basis of a 360-day year of twelve 30-day months. The Old
Notes were and the New Notes will be issued in denominations of $1,000 and
integral multiples thereof.
Principal of, premium, if any, and interest on the Senior Notes will be
payable, and the Senior Notes may be presented for registration of transfer or
exchange, at the office of the Paying Agent and Registrar in New York, New
York. Holders of Senior Notes must surrender their Senior Notes to the Paying
Agent to collect principal payments, and the Company may pay principal,
interest and Liquidated Damages, if any, by check and may mail checks to a
holder's registered address; provided that all payments with respect to Global
Senior Notes and Certificated Senior Notes, the holders of whom have given
wire transfer instructions to the Company, will be required to be made by wire
transfer of immediately available funds to the accounts specified by the
holders thereof. The Registrar may require payment of a sum sufficient to
cover any transfer tax or similar governmental charge payable in connection
with certain transfers or exchanges. See "Description of Senior Notes--
Transfer and Exchange." The Trustee will initially act as Paying Agent and
Registrar. The Company may change the Paying Agent or Registrar without prior
notice to holders of Senior Notes, and the Company or any of its subsidiaries
may act as Paying Agent or Registrar.
The Old Notes were and the New Notes will be senior unsecured obligations of
the Company, will rank senior in right of payment to all Subordinated
Indebtedness of the Company, and will rank pari passu in right of payment with
all Senior Indebtedness of the Company. The Senior Notes will effectively rank
junior to all indebtedness of the Company and to any indebtedness of the
Company's subsidiaries, including borrowings under the New Credit Agreement.
As of September 30, 1996, on a pro forma basis after giving effect to (i) the
Old Note Offering, (ii) the application of the net proceeds therefrom and
(iii) the Imperial Acquisitions and the Barber Colman Acquisition, the
aggregate principal amount of secured Indebtedness of the Company and
indebtedness of the Company's subsidiaries to which the Senior Notes would
have been effectively junior would have been approximately $5.6 million. The
Indenture permits the Company and its Subsidiaries to incur additional
Indebtedness, including secured Indebtedness, subject to certain limitations.
In addition, under the terms of the Indenture, the Company's Subsidiaries may
incur certain Indebtedness pursuant to agreements that may restrict the
ability of such Subsidiaries to make dividends or other intercompany transfers
to the Company necessary to service the Company's obligations, including its
obligations under the Senior Notes. Such permitted
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additional Indebtedness which would effectively be senior to the Senior Notes
may include up to $75.0 million incurred under the New Credit Agreement and
other Indebtedness permitted by the Indenture, including $25.0 million of
additional Indebtedness. Any failure by the Company to satisfy its obligations
with respect to the Senior Notes at maturity (with respect to payments of
principal) or prior thereto (with respect to payments of interest or required
repurchases) would constitute a default under the Indenture and the New Credit
Agreement and could cause a default under agreements governing other
indebtedness of the Company and its Subsidiaries. See "Risk Factors--Holding
Company Structure; Dependence on Subsidiaries; Limitations on Access to Cash
Flow of the Subsidiaries," "--Certain Covenants" and "Description of Certain
Indebtedness."
REDEMPTION OF SENIOR NOTES
Optional Redemption. The Senior Notes may not be redeemed at the option of
the Company prior to November 15, 2001 other than out of the net proceeds of
one or more Equity Offerings, as and to the extent described below. During the
12-month period beginning on November 15 of the years indicated below, the
Senior Notes will be redeemable, at the option of the Company, in whole or in
part, on at least 30 but not more than 60 days' notice to each holder of
Senior Notes to be redeemed, at the redemption prices (expressed as
percentages of the principal amount) set forth below, plus any accrued and
unpaid interest and Liquidated Damages, if any, to the redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2001.............................. 105.375%
2002.............................. 103.583%
2003.............................. 101.792%
2004 and thereafter............... 100.000%
</TABLE>
Notwithstanding the foregoing, prior to November 15, 1999, the Company may
(but shall not have the obligation to) redeem up to 35% of the original
aggregate principal amount of the Senior Notes at a redemption price of
109.750% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the redemption date, with the net proceeds of
one or more Equity Offerings; provided that at least 65% of the aggregate
principal amount of Senior Notes originally issued remain outstanding
immediately after the occurrence of any such redemption; and provided,
further, that any such redemption shall occur within 60 days of the date of
the closing of any such Equity Offering. The restrictions on optional
redemptions contained in the Indenture do not limit the Company's right to
separately make open market, privately negotiated or other purchases of Senior
Notes from time to time.
Mandatory Redemption. Except as set forth below under "Description of Senior
Notes--Mandatory Offers to Purchase Senior Notes," the Company is not required
to make any mandatory redemption, purchase or sinking fund payments with
respect to the Senior Notes.
MANDATORY OFFERS TO PURCHASE SENIOR NOTES
Change of Control. Upon the occurrence of a Change of Control (such date
being the "Change of Control Trigger Date"), each holder of Senior Notes shall
have the right to require the Company to purchase all or any part (equal to
$1,000 or an integral multiple thereof) of such holder's Senior Notes pursuant
to an Offer (as defined herein) at a purchase price in cash equal to 101% of
the aggregate principal amount thereof, plus any accrued and unpaid interest
and Liquidated Damages, if any, to the date of purchase. The Company shall
furnish to the Trustee, at least two Business Days before notice of an Offer
(as defined) is mailed to all Holders of Senior Notes pursuant to the
procedures described below under "--Procedures for Offers," notice that the
Offer is being made. Transactions constituting a Change of Control are not
limited to hostile takeover transactions not approved by the current
management of the Company. Except as described under "Description of Senior
Notes--Change of Control," the Indenture does not contain provisions that
permit the holders of Senior Notes to require the Company to purchase or
redeem the Senior Notes in the event of a takeover, recapitalization or
similar restructuring, including an issuer recapitalization or similar
transaction with management.
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<PAGE>
The Company expects that prepayment of the Senior Notes pursuant to a Change
of Control would, and the exercise by holders of Senior Notes of the right to
require the Company to purchase Senior Notes may, constitute a default under
the New Credit Agreement or other indebtedness of the Company. The Indenture
provides that, prior to the mailing of the notice referred to below, but in
any event within 30 days following any Change of Control Trigger Date, the
Company is required to (i) repay in full and terminate all commitments under
Indebtedness under the New Credit Agreement and all other Senior Indebtedness
the terms of which require repayment upon a Change of Control or offer to
repay in full and terminate all commitments under all Indebtedness under the
New Credit Agreement and all other such Senior Indebtedness and to repay the
Indebtedness owed to each lender which has accepted such offer or (ii) obtain
the requisite consents under the New Credit Agreement and all such other
Senior Indebtedness to permit the repurchase of the Senior Notes as provided
below. The Company shall first comply with the covenant in the immediately
preceding sentence before it shall be required to repurchase Senior Notes
pursuant to the provisions described below. The Company's failure to comply
with this covenant shall constitute an Event of Default described in clause
(c) and not in clause (b) under "--Events of Default" below. In the event a
Change of Control occurs, the Company will likely be required to refinance the
Indebtedness outstanding under the New Credit Agreement and the Senior Notes.
If there is a Change of Control, any Indebtedness under the New Credit
Agreement could be accelerated. There is no limitation in the Indenture which
prohibits the Company from using the proceeds from the Old Note Offering to
finance mandatory purchases of Senior Notes upon a Change of Control.
Moreover, there can be no assurance that sufficient funds will be available at
the time of any Change of Control to make any required repurchases of the
Senior Notes given the Company's high leverage. The financing of the purchases
of Senior Notes could additionally result in a default under the New Credit
Agreement or other indebtedness of the Company. The occurrence of a Change of
Control may also have an adverse impact on the ability of the Company to
obtain additional financing in the future. The ability of holders of Senior
Notes to require that the Company purchase Senior Notes upon a Change of
Control may deter persons from effecting a takeover of the Company which would
constitute a Change of Control if it believes such takeover will cause the
occurrence of a Change of Control and it has insufficient funds available to
make mandatory purchases of Senior Notes. Except as described above with
respect to a Change of Control, the Indenture does not contain provisions that
permit the holders of Senior Notes to require that the Company purchase or
redeem the Senior Notes in the event of a takeover, recapitalization or
similar restructuring. See "Risk Factors--Leverage and Coverage" and "--
Holding Company Structure; Dependence on Subsidiaries; Limitations on Access
to Cash Flow of the Subsidiaries."
Asset Sales. The Indenture provides that the Company may not, and may not
permit any Restricted Subsidiary to, directly or indirectly, consummate an
Asset Sale (including the sale of any of the Capital Stock of any Restricted
Subsidiary) providing for Net Proceeds in excess of $2,500,000 unless at least
75% of the Net Proceeds from such Asset Sale are applied (in any manner
otherwise permitted by the Indenture) to one or more of the following purposes
in such combination as the Company shall elect: (a) an investment in another
asset or business in the same line of business as, or a line of business
similar to that of, the line of business of the Company and its Restricted
Subsidiaries at the time of the Asset Sale; provided that such investment
occurs on or prior to the 365th day following the date of such Asset Sale (the
"Asset Sale Disposition Date"), (b) to reimburse the Company or its
Subsidiaries for expenditures made, and costs incurred, to repair, rebuild,
replace or restore property subject to loss, damage or taking to the extent
that the Net Proceeds consist of insurance proceeds received on account of
such loss, damage or taking, (c) the purchase, redemption or other prepayment
or repayment of outstanding Senior Indebtedness of the Company or Indebtedness
of the Company's Restricted Subsidiaries on or prior to the 365th day
following the Asset Sale Disposition Date or (d) an Offer expiring on or prior
to the Purchase Date (as defined herein). The Indenture also provides that the
Company may not, and may not permit any Restricted Subsidiary to, directly or
indirectly, consummate an Asset Sale unless at least 75% of the consideration
thereof received by the Company or such Restricted Subsidiary is in the form
of cash, cash equivalents or marketable securities; provided that, solely for
purposes of calculating such 75% of the consideration, the amount of (x) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet or in the notes thereto, excluding contingent liabilities
and trade payables), of the Company or any Restricted Subsidiary (other than
liabilities that are by their terms subordinated to the Senior Notes) that are
assumed by the transferee of any such assets and (y) any notes or other
obligations received by the Company
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<PAGE>
or any such Restricted Subsidiary from such transferee that are promptly, but
in no event more than 30 days after receipt, converted by the Company or such
Restricted Subsidiary into cash (to the extent of the cash received), shall be
deemed to be cash and cash equivalents for purposes of this provision. Any Net
Proceeds from any Asset Sale that are not applied or invested as provided in
the first sentence of this paragraph shall constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $10,000,000 (such date
being an "Asset Sale Trigger Date"), the Company shall make an Offer to all
holders of Senior Notes to purchase the maximum principal amount of the Senior
Notes then outstanding that may be purchased out of Excess Proceeds, at an
offer price in cash in an amount equal to 100% of principal amount thereof
plus any accrued and unpaid interest and Liquidated Damages, if any, to the
Purchase Date in accordance with the procedures set forth in the Indenture.
Notwithstanding the foregoing, to the extent that any or all of the Net
Proceeds of an Asset Sale is prohibited or delayed by applicable local law
from being repatriated to the United States, the portion of such Net Proceeds
so affected will not be required to be applied as described in this or the
preceding paragraph, but may be retained for so long, but only for so long, as
the applicable local law prohibits repatriation to the United States.
To the extent that any Excess Proceeds remain after completion of an Offer,
the Company may use such remaining amount for general corporate purposes. If
the aggregate principal amount of Senior Notes surrendered by holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Senior
Notes to be purchased on a pro rata basis. Upon completion of an Asset Sale
Offer, the amount of Excess Proceeds shall be reset at zero.
While the New Credit Agreement permits dividends from the Company's
subsidiaries to the Company for the purpose of paying interest on the Senior
Notes, dividends for other purposes, such as repurchases of Senior Notes by
the Company upon an Asset Sale, are not permitted under the terms thereof.
Accordingly, the Company would need to seek the consent of its lenders under
the New Credit Agreement in order to repurchase Senior Notes with any Net
Proceeds. See "Holding Company Structure; Dependence on Subsidiaries;
Limitations on Access to Cash Flow of the Subsidiaries."
Procedures for Offers. Within 30 days following any Change of Control
Trigger Date or Asset Sale Trigger Date, subject to the provisions of the
Indenture, the Company shall mail a notice to each holder of Senior Notes at
such holder's registered address a notice stating: (a) that an offer ("Offer")
is being made pursuant to a Change of Control or an Asset Sale Trigger Date,
as the case may be, the length of time the Offer shall remain open and the
maximum principal amount of Senior Notes that will be accepted for payment
pursuant to such Offer, (b) the purchase price, the amount of accrued and
unpaid interest and Liquidated Damages, if any, as of the purchase date, and
the purchase date (which shall be no earlier than 30 days and no later than 40
days from the date such notice is mailed (the "Purchase Date")), and (c) such
other information required by the Indenture and applicable law and
regulations.
On the Purchase Date for any Offer, the Company will, to the extent required
by the Indenture and such Offer, (1) in the case of an Offer resulting from a
Change of Control, accept for payment all Senior Notes or portions thereof
tendered pursuant to such Offer and, in the case of an Offer resulting from an
Asset Sale Trigger Date, accept for payment the maximum principal amount of
Senior Notes or portions thereof tendered pursuant to such Offer that can be
purchased out of Excess Proceeds from such Asset Sale Trigger Date, (2)
deposit with the Paying Agent the aggregate purchase price of all Senior Notes
or portions thereof accepted for payment and any accrued and unpaid interest
and Liquidated Damages, if any, on such Senior Notes as of the Purchase Date,
and (3) deliver or cause to be delivered to the Trustee all Senior Notes
tendered pursuant to the Offer. The Paying Agent shall promptly mail to each
holder of Senior Notes or portions thereof accepted for payment an amount
equal to the purchase price for such Senior Notes plus any accrued and unpaid
interest and Liquidated Damages, if any, thereon, and the Trustee shall
promptly authenticate and mail (or cause to be transferred by book-entry) to
such holder of Senior Notes accepted for payment in part a new Note equal in
principal amount to any unpurchased portion of the Senior Notes and any Note
not accepted for payment in whole or in part shall be promptly returned to the
holder thereof. The Company will publicly announce the results of the Offer on
or as soon as practicable after the Purchase Date.
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<PAGE>
The Company will comply with any tender offer rules under the Exchange Act
which may then be applicable, including Rule 14e-1, in connection with an
offer required to be made by the Company to repurchase the Senior Notes as a
result of a Change of Control or an Asset Sale Trigger Date. To the extent
that the provisions of any securities laws or regulations conflict with
provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the Indenture by virtue thereof.
Selection and Notice. In the event of a redemption or purchase of less than
all of the Senior Notes, the Senior Notes to be redeemed or purchased will be
chosen by the Trustee pro rata, by lot or by any other method that the Trustee
considers fair and appropriate and, if the Senior Notes are listed on any
securities exchange, by a method that complies with the requirements of such
exchange; provided that, if less than all of a holder's Senior Note is to be
redeemed or accepted for payment, only principal amounts of $1,000 or
multiples thereof may be selected for redemption or accepted for payment. On
and after any redemption or purchase date, interest and Liquidated Damages, if
any, shall cease to accrue on the Senior Notes or portions thereof called for
redemption or accepted for payment. Notice of any redemption or offer to
purchase will be mailed at least 30 days but not more than 60 days before the
redemption or purchase date to each holder of Senior Notes to be redeemed or
purchased at such holder's registered address.
CERTAIN COVENANTS
The Indenture contains, among other things, the following covenants:
Limitation on Restricted Payments. The Indenture provides that the Company
will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, (i) declare or pay any dividend or make any distribution on
account of the Company's or such Restricted Subsidiary's Capital Stock or
other Equity Interests (other than dividends or distributions payable in
Capital Stock or other Equity Interests (other than Disqualified Stock) of the
Company or a Restricted Subsidiary and dividends or distributions payable by a
Restricted Subsidiary to another Restricted Subsidiary or to the Company);
(ii) purchase, redeem or otherwise acquire or retire for value any Capital
Stock or other Equity Interests of the Company or any of its Restricted
Subsidiaries (other than any such Equity Interest purchased from the Company
or any Restricted Subsidiary for fair market value (as determined by the Board
of Directors in good faith)); (iii) voluntarily prepay any Subordinated
Indebtedness of the Company, whether any such Subordinated Indebtedness is
outstanding on, or issued after, the date of original issuance of the Senior
Notes except as specifically permitted by the covenants of the Indenture as
described herein; or (iv) make any Restricted Investment (all such dividends
distributions purchases, redemptions, acquisitions, retirements, prepayments
and Restricted Investments, being collectively referred to as "Restricted
Payments"), if, at the time of such Restricted Payment:
(a) a Default or Event of Default shall have occurred and be continuing
or shall occur as a consequence thereof; or
(b) immediately after such Restricted Payment and after giving effect
thereto on a Pro Forma Basis, the Company shall not be able to issue $1.00
of additional Indebtedness pursuant to the first sentence of the
"Limitation on Incurrence of Indebtedness" covenant; or
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made after the date of original issuance of the Senior
Notes, without, duplication, exceeds the sum of: (1) 50% of the aggregate
Consolidated Net Income (including, for this purpose, gains from Asset
Sales and, to the extent not included in Consolidated Net Income, any gain
from a sale or disposition of a Restricted Investment) of the Company (or,
in case such aggregate is a loss, 100% of such loss) for the period (taken
as one accounting period) from the beginning of the first fiscal quarter
commencing immediately after the date of original issuance of the Senior
Notes and ended as of the Company's most recently ended fiscal quarter at
the time of such Restricted Payment; plus (2) 100% of the aggregate net
cash proceeds and the fair market value of any property or securities (as
determined by the Board of Directors in good faith) received by the Company
from the issue or sale of Capital Stock or other Equity Interests of the
Company subsequent to the date of original issuance of the Senior Notes
(other than (x) Capital Stock or other Equity Interests
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issued or sold to a Restricted Subsidiary and (y) the issuance or sale of
Disqualified Stock); plus (3) $5,000,000; plus (4) the amount by which the
principal amount of and any accrued interest on either (A) Senior
Indebtedness of the Company or (B) any Indebtedness of any Restricted
Subsidiary is reduced on the Company's consolidated balance sheet upon the
conversion or exchange other than by a Restricted Subsidiary subsequent to
the date of original issuance of the Senior Notes of any Indebtedness of
the Company or any Restricted Subsidiary (not held by the Company or any
Restricted Subsidiary) for Capital Stock or other Equity Interests (other
than Disqualified Stock) of the Company or any Restricted Subsidiaries
(less the amount of any cash, or the fair market value of any other
property or securities (as determined by the Board of Directors in good
faith), distributed by the Company or any Restricted Subsidiary (to persons
other than the Company or any other Restricted Subsidiary) upon such
conversion or exchange); plus (5) if any Non-Restricted Subsidiary is
redesignated as a Restricted Subsidiary, the value of the deemed Restricted
Payment resulting therefrom and determined in accordance with the second
sentence of the "Designation of Restricted and Non-Restricted Subsidiaries"
covenant; provided, however, that for purposes of this clause (5), the
value of any redesignated Non-Restricted Subsidiary shall be reduced by the
amount that any such redesignation replenishes or increases the amount of
Restricted Investments permitted to be made pursuant to clause (ii) of the
next sentence.
Notwithstanding the foregoing, the Indenture does not prohibit as Restricted
Payments:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration, such payment would
comply with all covenants of such Indenture (including, but not limited to,
the "Limitation on Restricted Payments" covenant);
(ii) making Restricted Investments at any time, and from time to time, in
an aggregate outstanding amount of $10,000,000 after the date of original
issuance of the Senior Notes (it being understood that if any Restricted
Investment after the date of original issuance of the Senior Notes pursuant
to this clause (ii) is sold, transferred or otherwise conveyed to any
person other than the Company or a Restricted Subsidiary, the portion of
the net cash proceeds or fair market value of securities or properties paid
or transferred to the Company and its Restricted Subsidiaries in connection
with such sale, transfer or conveyance that relates or corresponds to the
repayment or return of the original cost of such a Restricted Investment
will replenish or increase the amount of Restricted Investments permitted
to be made pursuant to this clause (ii), so that up to $10,000,000 of
Restricted Investments may be outstanding under this clause (ii) at any
given time; provided that without otherwise limiting this clause (ii), any
Restricted Investment in a Subsidiary made pursuant to this clause (ii) is
made for fair market value (as determined by the Board of Directors in good
faith).
(iii) the repurchase, redemption, retirement or acquisition of the
Company's stock from the executives, management, employees or consultants
of the Company or its Subsidiaries pursuant to the terms of any
subscription, stockholder or other agreement or plan, up to an aggregate
amount not to exceed $5,000,000;
(iv) any loans, advances, distributions or payments from the Company to
its Restricted Subsidiaries, or any loans, advances, distributions or
payments by a Restricted Subsidiary to the Company or to another Restricted
Subsidiary, in each case pursuant to intercompany Indebtedness,
intercompany management agreements and other intercompany agreements and
obligations;
(v) investments in marketable securities and other negotiable instruments
through the William Penn Funds (including the William Penn Interest Income
Fund);
(vi) the purchase, redemption, retirement or other acquisition of (a) any
Senior Indebtedness of the Company or any Indebtedness of a Restricted
Subsidiaries required by its terms to be purchased, redeemed, retired or
acquired with the net proceeds from asset sales (as defined in the
instrument evidencing such Senior Indebtedness or Indebtedness) or upon a
change of control (as defined in the instrument evidencing such Senior
Indebtedness or Indebtedness) and (b) the Senior Notes pursuant to the
"Change of Control" or "Asset Sales" provisions of the Indenture;
(vii) the payment of (a) consulting, financial and investment banking
fees under the TJC Agreement, provided, that no Default or Event of Default
shall have occurred and be continuing or shall occur as a
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consequence thereof, and the Company's Obligations to pay such fees under
the TJC Agreement shall be subordinated expressly to the Company's
Obligations in respect of the Senior Notes, and (b) indemnities, expenses
and other amounts under the TJC Agreement;
(viii) the payment of management, advisory and service fees, indemnities,
expenses and other amounts under the JII Services Agreement;
(ix) the redemption, repurchase, retirement or the acquisition of any
Capital Stock or other Equity Interests of the Company or any Restricted
Subsidiary in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Company) of other
Capital Stock or other Equity Interests of the Company or any Restricted
Subsidiary (other than any Disqualified Stock); provided that any net cash
proceeds that are utilized for any such redemption, repurchase, retirement
or other acquisition, and any Net Income resulting therefrom, shall be
excluded from clauses (c)(1) and (c)(2) of the preceding paragraph;
(x) the defeasance, redemption or repurchase of pari passu or
Subordinated Indebtedness with the net cash proceeds from an issuance of
permitted Refinancing Indebtedness or the substantially concurrent sale
(other than to a Subsidiary of the Company) of Capital Stock or other
Equity Interests of the Company or of a Restricted Subsidiary (other than
Disqualified Stock); provided that any net cash proceeds that are utilized
for any such defeasance, redemption or repurchase, and any Net Income
resulting therefrom, shall be excluded from clauses (c)(1) and (c)(2) of
the preceding paragraph;
(xi) payments of fees, expenses and indemnities in respect of the
Company's and its Subsidiaries' directors and such payments to Parent (and
its parent companies) in respect of their directors, provided that the
aggregate amount of such fees payable to all such directors does not exceed
$250,000 in any fiscal year;
(xii) payments to Parent (and its parent companies) in respect of
accounting, legal or other professional or administrative expenses or
reimbursements or franchise or similar taxes and governmental charges
incurred by them relating to the business, operations or finances of the
Company and its Subsidiaries and in respect of fees and related expenses
associated with their registration statements filed with the Commission and
subsequent ongoing public reporting requirements;
(xiii) so long as Parent files consolidated income tax returns which
include the Company, payments to Parent (and its parent companies) pursuant
to the Tax Sharing Agreement;
(xiv) payments in respect of the Junior Seller Note, the MK Installment
Note and the MK Installment Note LC Facility;
(xv) payments in connection with the Imperial Acquisitions, the Offering
and the Refinancing Plan;
(xvi) payments in respect of the Contingent Earnout Agreement;
(xvii) Restricted Investments made or received in connection with the
sale, transfer or disposition of any business, properties or assets of the
Company or any Restricted Subsidiary, provided, that if such sale, transfer
or disposition constitutes an Asset Sale, the Company complies with the
"Asset Sale" provisions of the Indenture;
(xviii) any Restricted Investment constituting securities or instruments
of a person issued in exchange for trade or other claims against such
person in connection with a financial reorganization or restructuring of
such person; and
(xix) any Restricted Investment constituting an equity investment in a
Receivables Subsidiary.
Limitation on Incurrence of Indebtedness. The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary to, issue any
Indebtedness (other than the Indebtedness represented by the Senior Notes)
unless the Company's Cash Flow Coverage Ratio for its four full fiscal
quarters next preceding the date such additional Indebtedness is issued would
have been at least 2.0 to 1 if such date is on or prior to November 15, 1998,
and 2.25 to 1 thereafter, in each case, determined on a Pro Forma Basis
(including, for this purpose, any other Indebtedness incurred since the end of
the applicable four quarter period) as if such additional Indebtedness and any
other Indebtedness issued since the end of such four quarter period had been
issued at the beginning of such four-quarter period.
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The foregoing limitations do not apply to the issuance of:
(i) Indebtedness of the Company and/or its Restricted Subsidiaries as
measured on such date of issuance in an aggregate principal amount
outstanding on any such date of issuance not exceeding the greater of (a)
$75.0 million aggregate principal amount under the New Credit Agreement,
and (b) an aggregate principal amount up to the sum of: (A) 85% of the book
value of the Receivables of the Company and its Restricted Subsidiaries on
a consolidated basis, and (B) 65% of the book value of the inventories of
the Company and its Restricted Subsidiaries on a consolidated basis;
provided that the aggregate principal amount of Indebtedness outstanding
under this clause (i) together with the aggregate principal amount of
Indebtedness outstanding under clause (iv) below shall not exceed $80.0
million in aggregate principal amount at any one time outstanding;
(ii) Indebtedness of the Company and its Restricted Subsidiaries in
respect of any Receivables Financing;
(iii) Indebtedness of the Company and its Restricted Subsidiaries in
connection with capital leases, sale and leaseback transactions, purchase
money obligations, capital expenditures or similar financing transactions
relating to: (A) their properties, assets and rights as of the date of
original issuance of the Senior Notes up to $5,000,000 in aggregate
principal amount, or (B) their properties, assets and rights acquired after
the date of original issuance of the Senior Notes, provided that the
aggregate principal amount of such Indebtedness under this clause (iii)(B)
does not exceed 100% of the cost of such properties, assets and rights;
(iv) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount up to $25,000,000 (all or any
portion of which may be issued as additional Indebtedness under the New
Credit Agreement); provided that the aggregate principal amount of
Indebtedness outstanding under this clause (iv) together with the aggregate
principal amount of Indebtedness outstanding under clause (i) above shall
not exceed $80.0 million in aggregate principal amount at any one time
outstanding; and
(v) Other Permitted Indebtedness.
Notwithstanding the foregoing, no Restricted Subsidiary shall under any
circumstances issue a guarantee of any Indebtedness of the Company except for
guarantees issued by Restricted Subsidiaries pursuant to the "Limitation on
Guarantees of Company Indebtedness by Restricted Subsidiaries" covenant,
provided, however, that the foregoing will not limit or restrict guarantees
issued by Restricted Subsidiaries in respect of Indebtedness of other
Restricted Subsidiaries.
Limitation on Liens. The Indenture provides that the Company shall not, and
shall not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume or suffer to exist any Lien (other than
Permitted Liens) upon any property or asset now owned or hereafter acquired by
them, or any income or profits therefrom, or assign or convey any right to
receive income therefrom; provided, however, that in addition to creating
Permitted Liens on its properties or assets, the Company and any of its
Restricted Subsidiaries may create any Lien upon any of their properties or
assets (including, but not limited to, any Capital Stock of its Subsidiaries)
if the Senior Notes are equally and ratably secured.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create
or otherwise cause or suffer to exist or become effective, any encumbrance or
restriction on the ability of any Restricted Subsidiary to: (a) pay dividends
or make any other distributions on its Capital Stock or any other interest or
participation in, or measured by, its profits, owned by the Company or any
Restricted Subsidiary, or pay any Indebtedness owed to, the Company or any
Restricted Subsidiary, (b) make loans or advances to the Company, or (c)
transfer any of its properties or assets to the Company, except for such
encumbrances or restrictions existing under or by reason of:
(i) applicable law,
(ii) Indebtedness permitted (A) under the first sentence of the first
paragraph of the "Limitation on Incurrence of Indebtedness" covenant, (B)
under clauses (i), (ii) and (iv) of the second paragraph of the
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"Limitation on Incurrence of Indebtedness" covenant and clauses (i), (v),
(vi), (vii), (ix), (x), (xi), (xv), (xvi) and (xvii) of the definition of
Other Permitted Indebtedness, or (C) by agreements and transactions
permitted under the "Limitation on Restricted Payments" covenant,
(iii) customary provisions restricting subletting or assignment of any
lease or license of the Company or any Restricted Subsidiary,
(iv) customary provisions of any franchise, distribution or similar
agreement,
(v) any instrument governing Indebtedness or any other encumbrance or
restriction of a person acquired by the Company or any Restricted
Subsidiary at the time of such acquisition, which encumbrance or
restriction is not applicable to any person, or the properties or assets of
any person, other than the person, or the property or assets of the person,
so acquired,
(vi) Indebtedness or other agreements existing on the date of original
issuance of the Senior Notes,
(vii) any Refinancing Indebtedness permitted under the "Limitation on
Incurrence of Indebtedness" covenant and clauses (i), (v), (vi), (vii),
(ix), (x) (xi), (xv), (xvi) and (xvii) of the definition of Other Permitted
Indebtedness; provided that the encumbrances and restrictions created in
connection with such Refinancing Indebtedness are no more restrictive in
any material respect with regard to the interests of the holders of Senior
Notes than the encumbrances and restrictions in the refinanced
Indebtedness,
(viii) any restrictions, with respect to a Restricted Subsidiary, imposed
pursuant to an agreement that has been entered into for the sale or
disposition of the stock, business, assets or properties of such Restricted
Subsidiary,
(ix) the terms of any Indebtedness of the Company incurred in connection
with the "Limitation on Incurrence of Indebtedness" covenant, provided that
the terms of such Indebtedness constitute no greater encumbrance or
restriction on the ability of any Restricted Subsidiary to pay dividends or
make distributions, make loans or advances or transfer properties or assets
than is otherwise permitted by this covenant, and
(x) the terms of purchase money obligations, but only to the extent such
purchase money obligations restrict or prohibit the transfer of the
property so acquired.
Nothing contained in this covenant shall prevent the Company from entering
into any agreement or instrument providing for the incurrence of Permitted
Liens or restricting the sale or other disposition of property or assets of
the Company or any of its Restricted Subsidiaries that are subject to
Permitted Liens.
Limitation on Transactions With Affiliates. The Indenture provides, except
under certain circumstances, that neither the Company nor any of its
Restricted Subsidiaries may make any loan, advance, guarantee or capital
contribution to, or for the benefit of, or sell, lease, transfer or dispose of
any properties or assets to, or for the benefit of, or purchase or lease any
property or assets from, or enter into any or amend any contract, agreement or
understanding with, or for the benefit of, an Affiliate (each such transaction
or series of related transactions that are part of a common plan are referred
to as an "Affiliate Transaction"), except in good faith and on terms that are
no less favorable to the Company or the relevant Restricted Subsidiary than
those that would have been obtained in a comparable transaction on an arm's
length basis from an unrelated person.
The Indenture further provides that the Company will not, and will not
permit any Restricted Subsidiary to, engage in any Affiliate Transaction
involving aggregate payments or other transfers by the Company and its
Restricted Subsidiaries in excess of $5,000,000 (including cash and non-cash
payments and benefits valued at their fair market value by the Board of
Directors of the Company in good faith) unless the Company delivers to the
Trustee:
(i) a resolution of the Board of Directors of the Company stating that
the Board of Directors (including a majority of the disinterested
directors, if any) has, in good faith, determined that such Affiliate
Transaction complies with the provisions of the Indenture, and
(ii) (A) with respect to any Affiliate Transaction involving the
incurrence of Indebtedness, a written opinion of a nationally recognized
investment banking or accounting firm experienced in the review of
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similar types of transactions, (B) with respect to any Affiliate
Transaction involving the transfer of real property, fixed assets or
equipment, either directly or by a transfer of 50% or more of the Capital
Stock of a Restricted Subsidiary which holds any such real property, fixed
assets or equipment, a written appraisal from a nationally recognized
appraiser, experienced in the review of similar types of transactions or
(C) with respect to any Affiliate Transaction not otherwise described in
(A) and (B) above, a written certification from a nationally recognized
professional or firm experienced in evaluating similar types of
transactions, in each case, stating that the terms of such transaction are
fair to the Company or such Restricted Subsidiary, as the case may be, from
a financial point of view.
Notwithstanding the foregoing, this Affiliate Transactions covenant will not
apply to:
(i) transactions between the Company and any Restricted Subsidiary or
between Restricted Subsidiaries;
(ii) payments under the TJC Agreement or the JII Services Agreement;
(iii) payments under the Contingent Earnout Agreement;
(iv) any other payments or transactions permitted pursuant to the
"Limitation on Restricted Payments" covenant;
(v) reasonable compensation paid to officers, employees or consultants of
the Company or any Subsidiary as determined in good faith by the Company's
Board of Directors or executives;
(vi) transactions in connection with a Receivables Financing; or
(vii) payments and transactions in connection with the Imperial
Acquisitions, the Old Note Offering and the Refinancing Plan.
Limitation on Guarantees of Company Indebtedness by Restricted
Subsidiaries. The Company will not permit any Restricted Subsidiary, directly
or indirectly, to guarantee any Indebtedness of the Company other than the
Senior Notes (the "Other Company Indebtedness") unless (A) such Restricted
Subsidiary contemporaneously executes and delivers a supplemental indenture to
the Indenture providing for a guarantee of payment of the Senior Notes then
outstanding by such Restricted Subsidiary to the same extent as the guarantee
of payment (the "Other Company Indebtedness Guarantee") of the Other Company
Indebtedness (including waiver of subrogation, if any) and (B) if the Other
Company Indebtedness guaranteed by such Restricted Subsidiary is (1) Senior
Indebtedness, the guarantee for the Senior Notes shall be pari passu in right
of payment with the Other Company Indebtedness Guarantee and (2) Subordinated
Indebtedness, the guarantee for the Senior Notes shall be senior in right of
payment to the Other Company Indebtedness Guarantee; provided that the
foregoing will not limit or restrict guarantees issued by Restricted
Subsidiaries in respect of Indebtedness of other Restricted Subsidiaries.
Each guarantee of the Senior Notes created by a Restricted Subsidiary
pursuant to the provisions described in the foregoing paragraph shall be in
form and substance satisfactory to the Trustee and shall provide, among other
things, that it will be automatically and unconditionally released and
discharged upon (i) any sale, exchange or transfer permitted by the Indenture
of (a) all of the Company's Capital Stock in such Restricted Subsidiary or (b)
the sale of all or substantially all of the assets of the Restricted
Subsidiary and upon the application of the Net Proceeds from such sale in
accordance with the requirements of the "Asset Sales" provisions described
herein or (ii) the release or discharge of the Other Company Indebtedness
Guarantee that resulted in the creation of such guarantee of the Senior Notes,
except a discharge or release by or as a result of direct payment under such
Other Company Indebtedness Guarantee.
Designation of Restricted and Non-Restricted Subsidiaries. The Indenture
provides that, subject to the exceptions described below, from and after the
date of original issuance of the Senior Notes, the Company may designate any
existing or newly formed or acquired Subsidiary as a Non-Restricted
Subsidiary; provided that (i) either (A) the Subsidiary to be so designated
has total assets of $1,000,000 or less or (B) immediately before and after
giving effect to such designation on a Pro Forma Basis; (1) the Company could
incur $1.00 of additional
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Indebtedness pursuant to the first sentence of the "Limitation on Incurrence
of Indebtedness" covenant determined on a Pro Forma Basis; and (2) no Default
or Event of Default shall have occurred and be continuing, and (ii) all
transactions between the Subsidiary to be so designated and its Affiliates
remaining in effect are permitted pursuant to the "Limitation on Transactions
with Affiliates" covenant. Any Investment made by the Company or any
Restricted Subsidiary which is redesignated from a Restricted Subsidiary to a
Non-Restricted Subsidiary shall thereafter be considered as having been a
Restricted Payment (to the extent not previously included as a Restricted
Payment) made on the day such Subsidiary is designated a Non-Restricted
Subsidiary in the amount of the greater of (i) the fair market value (as
determined by the Board of Directors of the Company in good faith) of the
Equity Interests of such Subsidiary held by the Company and its Restricted
Subsidiaries on such date, and (ii) the amount of the Investments determined
in accordance with GAAP made by the Company and any of its Restricted
Subsidiaries in such Subsidiary.
A Non-Restricted Subsidiary may be redesignated as a Restricted Subsidiary.
The Company may not, and may not permit any Restricted Subsidiary to, take any
action or enter into any transaction or series of transactions that would
result in a Person becoming a Restricted Subsidiary (whether through an
acquisition, the redesignation of a Non-Restricted Subsidiary or otherwise,
but not including through the creation of a new Restricted Subsidiary) unless,
immediately before and after giving effect to such action, transaction or
series of transactions on a Pro Forma Basis, (a) the Company could incur at
least $1.00 of additional Indebtedness pursuant to the first sentence of
"Limitation on Incurrence of Indebtedness" and (b) no Default or Event of
Default shall have occurred and be continuing.
The designation of a Subsidiary as a Restricted Subsidiary or the removal of
such designation is required to be made by a resolution adopted by a majority
of the Board of Directors of the Company stating that the Board of Directors
has made such designation in accordance with the Indenture, and the Company is
required to deliver to the Trustee such resolution together with an Officers'
Certificate certifying that the designation complies with the Indenture. Such
designation will be effective as of the date specified in the applicable
resolution, which may not be before the date the applicable Officers'
Certificate is delivered to the Trustee.
MERGER OR CONSOLIDATION
The Indenture provides that the Company shall not consolidate or merge with
or into, or sell, lease, convey or otherwise dispose of all or substantially
all of its assets to, any person (any such consolidation, merger or sale being
a "Disposition") unless: (a) the successor corporation of such Disposition or
the corporation to which such Disposition shall have been made is a
corporation organized or existing under the laws of the United States, any
state thereof or the District of Columbia; (b) the successor corporation of
such Disposition or the corporation to which such Disposition shall have been
made expressly assumes the Obligations of the Company, pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee, under
the Indenture and the Senior Notes; (c) immediately after such Disposition, no
Default or Event of Default shall exist; and (d) the corporation formed by or
surviving any such Disposition, or the corporation to which such Disposition
shall have been made, shall (i) have Consolidated Net Worth (immediately after
the Disposition but prior to giving any pro forma effect to purchase
accounting adjustments or Restructuring Charges resulting from the
Disposition) equal to or greater than the Consolidated Net Worth of the
Company immediately preceding the Disposition, (ii) be permitted immediately
after the Disposition by the terms of the Indenture to issue at least $1.00 of
additional Indebtedness determined on a Pro Form Basis, and (iii) have a Cash
Flow Coverage Ratio, for the four fiscal quarters immediately preceding the
applicable Disposition, and determined on a Pro Forma Basis, equal to or
greater than the actual Cash Flow Coverage Ratio of the Company for such four
quarter period. The limitations in the Indenture on the Company's ability to
make a Disposition described in this paragraph do not restrict the Company's
ability to sell less than all or substantially all of its assets, such sales
being governed by the "Asset Sales" provisions of the Indenture as described
herein.
Prior to the consummation of any proposed Disposition, the Company shall
deliver to the Trustee an officers' certificate to the foregoing effect and an
opinion of counsel stating that the proposed Disposition and such supplemental
indenture comply with the Indenture.
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PROVISION OF FINANCIAL INFORMATION TO HOLDERS OF SENIOR NOTES
So long as the Senior Notes are outstanding, whether or not the Company is
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall submit for filing with the Commission the annual
reports, quarterly reports and other documents that the Company would have
been required to file with the Commission pursuant to Section 13 or 15(d) if
the Company were subject to such reporting requirements. The Company will also
provide to all holders of Senior Notes and file with the Trustee copies of
such annual reports, quarterly reports and other documents required to be
furnished to stockholders generally under the Exchange Act. In addition, the
Company has agreed that, for so long as any Senior Notes remain outstanding,
it will furnish to the holders and prospective investors, upon their request,
the information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that an Event of Default is: (a) a default for 30
days in payment of interest on, or Liquidated Damages, if any, with respect
to, the Senior Notes; (b) a default in payment when due of principal or
premium, if any, with respect to the Senior Notes; (c) the failure of the
Company to comply with any of its other agreements or covenants in, or
provisions of, such Indenture or the Senior Notes outstanding under such
Indenture and the Default continues for the period, if applicable, and after
the notice specified in the next paragraph; (d) a default by the Company or
any Restricted Subsidiary under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any Restricted Subsidiary
(or the payment of which is guaranteed by the Company or any Restricted
Subsidiary), whether such Indebtedness or guarantee now exists or shall be
created hereafter, if (1) either (A) such default results from the failure to
pay principal of or interest on any such Indebtedness at or after the final
maturity thereof (after giving effect to any extensions thereof) and such
default continues for 30 days beyond any applicable grace period, or (B) as a
result of such default the maturity of such Indebtedness has been accelerated
prior to its expressed maturity, and (2) the principal amount of such
Indebtedness, together with the principal amount of any other such
Indebtedness in default for failure to pay principal or interest thereon at
final maturity, or, because of the acceleration of the maturity thereof,
aggregates in excess of $10,000,000; (e) a failure by the Company or any
Restricted Subsidiary to pay final judgments (not covered by insurance)
aggregating in excess of $10,000,000 which judgments a court of competent
jurisdiction does not rescind, annul or stay within 45 days after their entry
and the Default or an Event of Default continues for the period and after the
notice specified in the next paragraph; and (f) certain events of bankruptcy
or insolvency involving the Company or any Significant Subsidiary. In the case
of any Event of Default pursuant to clause (a) or (b) above occurring by
reason of any willful action (or inactions) taken (or not taken) by or on
behalf of the Company with the intention of avoiding payment of the premium
that the Company would have to pay pursuant to a redemption of Senior Notes as
described under "--Redemption of Senior Notes--Optional Redemption," an
equivalent premium shall also become and be immediately, due and payable to
the extent permitted by law.
A Default or Event of Default under clause (c) (other than an Event of
Default arising under the "Merger or Consolidation" covenant which shall be an
Event of Default with the notice but without the passage of time specified in
this paragraph) or clause (e) is not an Event of Default under the Indenture
until the Trustee or the holders of at least 25% in principal amount of the
Senior Notes then outstanding notify the Company of the Default and the
Company does not cure the Default within 30 days after receipt of the notice.
A Default or Event of Default under clause (f) of the preceding paragraph will
result in the Senior Notes automatically becoming due and payable without
further action or notice.
Upon the occurrence of an Event of Default, the Trustee or the holders of at
least 25% in principal amount of the then outstanding Senior Notes may declare
all Senior Notes to be due and payable by notice in writing to the Company and
the Trustee specifying the respective Event of Default and that it is a
"notice of acceleration" (the "Acceleration Notice") and the same (i) shall
become immediately due and payable or (ii) if there are any amounts
outstanding under the New Credit Agreement, shall become immediately due and
payable upon the first
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to occur of an acceleration under the New Credit Agreement or five business
days after receipt by the Company and the Representative under the New Credit
Agreement of such Acceleration Notice but only if such Event of Default is
then continuing. The holders of a majority in principal amount of the Senior
Notes then outstanding under the Indenture, by notice to the Trustee, may
rescind any declaration of acceleration of such Senior Notes and its
consequences (if the rescission would not conflict with any judgment or
decree) if all existing Events of Default (other than the nonpayment of
principal of or interest on such Senior Notes that shall have become due by
such declaration) shall have been cured or waived. Subject to certain
limitations, holders of a majority in principal amount of the Senior Notes
then outstanding under the Indenture may direct the Trustee in its exercise of
any trust or power. Holders of the Senior Notes may not enforce the Indenture,
except as provided therein. The Trustee may withhold from holders of Senior
Notes notice of any continuing Default or Event of Default (except a Default
or an Event of Default in payment of principal, premium, if any, or interest)
if the Trustee determines that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the Senior Notes
then outstanding may on behalf of all holders of such Senior Notes waive any
existing Default or Event of Default under the Indenture and its consequences,
except a continuing Default in the payment of the principal of, or premium, if
any, or interest on, such Senior Notes, which may only be waived with the
consent of each holder of the Senior Notes affected.
Upon any payment or distribution of assets of the Company and its
subsidiaries in a total or partial liquidation, dissolution, reorganization or
similar proceeding, including a Default under clause (f) above involving
certain events of bankruptcy or insolvency of the Company or a Significant
Subsidiary, there may not be sufficient assets remaining to satisfy the claims
of any Holders of Senior Notes given the effective structural subordination of
the Senior Notes to the obligations of the Company under the New Credit
Agreement.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and upon an officer of the Company
becoming aware of any Default or Event of Default, a statement specifying such
Default or Event of Default.
NO PERSONAL LIABILITY OF OFFICERS, DIRECTORS, EMPLOYEES, STOCKHOLDERS AND
SUBSIDIARIES
No officer, employee, director, stockholder or Subsidiary of the Company
shall have any liability for any Obligations of the Company under the Senior
Notes or the Indenture, or for any claim based on, in respect of, or by reason
of, such Obligations or the creation of any such Obligation, except, in the
case of a Subsidiary, for an express guarantee or an express creation of any
Lien by such Subsidiary of the Company's Obligations under the Senior Notes
issued in accordance with the Indenture. Each holder of the Senior Notes by
accepting a Senior Note waives and releases all such liability, and such
waiver and release is part of the consideration for issuance of the Senior
Notes. The foregoing waiver may not be effective to waive liabilities under
the Federal securities laws and the Securities and Exchange Commission is of
the view that such a waiver is against public policy.
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Company at any time may terminate all its obligations under the Senior
Notes and the Indenture ("legal defeasance option"), except for certain
obligations (including those with respect to the defeasance trust (as defined
herein) and obligations to register the transfer or exchange of the Senior
Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a
registrar and paying agent in respect of the Senior Notes). The Company at any
time may terminate (1) its obligations under the "Change of Control" and
"Asset Sales" provisions described herein and the covenants described under
"Certain Covenants" and certain other covenants in the Indenture, (2) the
operation of clauses (c), (d), (e), and (f) contained in the first paragraph
of the "Events of Default and Remedies" provisions described herein and (3)
the limitations contained in clauses (c) and (d) under the "Merger or
Consolidation" provisions described herein (collectively, a "covenant
defeasance option").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Senior Notes may not
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be accelerated because of an Event of Default with respect thereto. If the
Company exercises its covenant defeasance option, payment of the Senior Notes
shall not be accelerated because of an Event of Default specified in clauses
(c), (d), (e) or (f) in the first paragraph under the "Events of Default and
Remedies" provisions described herein or because of the Company's failure to
comply with clauses (c) and (d) under the "Merger or Consolidation" provisions
described herein.
To exercise either defeasance option with respect to the Senior Notes
outstanding, the Company must irrevocably deposit in trust (the "defeasance
trust") with the Trustee money or U.S. Government Obligations (as defined in
the Indenture) for the payment of principal of, premium, if any, and unpaid
interest on, and Liquidated Damages, if any, with respect to the Senior Notes
then outstanding to redemption or maturity, as the case may be, and must
comply with certain other conditions, including the passage of 91 days and the
delivery to the Trustee an opinion of counsel to the effect that holders of
such Senior Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such deposit and defeasance and will be subject to
federal income tax on the same amount and in the same manner and at the same
times as would have been in the case if such deposit and defeasance has not
occurred (and, in the case of legal defeasance only, such opinion of counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable federal income tax law).
TRANSFER AND EXCHANGE
Holders of Senior Notes may transfer or exchange their Senior Notes in
accordance with the Indenture, but the Registrar may require a holder, among
other things, to furnish appropriate endorsements and transfer documents, and
to pay any taxes and fees required by law or permitted by the Indenture, in
connection with any such transfer or exchange. Neither the Company nor the
Registrar is required to issue, register the transfer of, or exchange (i) any
Senior Note selected for redemption or tendered pursuant to an Offer, or (ii)
any Senior Note during the period between (a) the date the Trustee receives
notice of a redemption from the Company and the date the Senior Notes to be
redeemed are selected by the Trustee or (b) a record date and the next
succeeding interest payment date. The registered holder of a Senior Note will
be treated as its owner for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture may be amended or supplemented
with the consent of the holders of at least a majority in principal amount of
the Senior Notes then outstanding under such Indenture, and any existing
Default or Event of Default (other than a payment default) or compliance with
any provision may be waived with the consent of the holders of a majority in
principal amount of the Senior Notes then outstanding under the Indenture.
Without the consent of any holder of Senior Notes, the Company and the Trustee
may amend or supplement the Indenture or the Senior Notes to cure any
ambiguity, defect or inconsistency, to provide for uncertificated Senior Notes
in addition to or in place of certificated Senior Notes, to provide for the
assumption by a successor corporation of the Company's obligations to the
holders of Senior Notes in the case of a Disposition, to comply with the Trust
Indenture Act, or to make any change that does not materially adversely affect
the legal rights of any holder of Senior Notes.
Without the consent of each holder of Senior Notes affected, the Company may
not (i) reduce the principal amount of Senior Notes whose holders must consent
to an amendment to the Indenture or a waiver under the Indenture; (ii) reduce
the rate of or change the interest payment time of the Senior Notes, or alter
the redemption provisions with respect thereto (other than the provisions
relating to the covenants described above under the caption "--Mandatory
Offers to Purchase Senior Notes--Change of Control" and "--Asset Sales") or
the price at which the Company is required to offer to purchase the Senior
Notes; (iii) reduce the principal of or change the fixed maturity of the
Senior Notes; (iv) make the Senior Notes payable in money other than stated in
the Senior Notes; (v) make any change in the provisions concerning waiver of
Defaults or Events of Default by holders of the Senior Notes, or rights of
holders of the Senior Notes to receive payment of principal or interest; or
(vi) waive any default in the payment of principal of, premium, if any, or
unpaid interest on, and Liquidated Damages, if any, with respect to the Senior
Notes.
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CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee, if
it becomes a creditor of the Company, to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise. The Trustee is permitted to engage in other
transactions; however, if it acquires any conflicting interest (as defined in
the Trust Indenture Act) it must eliminate such conflict or resign.
The holders of a majority in principal amount of the Senior Notes then
outstanding will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that if an Event of
Default occurs (and has not been cured), the Trustee will be required, in the
exercise of its power, to use the degree of care and skill of a prudent person
in similar circumstances in the conduct of its own affairs. Subject to the
provisions of the Indenture, the Trustee will be under no obligation to
exercise any of its rights or powers under its Indenture at the request of any
of the holders of the Senior Notes, unless such holders shall have offered to
the Trustee security and indemnity satisfactory to it.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the New Notes to be exchanged as
set forth herein will initially be issued in the form of one Global New Note
(the "Global New Note"). The Global New Note will be deposited on the
Expiration Date with, or on behalf of, the Depositary and registered in the
name of Cede & Co., as nominee of the Depositary (such nominee being referred
to herein as the "Global New Note Holder").
New Notes that are issued as described below under "--Certificated New
Notes" will be issued in the form of registered definitive certificates (the
"Certificated New Notes"). Such Certificated New Notes may, unless the Global
New Note has previously been exchanged for Certificated New Notes, be
exchanged for an interest in the Global New Note representing the principal
amount of New Notes being transferred.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants" or the "Depositary's Indirect Participants") that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
So long as the Global New Note Holder is the registered owner of any New
Notes, the Global New Note Holder will be considered the sole holder under the
Indenture of any New Notes evidenced by the Global New Note. Beneficial owners
of New Notes evidenced by the Global New Note will not be considered the
owners or holders thereof under the Indenture for any purpose, including with
respect to the giving of any directions, instructions or approvals to the
Trustee thereunder. Neither the Company nor the Trustee will have any
responsibility or liability for any aspect of the records of the Depositary or
for maintaining, supervising or reviewing any records of the Depositary
relating to the New Notes.
Payments in respect of the principal of, premium, if any, and interest on
New Notes registered in the name of the Global New Note Holder on the
applicable record date will be payable by the Trustee to or at the direction
of the Global New Note Holder in its capacity as the registered holder under
the Indenture. Under the terms of the Indenture, the Company and the Trustee
may treat the persons in whose names New Notes, including the Global New Note,
are registered as the owners thereof for the purpose of receiving such
payments. Consequently, neither the Company nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to beneficial
owners of New Notes. The Company believes, however, that it is currently the
policy of
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the Depositary to immediately credit the accounts of the relevant Participants
with such payments, in amounts proportionate to their respective holdings of
beneficial interests in the relevant security as shown on the records of the
Depositary. Payments by the Depositary's Participants and the Depositary's
Indirect Participants to the beneficial owners of New Notes will be governed
by standing instructions and customary practice and will be the responsibility
of the Depositary's Participants or the Depositary's Indirect Participants.
CERTIFICATED NEW NOTES
Subject to certain conditions, any person having a beneficial interest in
the Global New Note may, upon request to the Trustee, exchange such beneficial
interest for New Notes in the form of Certificated New Notes. Upon any such
issuance, the Trustee is required to register such Certificated New Notes in
the name of, and cause the same to be delivered to, such person or persons (or
the nominee of any thereof). In addition, if (i) the Company notifies the
Trustee in writing that the Depositary is no longer willing or able to act as
a depositary and the Company is unable to locate a qualified successor within
90 days or (ii) the Company, at its option, notifies the Trustee in writing
that it elects to cause the issuance of New Notes in the form of Certificated
New Notes under the Indenture, then, upon surrender by the Global New Note
Holder of its Global New Note, New Notes in such form will be issued to each
person that the Global New Note Holder and the Depositary identify as being
the beneficial owner of the related New Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global New Note Holder or the Depositary in identifying the beneficial owners
of New Notes and the Company and the Trustee may conclusively rely on, and
will protected in relying on, instructions from the Global New Note Holder or
the Depositary for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the New Notes represented
by the Global New Note (including principal, premium, if any, and interest) be
made by wire transfer of immediately available funds to the accounts specified
by the Global New Note Holder. With respect to Certificated New Notes, the
Company will make all payments of principal, premium, if any, and interest by
wire transfer of immediately available funds to the accounts specified by the
holders thereof or, if no such account is specified, by mailing a check to
each such holder's registered address. Secondary trading in long-term notes
and debentures of corporate issuers is generally settled in clearinghouse or
next-day funds. In contrast, New Notes represented by the Global New Note are
expected to be eligible to trade in the PORTAL market and to trade in the
Depositary's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such New Notes will, therefore, be required by the
Depositary to be settled in immediately available funds. The Company expects
that secondary trading in the Certificated New Notes will also be settled in
immediately available funds.
CERTAIN DEFINITIONS
Set forth below are certain of the defined terms used in the Indenture.
Reference is made to the Indenture for the definition of all other terms used
in the Indenture.
"Affiliate" means any of the following: (i) any person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company, (ii) any spouse, immediate family member or other
relative who has the same principal residence as any person described in
clause (i) above, (iii) any trust in which any such persons described in
clause (i) or (ii) above has a beneficial interest, and (iv) any corporation
or other organization of which any such persons described above collectively
own 50% or more of the equity of such entity.
"Asset Sale" means the sale, lease, conveyance or other disposition by the
Company or a Restricted Subsidiary of assets or property whether owned on the
date of original issuance of the Senior Notes or thereafter acquired, in a
single transaction or in a series of related transactions, that are outside of
the ordinary course of
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business of the Company or such Restricted Subsidiary; provided that Asset
Sales will not include such sales, leases, conveyances or dispositions in
connection with (i) the sale or disposition of any Restricted Investment, (ii)
any Equity Offering by (a) the Company or (b) any Restricted Subsidiary if the
proceeds therefrom are used to make mandatory prepayments of Indebtedness
under the New Credit Agreement or Indebtedness of the Restricted Subsidiaries
or redeem Senior Notes as described above in "Optional Redemption," (iii) the
sale or lease of equipment, inventory, accounts receivable or other assets in
the ordinary course of business, (iv) Receivables Financings, (v) the
surrender or waiver of contract rights or the settlement, release or surrender
of contract, tort or other claims of any kind, (vi) the grant of any license
of patents, trademarks, registration therefor and other similar intellectual
property, (vii) a transfer of assets by the Company or a Restricted Subsidiary
to any of the Company, a Restricted Subsidiary or a Non-Restricted Subsidiary,
(viii) the designation of a Restricted Subsidiary as a Non-Restricted
Subsidiary pursuant to the "Designation of Restricted and Non-Restricted
Subsidiaries" covenant, (ix) the sale, lease, conveyance or other disposition
of all or substantially all of the assets of the Company as permitted under
"Merger or Consolidation," (x) the sale or disposition of obsolete equipment
or other obsolete assets, or (xi) Restricted Payments permitted by the
"Limitations on Restricted Payments" covenant.
"Board of Directors" means the Company's board of directors or any
authorized committee of such board of directors.
"Capital Stock" means any and all shares, interests, participations or other
equivalents (however designated) of corporate stock, including any preferred
stock.
"Cash Flow" means, for any given period and person, the sum of, without
duplication, Consolidated Net Income, plus (a) the portion of Net Income
attributable to the minority interests in its Subsidiaries, to the extent not
included in calculating Consolidated Net Income, plus (b) any provision for
taxes based on income or profits to the extent such income or profits were
included in computing Consolidated Net Income, plus (c) Consolidated Interest
Expense, to the extent deducted in computing Consolidated Net Income, plus (d)
the amortization of all intangible assets, to the extent such amortization was
deducted in computing Consolidated Net Income (including, but not limited to,
inventory write-ups, goodwill, debt and financing costs, and Incentive
Arrangements), plus (e) any non-capitalized transaction costs incurred in
connection with financings, acquisitions or divestitures (including, but not
limited to, financing and refinancing fees, including those in connection with
the Offering and the Refinancing Plan, in each case, to the extent deducted in
computing Consolidated Net Income), plus (f) all depreciation and all other
non-cash charges (including, without limitation, those charges relating to
purchase accounting adjustments and LIFO adjustments), to the extent deducted
in computing Consolidated Net Income, plus (g) any interest income, to the
extent such income was not included in computing Consolidated Net Income, plus
(h) all dividend payments on preferred stock (whether or not paid in cash) to
the extent deducted in computing Consolidated Net Income, plus (i) any
extraordinary or non-recurring charge or expense arising out of the
implementation of SFAS 106 or SFAS 109 to the extent deducted in computing
Consolidated Net Income, plus (j) to the extent not covered in clause (e)
above, fees paid or payable in respect of the TJC Agreement to the extent
deducted in computing Consolidated Net Income, plus (k) the net loss of any
person, other than those of a Restricted Subsidiary, to the extent deducted in
computing Consolidated Net Income, plus (l) net losses in respect of any
discontinued operations as determined in accordance with GAAP, to the extent
deducted in computing Consolidated Net Income; provided, however, that if any
such calculation includes any period during which an acquisition or sale of a
person or the incurrence or repayment of Indebtedness occurred, then such
calculation for such period shall be made on a Pro Forma Basis.
"Cash Flow Coverage Ratio" means, for any given period and person, the ratio
of: (i) Cash Flow, divided by (ii) the sum of Consolidated Interest Expense
and the amount of all dividend payments on any series of preferred stock of
such person (except dividends paid or payable in additional shares of Capital
Stock (other than Disqualified Stock)), in each case, without duplication;
provided, however, that if any such calculation includes any period during
which an acquisition or sale of a person or the incurrence or repayment of
Indebtedness occurred, then such calculation for such period shall be made on
a Pro Forma Basis.
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"Change of Control" means the occurrence of each of the following: (i) any
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act), excluding the Jordan Stockholders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of
all securities that such person has the right to acquire, whether such right
is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total Voting Stock of the Company; and
(ii) the Company consolidates with, or merges with or into, another person or
sells, assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any person, or any person consolidates
with, or merges with or into, the Company, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company is converted
into or exchanged for cash, securities or other property, other than any such
transaction where (A) the outstanding Voting Stock of the Company is converted
into or exchanged for (1) Voting Stock (other than Redeemable Capital Stock)
of the surviving or transferee corporation or (2) cash, securities and other
property in an amount which could be paid by the Company as a Restricted
Payment under the Indenture and (B) immediately after such transaction no
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act), excluding the Jordan Stockholders, is the "beneficial owner"
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a
person shall be deemed to have "beneficial ownership" of all securities that
such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of
more than 50% of the total Voting Stock of the surviving or transferee
corporation; and (iii) during any consecutive two-year period, individuals who
at the beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election by such Board of
Directors or whose nomination for election by the stockholders of the Company
was approved by a vote of a majority of the directors then still in office who
are entitled to vote to elect such new director and were either directors at
the beginning of such period or persons whose election as directors or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in office.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the Company's assets. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of Senior Notes to require the Company to repurchase such Senior Notes
as a result of a sale, lease, transfer, conveyance or other disposition of
less than all of the assets of the Company and its subsidiaries to another
person may be uncertain. Furthermore, an acquisition of the Company by the
Jordan Stockholders including pursuant to a spin-off to the Jordan
Stockholders by Jordan Industries, Inc., directly or indirectly of its
investment in the Company, would not constitute a Change of Control.
"Commission" means the Securities and Exchange Commission.
"Consolidated Interest Expense" means, for any given period and person, the
aggregate of the interest expense in respect of all Indebtedness of such
person and its Subsidiaries for such period, on a consolidated basis,
determined in accordance with GAAP (including amortization of original issue
discount on any such Indebtedness, all non-cash interest payments, the
interest portion of any deferred payment obligation and the interest component
of capital lease obligations, but excluding amortization of deferred financing
fees if such amortization would otherwise be included in interest expense);
provided, however, that for the purpose of the Cash Flow Coverage Ratio,
Consolidated Interest Expense shall be calculated on a Pro Forma Basis;
provided further that any premiums, fees and expenses (including the
amortization thereof) payable in connection with the Old Note Offering and the
Refinancing Plan and the application of the net proceeds therefrom or any
other refinancing of Indebtedness will be excluded.
"Consolidated Net Income" means, for any given period and person, the
aggregate of the Net Income of such person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided,
however, that: (i) the Net Income of any person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition
shall be excluded, and (ii) Consolidated Net Income of any person will not
include, without duplication, any deduction for: (A) any increased
amortization or depreciation resulting from the write-up of assets pursuant to
Accounting Principles Board Opinion Nos. 16 and 17, as amended or
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supplemented from time to time, (B) the amortization of all intangible assets
(including amortization attributable to inventory write-ups, goodwill, debt
and financing costs, and Incentive Arrangements), (C) any non-capitalized
transaction costs incurred in connection with financings, acquisitions or
divestitures (including, but not limited to, financing and refinancing fees),
(D) any extraordinary or nonrecurring charges relating to any premium or
penalty paid, write-off or deferred financing costs or other financial
recapitalization charges in connection with redeeming or retiring any
Indebtedness prior to its stated maturity, and (E) any Restructuring Charges;
provided, however, that for purposes of determining the Cash Flow Coverage
Ratio, Consolidated Net Income shall be calculated on a Pro Forma Basis.
"Consolidated Net Worth" with respect to any person means, as of any date,
the consolidated equity of the common stockholders of such person (excluding
the cumulated foreign currency translation adjustment), all determined on a
consolidated basis in accordance with GAAP, but without any reduction in
respect of the payment of dividends on any series of such person's preferred
stock if such dividends are paid in additional shares of Capital Stock (other
than Disqualified Stock); provided, however, that Consolidated Net Worth shall
also include, without duplication: (a) the amortization of all write-ups of
inventory, (b) the amortization of all intangible assets (including
amortization of goodwill, debt and financing costs, and Incentive
Arrangements), (c) any non-capitalized transaction costs incurred in
connection with financings, acquisitions or divestitures (including, but not
limited to, financing and refinancing fees), (d) any increased amortization or
depreciation resulting from the write-up of assets pursuant to Accounting
Principles Board Opinion Nos. 16 and 17, as amended and supplemented from time
to time, (e) any extraordinary or nonrecurring charges or expenses relating to
any premium or penalty paid, write-off or deferred financing costs or other
financial recapitalization charges incurred in connection with redeeming or
retiring any Indebtedness prior to its stated maturity, (f) any Restructuring
Charges, and (g) any extraordinary or non-recurring charge arising out of the
implementation of SFAS 106 or SFAS 109; provided, however, that Consolidated
Net Worth shall be calculated on a Pro Forma Basis.
"Contingent Earnout Agreement" means the Contingent Earnout Agreement, among
the Company and certain of its Restricted Subsidiaries and Jordan Industries,
Inc. and certain of its Restricted Subsidiaries, as in effect on the date of
issuance of the Old Notes.
"Credit Agreement" means the Credit Agreement, dated September 22, 1995,
among Merkle-Korff Industries, Inc., its Subsidiaries and Bankers Trust
Company, and all loan documents and instruments thereunder, as amended and
restated in connection with the Offering, and as further amended, modified,
extended, restated, replaced, or supplemented, from time to time.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock that by its terms (or by the
terms of any security into which it is convertible--or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
redeemable at the option of the holder thereof, in whole or in part on, or
prior to, the maturity date of the Senior Notes.
"Equity Interests" means Capital Stock or partnership interests or warrants,
options or other rights to acquire Capital Stock or partnership interests (but
excluding (i) any debt security that is convertible into, or exchangeable for,
Capital Stock or partnership interests, and (ii) any other Indebtedness or
Obligation) provided, however, that Equity Interests will not include any
Incentive Arrangements or obligations or payments thereunder.
"Equity Offering" means a public or private offering by the Company and/or
its Subsidiaries for cash of Capital Stock or other Equity Interests and all
warrants, options or other rights to acquire Capital Stock, other than (i) an
offering of Disqualified Stock or (ii) Incentive Arrangements or obligations
or payments thereunder.
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"GAAP" means generally accepted accounting principles, consistently applied,
as of the date of original issuance of the Senior Notes. All financial and
accounting determinations and calculations under the Indenture will be made in
accordance with GAAP.
"Hedging Obligations" means, with respect to any person, the Obligations of
such persons under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (ii) foreign exchange
contracts, currency swap agreements or similar agreements, and (iii) other
agreements or arrangements designed to protect such person against
fluctuations, or otherwise to establish financial hedges in respect of,
exchange rates, currency rates or interest rates.
"Imperial Acquisitions" means the acquisition by the Company and certain of
its Restricted Subsidiaries of the business and net assets of Imperial
Electric Company, Scott Motor Company and Gear Research Company.
"Incentive Arrangements" means any earn-out agreements, stock appreciation
rights, "phantom" stock plans, employment agreements, non-competition
agreements, subscription and stockholders agreements and other incentive and
bonus plans and similar arrangements made in connection with acquisitions of
persons or businesses by the Company or the Restricted Subsidiaries or the
retention of executives, officers or employees by the Company or the
Restricted Subsidiaries.
"Indebtedness" means, with respect to any person, any indebtedness, whether
or not contingent, in respect of borrowed money or evidenced by bonds, notes,
debentures or similar instruments or letters of credit (or reimbursement
agreements in respect thereof) or representing the deferred and unpaid balance
of the purchase price of any property (including pursuant to capital leases),
except any such balance that constitutes an accrued expense or a trade
payable, and any Hedging Obligations, if and to the extent such indebtedness
(other than a Hedging Obligation) would appear as a liability upon a balance
sheet of such person prepared on a consolidated basis in accordance with GAAP,
and also includes, to the extent not otherwise included, the guarantee of
items that would be included within this definition; provided, however, that
"Indebtedness" will not include any Incentive Arrangements or obligations or
payments thereunder.
"Insolvency or Liquidation Proceeding" means (i) any insolvency or
bankruptcy or similar case or proceeding, or any reorganization, receivership,
liquidation' dissolution or winding up of the Company, whether voluntary or
involuntary, or (ii) any assignment for the benefit of creditors or any other
marshalling of assets and liabilities of the Company.
"Investment" means any capital contribution to, or other debt or equity
investment in, any Person.
"issue" means create, issue, assume, guarantee, incur or otherwise become
directly or indirectly liable for any Indebtedness or Capital Stock, as
applicable; provided, however, that any Indebtedness or Capital Stock of a
person existing at the time such person becomes a Restricted Subsidiary
(whether by merger, consolidation, acquisition or otherwise) shall be deemed
to be issued by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary. For this definition, the terms "issuing," "issuer," "issuance" and
"issued" have meanings correlative to the foregoing.
"JII Services Agreement" means the Management and Administration Services
Agreement, dated November 7, 1996, between the Company and Jordan Industries,
Inc., as in effect on the date of issuance of the Old Notes.
"Jordan Stockholders" means Jordan Industries, Inc., The Jordan Company and
Jordan/Zalaznick Capital Corporation and their respective affiliates,
principals, partners and employees, family members of any of the foregoing and
trusts for the benefit of any of the foregoing, including, without limitation,
MCIT PLC and Leucadia National Corporation and their respective Subsidiaries.
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"Junior Seller Note" means the subordinated promissory note, dated September
22, 1995, issued by Merkle-Korff Industries, Inc., in the principal amount of
$5.0 million, and maturing on December 31, 2003, as in effect on the date of
the issuance of the Old Notes.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell and any filing of or
agreement to give any financing statement under the Uniform Commercial Code
(or equivalent statutes) of any jurisdiction).
"MK Installment Note" means the promissory note, dated September 22, 1995,
issued by Merkle-Korff Industries, Inc., in the principal amount of $90.0
million, and due and payable on December 26, 1996, as in effect on the date of
the issuance of the Old Notes.
"MK Installment Note LC Facility" means the Letter of Credit Agreement,
dated September 22, 1995, among the Company, Merkle-Korff Industries, Inc.,
and Bankers Trust Company, including the cash collateral agreement and letter
of credit thereunder, and all loan documents and instruments thereunder,
pursuant to which Bankers Trust Company has issued and has outstanding a
standby letter of credit in the face amount of $90.0 million, as in effect on
the date of the issuance of the Old Notes.
"Net Income" means, with respect to any person, the net income (loss) of
such person, determined in accordance with GAAP, excluding, however, any gain
or loss, together with any related provision for taxes, realized in connection
with any Asset Sale (including, without limitation, dispositions pursuant to
sale and leaseback transactions).
"Net Proceeds" means, with respect to any Asset Sale, the aggregate amount
of cash proceeds (including any cash received by way of deferred payment
pursuant to a note receivable issued in connection with such Asset Sale, other
than the portion of such deferred payment constituting interest, and including
any amounts received as disbursements or withdrawals from any escrow or
similar account established in connection with any such Asset Sale, but, in
either such case, only as and when so received) received by the Company or any
of its Restricted Subsidiaries in respect of such Asset Sale, net of: (i) the
cash expenses of such Asset Sale (including, without limitation, the payment
of principal of, and premium, if any, and interest on, Indebtedness required
to be paid as a result of such Asset Sale (other than the Senior Notes) and
legal, accounting, management and advisory and investment banking fees and
sales commissions), (ii) taxes paid or payable as a result thereof, (iii) any
portion of cash proceeds that the Company determines in good faith should be
reserved for post-closing adjustments, it being understood and agreed that on
the day that all such post-closing adjustments have been determined, the
amount (if any) by which the reserved amount in respect of such Asset Sale
exceeds the actual post-closing adjustments payable by the Company or any of
its Restricted Subsidiaries shall constitute Net Proceeds on such date, (iv)
any relocation expenses and pension, severance and shutdown costs incurred as
a result thereof, and (v) any deduction or appropriate amounts to be provided
by the Company or any of its Restricted Subsidiaries as a reserve in
accordance with GAAP against any liabilities associated with the asset
disposed of in such transaction and retained by the Company or such Restricted
Subsidiary after such sale or other disposition thereof, including, without
limitation, pension and other post-employment benefit liabilities and
liabilities related to environmental matters or against any indemnification
obligations associated with such transaction.
"New Credit Agreement" means the credit agreement, dated November 7, 1996,
among M&G Industries, Inc., certain of its subsidiaries and the lenders party
thereto in their capacities as lenders thereunder and Bankers Trust Company,
as agent, together with all loan documents and instruments thereunder
(including, without limitation, any guarantee agreements and security
documents), in each case as such agreements may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified from
time to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including, without limitation,
increasing the amount of available borrowings thereunder, and all Obligations
with respect thereto, in each case, to the extent permitted by the "Limitation
on Incurrence of Indebtedness" covenant, or
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adding Subsidiaries of the Company as additional borrowers or guarantors
thereunder) all or any portion of the Indebtedness under such agreement or any
successor or replacement agreement and whether by the same or any other agent,
lender or group of lenders.
"Non-Restricted Subsidiary" means any Subsidiary of the Company other than a
Restricted Subsidiary.
"Obligations" means, with respect to any Indebtedness, all principal,
interest, premiums, penalties, fees, indemnities, expenses (including legal
fees and expenses), reimbursement obligations and other liabilities payable to
the holder of such Indebtedness under the documentation governing such
Indebtedness, and any other claims of such holder arising in respect of such
Indebtedness.
"Other Permitted Indebtedness" means:
(i) Indebtedness of the Company and its Restricted Subsidiaries existing
as of the date of issuance of the Old Notes;
(ii) Indebtedness of the Company and its Restricted Subsidiaries in
respect of bankers acceptances and letters of credit (including, without
limitation, letters of credit in respect of workers' compensation claims)
issued in the ordinary course of business, or other Indebtedness in respect
of respect to reimbursement-type obligations regarding workers'
compensation claims;
(iii) Refinancing Indebtedness, provided that: (A) the principal amount
of such Refinancing Indebtedness shall not exceed the outstanding principal
amount of Indebtedness (including unused commitments) extended, refinanced,
renewed, replaced, substituted or refunded plus any amounts incurred to pay
premiums, fees and expenses in connection therewith, (B) the Refinancing
Indebtedness shall have a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of the Indebtedness
being extended, refinanced, renewed, replaced, substituted or refunded;
provided, however, that this limitation in this clause (B) does not apply
to Refinancing Indebtedness of Senior Indebtedness, and (C) in the case of
Refinancing Indebtedness of Subordinated Indebtedness, such Refinancing
Indebtedness shall be subordinated to the Senior Notes at least to the same
extent as the Subordinated Indebtedness being extended, refinanced,
renewed, replaced, substituted or refunded;
(iv) intercompany Indebtedness of and among the Company and its
Restricted Subsidiaries (excluding guarantees by Restricted Subsidiaries of
Indebtedness of the Company not issued in compliance with "Limitation on
Guarantees of Company Indebtedness by Restricted Subsidiaries" covenant);
(v) Indebtedness of the Company and its Restricted Subsidiaries incurred
in connection with making permitted Restricted Payments under clauses
(iii), (iv) but only to the extent that such Indebtedness is provided by
the Company or a Restricted Subsidiary, or (x) of the second sentence of
the "Limitation on Restricted Payments" covenant;
(vi) Indebtedness of any Non-Restricted Subsidiary created after the date
of original issuance of the Senior Notes, provided that such Indebtedness
is nonrecourse to the Company and its Restricted Subsidiaries and the
Company and its Restricted Subsidiaries have no Obligations with respect to
such Indebtedness;
(vii) Indebtedness of the Company and its Restricted Subsidiaries under
Hedging Obligations;
(viii) Indebtedness of the Company and its Restricted Subsidiaries
arising from the honoring by a bank or other financial institution of a
check, draft or similar instrument inadvertently (except in the case of
daylight overdrafts, which will not be, and will not be deemed to be,
inadvertent) drawn against insufficient funds in the ordinary course of
business;
(ix) Indebtedness of any person at the time it is acquired as a
Restricted Subsidiary, provided that such Indebtedness was not issued by
such person in connection with or in anticipation of such acquisition;
(x) guarantees by Restricted Subsidiaries of Indebtedness of any
Restricted Subsidiary if such Indebtedness so guaranteed is permitted under
the Indenture;
(xi) guarantees by a Restricted Subsidiary of Indebtedness of the Company
if the Indebtedness so guaranteed is permitted under the Indenture and the
Senior Notes are guaranteed by such Restricted Subsidiary to the extent
required by the "Limitation on Guaranties of Company Indebtedness by
Restricted Subsidiaries" covenant;
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(xii) guarantees by the Company of Indebtedness of any Restricted
Subsidiary if the Indebtedness so guaranteed is permitted under the
Indenture;
(xiii) Indebtedness of the Company and its Restricted Subsidiaries in
connection with performance, surety, statutory, appeal or similar bonds in
the ordinary course of business;
(xiv) Indebtedness of the Company and its Restricted Subsidiaries in
connection with agreements providing for indemnification, purchase price
adjustments and similar obligations in connection with the sale or
disposition of any of their business, properties or assets;
(xv) Indebtedness of the Restricted Subsidiaries in respect of the Junior
Seller Note;
(xvi) Indebtedness of the Restricted Subsidiaries in respect of the MK
Installment Note and the MK Installment Note LC Facility; and
(xvii) Indebtedness of the Company and its Restricted Subsidiaries in
respect of the Contingent Earnout Agreement.
"Parent" means Motors and Gears Holdings, Inc., a Delaware corporation and
corporate parent of the Company.
"Permitted Liens" means: (a) with respect to the Company and its Restricted
Subsidiaries,
(1) Liens for taxes, assessments, governmental charges or claims which
are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have
been made therefor;
(2) statutory Liens of landlords and carriers', warehousemen's,
mechanics', suppliers', materialmen's, repairmen's or other like Liens
arising in the ordinary course of business and with respect to amounts not
yet delinquent or being contested in good faith by appropriate proceedings,
if a reserve or other appropriate provision, if-any as shall be required in
conformity with GAAP shall have been made therefor;
(3) Liens incurred on deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security;
(4) Liens incurred on deposits made to secure the performance of tenders,
bids, leases, statutory obligations, surety and appeal bonds, government
contracts, performance and return of money bonds and other obligations of a
like nature incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money);
(5) easements, rights-of-way, zoning or other restrictions, minor defects
or irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the business of the Company or any
of its Restricted Subsidiaries incurred in the ordinary course of business;
(6) Liens (including extensions, renewals and replacements thereof) upon
property acquired (the "Acquired Property") after the date of original
issuance of the Senior Notes, provided that: (A) any such Lien is created
solely for the purpose of securing Indebtedness representing, or issued to
finance, refinance or refund, the cost (including the cost of construction)
of the Acquired Property, (B) the principal amount of the Indebtedness
secured by such Lien does not exceed 100% of the cost of the Acquired
Property, (C) such Lien does not extend to or cover any property other than
the Acquired Property and any improvements on such Acquired Property, and
(D) the issuance of the Indebtedness to purchase the Acquired Property is
permitted by the "Limitation on Incurrence of Indebtedness" covenant;
(7) Liens in favor of customs and revenue authorities arising as a matter
of law to secure payment of customs duties in connection with the
importation of goods;
(8) judgment and attachment Liens not giving rise to an Event of Default;
(9) leases or subleases granted to others not interfering in any material
respect with the business of the Company or any of its Restricted
Subsidiaries;
(10) Liens securing Indebtedness under Hedging Obligations;
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(11) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements;
(12) Liens arising out of consignment or similar arrangements for the
sale of goods entered into by the Company or its Restricted Subsidiaries in
the ordinary course of business;
(13) any interest or title of a lessor in property subject to any capital
lease obligation or operating lease;
(14) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(15) Liens existing on the date of original issuance of the Senior Notes
and any extensions, refinancings, renewals, replacements, substitutions or
refundings thereof;
(16) any Lien granted to the Trustee and any substantially equivalent
Lien granted to any trustee or similar institution under any indenture for
Senior Indebtedness permitted by the terms of the Indenture;
(17) Liens securing Indebtedness under the MK Installment Note LC
Facility; and
(18) additional Liens at any one time outstanding in respect of
properties or assets where aggregate fair market value does not exceed
$10,000,000 (the fair market value to be determined on the date such Lien
is granted on such properties or assets);
(b) with respect to the Restricted Subsidiaries,
(1) Liens securing Restricted Subsidiaries' reimbursement Obligations
with respect to letters of credit that encumber documents and other
property relating to such letters of credit and the products and proceeds
thereof;
(2) Liens securing Indebtedness issued by Restricted Subsidiaries if such
Indebtedness is (A) under the Credit Agreement or New Credit Agreement, or
(B) permitted by the first sentence of the "Limitation on Incurrence of
Indebtedness" covenant, clauses (i), (ii), (iii) or (iv) of the second
sentence of the "Limitation on Incurrence of Indebtedness" covenant, or
clauses (i), (iii) (to the extent the Indebtedness subject to such
Refinancing Indebtedness was subject to Liens), (vi), (vii), (ix), (x) or
(xvi) of the definition of Other Permitted Indebtedness;
(3) Liens securing intercompany Indebtedness issued by any Restricted
Subsidiary to the Company or another Restricted Subsidiary; and
(4) Liens securing guarantees by Restricted Subsidiaries of Indebtedness
issued by the Company if such guarantees permitted by clause (xi) (but only
in respect of the property, rights and assets of the Restricted
Subsidiaries issuing such guarantees) of the definition of Other Permitted
Indebtedness;
(c) with respect to the Company,
(1) Liens securing Indebtedness issued by the Company if such
Indebtedness is (A) under the Credit Agreement or the New Credit Agreement,
or (B) if such Indebtedness is permitted by the "Limitation on Incurrence
of Indebtedness" covenant (including, but not limited to, Indebtedness
issued by the Company under the Credit Agreement or the New Credit
Agreement pursuant to clause (i) and/or clause (iv) of the second sentence
of the "Limitation on Incurrence of Indebtedness" covenant);
(2) Liens securing Indebtedness of the Company if such Indebtedness is
permitted by clauses (i), (iii) (to the extent the Indebtedness subject to
such Refinancing Indebtedness was subject to Liens) or (vii) of the
definition of Other Permitted Indebtedness;
(3) Liens securing guarantees by the Company of Indebtedness issued by
Restricted Subsidiaries if such Indebtedness is permitted by the
"Limitation on Incurrence of Indebtedness" covenant (including, but not
limited to, Indebtedness issued by Restricted Subsidiaries under the Credit
Agreement or the New Credit Agreement pursuant to clause (i) and/or clause
(iv) of the second sentence of the "Limitation on Incurrence of
Indebtedness" covenant) and if such guarantees are permitted by clause
(xii) (but only in respect of Indebtedness issued by the Restricted
Subsidiaries under the Credit Agreement or the New Credit Agreement
pursuant to the "Limitation on Incurrence of Indebtedness" covenant) of the
definition of Other Permitted Indebtedness; and
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(4) Liens securing the Company's reimbursement obligations with respect
to letters of credit that encumber documents and other property relating to
such letters of credit and the products and proceeds thereof
provided, however, that, notwithstanding any of the foregoing, the Permitted
Liens referred to in clause (c) of this definition shall not include any Lien
on Capital Stock of Restricted Subsidiaries held directly by the Company (as
distinguished from Liens on Capital Stock of Restricted Subsidiaries held by
other Restricted Subsidiaries) other than Liens securing (A) Indebtedness of
the Company issued under the Credit Agreement or the New Credit Agreement
pursuant to the "Limitation on Incurrence of Indebtedness" covenant and any
permitted Refinancing Indebtedness of such Indebtedness, and (B) guarantees by
the Company of Indebtedness issued by Restricted Subsidiaries under the Credit
Agreement or the New Credit Agreement pursuant to the "Limitation on
Incurrence of Indebtedness" covenant and any permitted Refinancing
Indebtedness of such Indebtedness.
"Pro Forma Basis" means, for purposes of determining Consolidated Net Income
in connection with the Cash Flow Coverage Ratio (including in connection with
the "Limitation on Restricted Payments" covenant, the "Designation of
Restricted and Non-Restricted Subsidiaries" covenant, the "Merger or
Consolidation" covenant, the incurrence of Indebtedness pursuant to the first
sentence of the "Limitation on Incurrence of Indebtedness" covenant and
Consolidated Net Worth for purposes of the "Merger or Consolidation" covenant,
giving pro forma effect to (x) any acquisition or sale of a person, business
or asset, related incurrence, repayment or refinancing of Indebtedness or
other related transactions, including any Restructuring Charges which would
otherwise be accounted for as an adjustment permitted by Regulation S-X under
the Securities Act or on a pro forma basis under GAAP, or (y) any incurrence,
repayment or refinancing of any Indebtedness and the application of the
proceeds therefrom, in each case, as if such acquisition or sale and related
transactions, restructurings, consolidations, cost savings, reductions,
incurrence, repayment or refinancing were realized on the first day of the
relevant period permitted by Regulation S-X under the Securities Act or on a
pro forma basis under GAAP. Furthermore, in calculating the Cash Flow Coverage
Ratio, (1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the determination date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum equal to
the rate of interest on such Indebtedness in effect on the determination date;
(2) if interest on any Indebtedness actually incurred on the determination
date may optionally be determined at an interest rate based upon a factor of a
prime or similar rate, a eurocurrency interbank offered rate, or other rates,
then the interest rate in effect on the determination date will be deemed to
have been in effect during the relevant period; and (3) notwithstanding clause
(1) above, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to interest rate swaps
or similar interest rate protection Hedging Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
"Receivables" means, with respect to any person, all of the following
property and interests in property of such person, whether now existing or
existing in the future or hereafter acquired or arising: (i) accounts,
(ii) accounts receivable (including, without limitation, all rights to payment
created by or arising from sales of goods, leases of goods or leased or the
rendition of services rendered no matter how evidenced, whether or not earned
by performance), (iii) all unpaid seller's or lessor's rights (including,
without limitation, recession, replevin, reclamation and stoppage in transit,
relating to any of the foregoing or arising therefrom), (iv) all rights to any
goods or merchandise represented by any of the foregoing (including, without
limitation, returned or repossessed goods), (v) all reserves and credit
balances with respect to any such accounts receivable or account debtors, (vi)
all letters of credit, security or guarantees of any of the foregoing, (vii)
all insurance policies or reports relating to any of the foregoing, (viii) all
collection or deposit accounts relating to any of the foregoing, (ix) all
proceeds of any of the foregoing, and (x) all books and records relating to
any of the foregoing.
"Receivables Financing" means (i) the sale, factoring or other disposition
of Receivables that arise in the ordinary course of business, or (ii) the
sale, factoring or other disposition of Receivables that arise in the ordinary
course of business to a Receivables Subsidiary followed by a financing
transaction in connection with such sale or disposition of such Receivables.
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"Receivables Subsidiary" means any Subsidiary of the Company or any other
corporation trust or entity that is exclusively engaged in Receivables
Financings and activities reasonably related thereto.
"Redeemable Preferred Stock" means preferred stock that by its terms or
otherwise is required to be redeemed or is redeemable at the option of the
holder thereof on, or prior to, the maturity date of the Senior Notes.
"Refinancing Indebtedness" means (i) Indebtedness of the Company and its
Restricted Subsidiaries issued or given in exchange for, or the proceeds of
which are used to, extend, refinance, renew, replace, substitute or refund any
Indebtedness permitted under this Indenture or any Indebtedness issued to so
extend, refinance, renew, replace, substitute or refund such Indebtedness,
(ii) any refinancings of Indebtedness issued under the New Credit Agreement,
and (iii) any additional Indebtedness issued to pay premiums and fees in
connection with clauses (i) and (ii).
"Refinancing Plan" means the Company's repayment of Indebtedness under the
Credit Agreement and certain other Indebtedness with the net proceeds from the
sale of the Old Notes and borrowing under the New Credit Agreement.
"Representative" means the agent or other representative in respect of the
New Credit Agreement, with the Representative originally being Bankers Trust
Company.
"Restricted Investment" means any Investment in any person, provided that
Restricted Investments will not include: (i) Investments in marketable
securities and other negotiable instruments permitted by the Indenture; (ii)
any Incentive Arrangements; (iii) Investments in the Company; or (iv)
Investments in any Restricted Subsidiary (provided that any Investment in a
Restricted Subsidiary was made for fair market value (as determined by the
Board of Directors in good faith)). The amount of any Restricted Investment
shall be the amount of cash and the fair market value at the time of transfer
of all other property (as determined by the Board of Directors in good faith)
initially invested or paid for such Restricted Investment, plus all additions
thereto, without any adjustments for increases or decreases in value of or
write-ups, write-downs or write-offs with respect to, such Restricted
Investment.
"Restricted Subsidiary" means: (i) any Subsidiary of the Company existing on
the date of issuance of the Old Notes, and (ii) any other Subsidiary of the
Company formed, acquired or existing after the date of issuance of the Old
Notes that is designated as a "Restricted Subsidiary" by the Company pursuant
to a resolution approved a majority of the Board of Directors, provided,
however, that the term Restricted Subsidiary shall not include any Subsidiary
of the Company that has been redesignated by the Company pursuant to a
resolution approved by a majority of the Board of Directors as a Non-
Restricted Subsidiary in accordance with the "Designation of Restricted and
Non-Restricted Subsidiaries" covenant unless such Subsidiary shall have
subsequently been redesignated a Restricted Subsidiary in accordance with
clause (ii) of this definition.
"Restructuring Charges" means any charges or expenses in respect of
restructuring or consolidating any business, operations or facilities, any
compensation or headcount reduction, or any other cost savings, of any persons
or businesses either alone or together with the Company or any Restricted
Subsidiary, as permitted by GAAP or Regulation S-X under the Securities Act.
"Senior Indebtedness" means: (i) all Obligations (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on any Indebtedness of the
Company, whether outstanding on the date of original issuance of the Senior
Notes or thereafter created, incurred or assumed, of the following types: (A)
all Indebtedness of the Company (including without limitation the Senior
Notes) for money borrowed, and (B) all Indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which the
Company is responsible or liable; (ii) all capitalized lease obligations of
the Company; (iii) all Obligations of the Company: (A) for the reimbursement
of any obligor on any letter of credit, banker's
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acceptance or similar credit transaction, (B) all constituting Hedging
Obligations, or (C) issued as the deferred purchase price of property and all
conditional sale Obligations of the Company and all Obligations of the Company
under any title retention agreement; (iv) all guarantees of the Company with
respect to Obligations of other persons of the type referred to in clauses
(ii) and (iii) and with respect to the payment of dividends of other persons;
and (v) all Obligations of the Company consisting of modifications, renewals,
extensions, replacements and refundings of any Obligations described in
clauses (i), (ii), (iii) or (iv) unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is
expressly provided that such Obligations are subordinated or junior in right
of payment to the Senior Notes; provided, however, that Senior Indebtedness
shall not be deemed to include: (1) any Obligation of the Company to any
Subsidiary, (2) any liability for federal, state, local or other taxes owed or
owing by the Company, (3) any accounts payable or other liability to trade
creditors arising in the ordinary course of business (including guarantees
thereof or instruments evidencing such liabilities), (4) any Indebtedness,
guarantee or Obligation of the Company that is contractually subordinated or
junior in any respect to any other Indebtedness, guarantee or Obligation of
the Company, or (5) any Indebtedness to the extent the same is incurred in
violation of the Indenture. Senior Indebtedness shall include all Obligations
in respect of the Senior Notes and the Indenture.
To the extent any payment on the Senior Notes, whether by or on behalf of
the Company, as proceeds of security or enforcement of any right of setoff or
otherwise, is declared to be fraudulent or preferential, set aside or required
to be paid to a trustee, receiver or other similar party under any bankruptcy,
insolvency, receivership or similar law, then if such payment is recovered by,
or paid over to, such trustee, receiver or other similar party, the Senior
Notes or part thereof originally intended to be satisfied by such payment
shall be deemed to be reinstated and outstanding as if such payment had not
occurred.
"SFAS 106" means Statement of Financial Accounting Standards No. 106.
"SFAS 109" means Statement of Financial Accounting Standards No. 109.
"Significant Subsidiary" means any Restricted Subsidiary of the Company that
would be a "significant subsidiary" as defined in clause (2) of the definition
of such term in Rule 1-02 of Regulation S-X under the Securities Act and the
Exchange Act.
"Subordinated Indebtedness" means all Obligations of the type referred to in
clauses (i) through (v) of the definition of Senior Indebtedness, if the
instrument creating or evidencing the same, or pursuant to which the same is
outstanding, designates such Obligations as subordinated or junior in right of
payment to Senior Indebtedness.
"Subsidiary" of any person means any entity of which the Equity Interests
entitled to cast at least a majority of the votes that may be cast by all
Equity Interests having ordinary voting power for the election of directors or
other governing body of such entity are owned by such person (regardless of
whether such Equity Interests are owned directly by such person or through one
or more Subsidiaries).
"TJC Agreement" means the Management Consulting Agreement, dated as of
November 7, 1996, between the Company and TJC Management Corporation, as in
effect on the date of original issuance of the Senior Notes.
"Voting Stock" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect the board of directors.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the then outstanding
principal amount of such Indebtedness into (ii) the sum of the product(s)
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other requirement payment of principal,
including payment at final maturity, in respect thereof, by (b) the number of
years (calculated to the nearest one-twelfth) which will elapse between such
date and the making of such payment.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of important terms of certain indebtedness of the
Company and its Subsidiaries:
CREDIT AGREEMENT
In connection with the acquisition of Merkle-Korff, Merkle-Korff entered
into a Credit Agreement with Bankers Trust Company ("BTCo."), as agent, and
other lenders thereunder (the "Credit Agreement"). The Credit Agreement
provided for (i) a $12.0 million revolving credit facility due 2001 with an
interest rate determined by reference to LIBOR plus 2.75% or base rate plus
1.50%, subject to reductions based on a leverage ratio, (ii) a $43.0 million
Term Loan A facility due 2001 with an interest rate determined by reference to
LIBOR plus 2.75% or base rate plus 1.50%, subject to reductions based on a
leverage ratio, and (iii) a $27.0 million Term Loan B facility due 2003 with
an interest rate determined by reference to LIBOR plus 3.25% or base rate plus
2.00%. The Company and Merkle-Korff's subsidiaries guaranteed Merkle-Korff's
obligations under the Credit Agreement, and provided as security under the
Credit Agreement a pledge of stock of Merkle-Korff and its subsidiaries and
liens in respect of certain of their assets.
To finance the Barber Colman Acquisition, the Company amended the Credit
Agreement by, among other things, increasing Term Loan A to $50.0 million,
increasing Term Loan B to $34.4 million, and adding a $5.0 million Term Loan C
due 2003 with an interest rate determined by reference to LIBOR plus 3.50% or
base rate plus 2.25%, and adding Barber Colman Motors as a guarantor under the
Credit Agreement and a pledge of the stock of Barber Colman Motors and liens
in respect of certain of its assets.
In connection with the Old Note Offering, Merkle-Korff repaid its
indebtedness under the Credit Agreement.
MK INSTALLMENT NOTE
In connection with the acquisition of Merkle-Korff, Merkle-Korff issued to
the Merkle-Korff seller a $90.0 million installment note which is due and
payable on December 26, 1996 (the "MK Installment Note"). The MK Installment
Note is an obligation of Merkle-Korff, and is supported by the $90.0 million
letter of credit issued under the MK Installment Note LC Facility. The
indebtedness evidenced by the MK Installment Note is not reflected on the
Company's balance sheet since this indebtedness is supported by the $90.0
million letter of credit issued under the MK Installment Note LC Facility.
Consequently, although the Company remains obligated under the MK Installment
Note, the Company views the MK Installment Note as defeased. Interest on the
MK Installment Note is determined and paid by reference to the rate per annum
paid on ninety (90) day U.S. Treasury Bills issued on specified dates.
Pursuant to the terms of the MK Installment Note, Merkle-Korff is not
permitted to prepay the MK Installment Note in whole or in part.
MK INSTALLMENT NOTE LC FACILITY
In connection with the acquisition of Merkle-Korff and the execution of the
MK Installment Note, Merkle-Korff and the Company entered into a separate
letter of credit facility with BTCo., pursuant to which Merkle-Korff deposited
$90.0 million into a cash collateral account which, in turn, secured a letter
of credit in the amount of $90.0 million which was delivered to the Merkle-
Korff seller in support of payment of the MK Installment Note (the "MK
Installment Note LC Facility"). This pledged cash collateral is not reflected
on the Company's balance sheet. In order to induce BTCo. to enter into the MK
Installment Note LC Facility, the Company guaranteed all amounts owed by
Merkle-Korff to BTCo. under the MK Installment Note LC Facility. This facility
matures on December 26, 1996.
JUNIOR SELLER NOTE
In connection with the acquisition of Merkle-Korff, Merkle-Korff issued to
the Merkle-Korff seller a $5.0 million, 9% Junior Seller Note (the "Junior
Seller Note") due December 31, 2003. The Junior Seller Note is a general
unsecured obligation of Merkle-Korff, which was subordinated to borrowings
under the Credit Agreement and is subordinated to borrowings under the New
Credit Agreement. Interest under the Junior Seller Note is payable annually in
arrears and Merkle-Korff is required to pay installments of principal on the
Junior
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Seller Note as follows: (i) $1.0 million on December 31, 2000, (ii) $1.25
million on December 31, 2001, (iii) $1.25 million on December 31, 2002, and
(iv) the entire then outstanding principal amount on December 31, 2003. Subject
to the terms and conditions of the New Credit Agreement, Merkle-Korff may
prepay the principal amount of the Junior Seller Note in whole or in part at
any time without payment of any premium or penalty.
NEW CREDIT AGREEMENT
Concurrently with the consummation of the Old Note Offering, M&G Industries
entered into a new revolving credit agreement with BTCo., as agent, and other
lenders thereunder, which replaced and refinanced the Credit Agreement and
provides for borrowings of up to $75.0 million for a five year term (the "New
Credit Agreement"). The New Credit Agreement is a revolving credit facility and
borrowings thereunder are not subject to a borrowing base or similar
limitation. M&G Industries pays interest under the New Credit Agreement based
upon LIBOR plus 2.50% or base rate plus 1.5%, subject to reduction based on the
Company's leverage ratio. Unutilized commitments under the revolving credit
facility bear an availability fee of 1/2 of 1% per annum, subject to reduction
based on the Company's leverage ratio. M&G Industries' obligations under the
New Credit Agreement are guaranteed by M&G Industries' subsidiaries, and
secured by pledges of the stock of M&G Industries' subsidiaries and liens in
respect of certain assets of M&G Industries and its subsidiaries.
The New Credit Agreement contains customary covenants, including covenants
relating to levels of interest coverage and limits on the ability of M&G
Industries and certain of its subsidiaries to incur indebtedness, create liens,
make restricted payments, engage in affiliate transactions, engage in mergers
and consolidations and make asset sales. The New Credit Agreement also contains
customary events of default. As of the date of this Prospectus, M&G Industries
had not incurred indebtedness under the New Credit Agreement.
CERTAIN TRANSACTIONS
The Company Formation and Proceeds From the Old Note Offering. The Company
was formed in September 1995 in order to acquire and operate companies in the
motion control industry. In September 1995, the Company acquired Merkle-Korff
for $107.4 million, including the $90.0 million MK Installment Note, a $5.6
million promissory note paid in 1995, the $5.0 million Junior Seller Note and
related fees and expenses. The Company borrowed approximately $72.5 million
under the Credit Agreement to finance the cash portion of the purchase price
for Merkle-Korff and to pay related fees and expenses. In connection with the
acquisition of Merkle-Korff, the Company also entered into the MK Installment
Note LC Facility, pursuant to which Merkle-Korff deposited $90.0 million in a
cash collateral account which, in turn, secured a letter of credit in the face
amount of $90.0 million which was delivered to the Merkle-Korff seller in
support of payment of the MK Installment Note and other obligations. In March
1996, the Company, through Merkle-Korff, effected the Barber Colman Acquisition
for $21.7 million. The Company borrowed approximately $21.7 million under the
Credit Agreement to finance the cash purchase price for the Barber Colman
Acquisition and to pay related fees and expenses.
Prior to the consummation of the Old Note Offering, Imperial, Scott and Gear
were subsidiaries of JII. Imperial, Scott and Gear were sold to the Company for
$75.0 million in cash, which includes the payment of approximately $6.5 million
of liabilities of Imperial and its subsidiaries owed to JII, and the Contingent
Earnout, if any, to be earned pursuant to the Contingent Earnout Agreement. The
acquisition agreement entered into in connection with such sale contained
customary terms and provisions used in transactions of that type and limited
the aggregate amount of any claims for indemnification by the Company for
breaches by the sellers thereunder to $15.0 million. The cash portion of the
purchase price for the Imperial Acquisitions were funded from the net proceeds
of the Old Note Offering. The Contingent Earnout Agreement, an obligation of
each of the Company, M&G Industries, Imperial, Scott and Gear is payable to an
affiliate of JII and will not be limited or otherwise restricted by the
Indenture or the New Credit Agreement. See "The Company--The Imperial
Acquisitions," "Use of Proceeds" and "Principal Stockholders."
JII Services. In connection with the Merkle-Korff acquisition, Parent entered
into an agreement with JII which agreement was amended in connection with the
Old Note Offering to add the Company and M&G
82
<PAGE>
Industries as parties thereto and to modify the payment formula for the
management and advisory fees due thereunder from a fixed fee to a percentage
of net sales (the "JII Services Agreement"). Under the JII Services Agreement,
the Company is charged an annual management and advisory fee by JII equal to
1% of its net sales payable quarterly. Such fees were $0.1 million and $.6
million, respectively, for the fiscal year ended December 31, 1995 and for the
nine months ended September 30, 1996. Imperial, Scott and Gear were charged
similar fees by JII. Such fees were $2.0 million, $2.1 million, $2.2 million
and $1.7 million, respectively, for the years ended December 31, 1993, 1994
and 1995 and for the nine months ended September 30, 1996. See Note 2 to the
Company's Consolidated Financial Statements. Pursuant to the JII Services
Agreement, JII makes certain services available to the Company, including the
resources of its acquisition, business development and international expansion
and accounting staffs. The JII Services Agreement expires in 2006 but is
automatically renewable for successive one year terms, unless either party
provides written notice of termination 60 days prior to the scheduled renewal
date. See "Risk Factors--Control by Principal Stockholder and Certain
Transactions."
Tax Sharing Agreement. The Company and each of its subsidiaries are party to
a Tax Sharing Agreement (the "Tax Sharing Agreement") among JII and each of
its consolidated subsidiaries for Federal income tax purposes. Pursuant to the
Tax Sharing Agreement, each of the consolidated subsidiaries of JII pays to
JII, on an annual basis, an amount determined by reference to the separate
return tax liability of the subsidiary as defined in Treasury Regulation (S)
1.1552-1(a)(2)(ii). For the years ended December 31, 1993, 1994 and 1995, and
the nine months ended September 30, 1996, the income tax payments by Imperial,
Scott and Gear to JII under the Tax Sharing Agreement were $.6 million, $2.0
million, $1.3 million, and $2.1 million, respectively. For the year ended
December 31, 1995, and the nine months ended September 30, 1996, the income
tax payments by the Company to JII under the Tax Sharing Agreement were $1.3
million and $2.6 million, respectively. These income tax payments reflected a
Federal and state income tax rate of approximately 40% of each subsidiary's
pre-tax income.
The Jordan Company. In connection with the Merkle-Korff acquisition, Parent
entered into an agreement with The Jordan Company which agreement was amended
in connection with the Old Note Offering to add the Company and M&G Industries
as parties thereto (the "TJC Agreement"). Under the TJC Agreement, Parent and
the Company agreed to retain The Jordan Company to render consulting services
to it regarding the Company and its subsidiaries, their financial and business
affairs and their relationships with their lenders and stockholders, and the
operation and expansion of their business. The TJC Agreement expires in 2006,
but is automatically renewed for successive one-year terms, unless either
party provides written notice of termination 60 days prior to the scheduled
renewal date. The TJC Agreement provides for payment to The Jordan Company of
(i) an investment banking and sponsorship fee of up to 2% of the purchase
price of certain acquisitions or sales involving the Company or any of its
subsidiaries, (ii) a financial consulting fee of up to 1% of any debt, equity
or other financing arranged by the Company with the assistance of The Jordan
Company and (iii) reimbursement for out-of-pocket costs; provided, that such
fees may be paid, in whole or in part, to JII, upon the mutual agreement of
the board of directors of JII and The Jordan Company. In connection with the
acquisitions of Merkle-Korff and Barber Colman Motors and related financings,
The Jordan Company was paid investment banking fees of $2.0 million and $0.4
million, respectively. See Note 2 to the Company's Consolidated Financial
Statements. In connection with the Imperial Acquisitions and the consummation
of the Old Note Offering and the New Credit Agreement, the Company paid The
Jordan Company $2.25 million pursuant to the TJC Agreement. Messrs. Jordan,
Boucher and Zalaznick are partners of The Jordan Company. The Company believes
that the terms of the TJC Agreement are comparable to the terms that it would
obtain from a non-affiliated party for comparable services. See "Risk
Factors--Control by Principal Stockholder and Certain Transactions."
Merkle-Korff Leases. Merkle-Korff leases its plants, warehouse and offices
under a net lease (the "Merkle-Korff Leases") from companies controlled by
John Simms, Sr., Chairman and Chief Executive Officer of Merkle-Korff and
Barber Colman Motors. Rent expenses, including real estate taxes attributable
to the Merkle-Korff Leases, amounted to $0.8 million for the year ended
December 31, 1995. The Company has agreed to pay the following future minimum
rental payments under the Merkle-Korff Leases: (i) $0.7 million for the year
ended December 31, 1996; (ii) $0.8 million for the year ended December 31,
1997; (iii) $0.8 million for the year ended December 31, 1998; (iv) $0.8
million for the year ended December 31, 1999; and (v) $0.6 million
83
<PAGE>
for the year ended December 31, 2000. The Company has the right of first
refusal to buy these facilities from Mr. Simms. See Note 2 to the Company's
Consolidated Financial Statements. The Company believes that the terms of the
Merkle-Korff Leases are comparable to the terms that it would obtain from a
non-affiliated party.
Employment Agreements. Effective September 22, 1995, Merkle-Korff entered
into an employment agreement with John D. Simms, Sr. (the "Simms Employment
Agreement"). Pursuant to the terms of the Simms Employment Agreement, Mr.
Simms agreed to serve as Chairman and Chief Executive Officer of Merkle-Korff
for a three-year period ending on September 22, 1998. Mr. Simms also agreed
not to compete against Merkle-Korff throughout the term of his employment
agreement and for three years thereafter or until September 22, 2000,
whichever is later, and not to disclose any confidential information during
and after the term of his employment. In exchange for his services and
covenants, Merkle-Korff agreed to compensate Mr. Simms with (i) a base salary
of $100,000 per annum, (ii) the use of an automobile, including reimbursement
for automobile-related costs and (iii) participation in Merkle-Korff's benefit
programs. In the event Mr. Simms no longer provides services to Merkle-Korff
due to his dismissal without cause (as defined in the Simms Employment
Agreement), then Mr. Simms is entitled to receive his base compensation from
the date of his termination through the remaining term of his employment
agreement.
Effective September 22, 1995, Merkle-Korff entered into an employment
agreement with John W. Brown (the "Brown Employment Agreement"). Pursuant to
the terms of the Brown Employment Agreement, Mr. Brown agreed to serve as
President of Merkle-Korff for a three-year period ending on September 22,
1998. Mr. Brown also agreed not to compete against Merkle-Korff throughout the
term of his employment agreement and for three years thereafter or until
September 22, 2000, whichever is later, and not to disclose any confidential
information during and after the term of his employment. In exchange for his
services and covenants, Merkle-Korff agreed to compensate Mr. Brown with (i) a
base salary of $200,000 per annum, (ii) the use of an automobile, including
reimbursement for automobile-related costs, (iii) payment of monthly and other
incidental country club fees, (iv) payment of annual life insurance premiums
on his life and (v) participation in benefit programs for JII's executives. In
addition, Mr. Brown is eligible to receive an annual bonus of up to $200,000,
as calculated by a formula reflecting annual increases in Merkle-Korff's
profitability. In the event Mr. Brown no longer provides services to Merkle-
Korff due to his dismissal without cause (as defined in the Brown Employment
Agreement), then Mr. Brown is entitled to receive his base compensation from
the date of his termination through the remaining term of his employment
agreement and a pro rata portion of the annual bonus which he would have been
entitled to had he not been dismissed.
JII Payments. Effective October 1, 1996, JII voluntarily agreed to pay to
Mr. Frank A. Collins $3.9 million (the "JII Payment") in view of his
contributions to JII, including identifying and analyzing acquisition
candidates for JII and providing strategic advice to the Board of Directors of
JII. JII agreed to pay Mr. Collins the JII Payment as follows: (i) one-third
(or $1.3 million) was paid to Mr. Collins in October 1996 and (ii) the
remaining two-thirds (or $2.6 million) will be paid to Mr. Collins in six
equal, semi-annual installments payable on each October 1 and April 1,
commencing on April 1, 1997.
Directors and Officers Indemnification. The Company has entered into
indemnification agreements with each member of the Company's Board of
Directors and certain executive officers whereby the Company agreed, subject
to certain exceptions, to indemnify and hold harmless each director and
certain executive officers from liabilities incurred as a result of such
person's status as a director or executive officer of the Company. See
"Management--Board of Directors."
Future Transactions. The Company has adopted a policy to provide that all
transactions between the Company and its officers, directors and other
affiliates must (i) be approved by a majority of the members of the Board of
Directors and by a majority of the disinterested members of the Board of
Directors and (ii) be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
84
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account as a result
of market-making activities or other trading activities in connection with the
Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that for a period of 180 days after
the Expiration Date, it will make available a prospectus meeting the
requirements of the Securities Act to any broker-dealer for use in connection
with any such resale. In addition, until , 1997, all dealers effecting
transactions in the New Notes may be required to deliver a prospectus.
The Company will receive no proceeds in connection with the Exchange Offer.
New Notes received by broker-dealers for their own account pursuant to the
Exchange Offer may be sold from time to time in one or more transactions in
the over-the-counter market, in negotiated transactions, through the writing
of options on the New Notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such broker-
dealer or the purchasers of any such New Notes. Any broker-dealer that resells
New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
FEDERAL INCOME TAX CONSEQUENCES
TO EXCHANGING AND NONEXCHANGING HOLDERS
The exchange of an Old Note for a New Note pursuant to the Exchange Offer
should not be taxable to the exchanging Holders for Federal income tax
purposes. As a result (i) an exchanging Holder should not recognize any gain
or loss on the exchange, (ii) the holding period for the New Note should
include the holding period for the Old Note and (iii) the basis of the New
Note should be the same as the basis of the Old Note.
The Exchange Offer will result in no Federal income tax consequences to a
nonexchanging Holder.
The preceding discussion reflects the opinion of Mayer, Brown & Platt,
counsel to the Company, as to the material Federal income tax consequences
expected to result from the Exchange Offer. The discussion is for general
information only and does not constitute tax advice. Each Holder should
consult its own tax adviser as to these and any other Federal income tax
consequences of the Exchange Offer as well as any tax consequences to it under
state, local or other law. This summary is based on the current provisions of
the Internal Revenue Code of 1986, as amended, and applicable Treasury
regulations, judicial authority and administrative rulings and practice. Those
consequences could be modified by future changes in the relevant law (which
changes could be applied retroactively).
LEGAL MATTERS
The validity of the New Notes will be passed upon for the Company by Mayer,
Brown & Platt, New York, New York. Mayer, Brown & Platt also represents JII
and its affiliates from time to time in connection with its various
acquisitions and divestitures.
85
<PAGE>
EXPERTS
The consolidated financial statements of Motors and Gears, Inc. (formerly MK
Group, Inc.) as of December 31, 1995 and for the period from September 23,
1995 to December 31, 1995, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The combined financial statements of Merkle-Korff Industries, Inc., Mercury
Industries, Inc. and Elmco Industries, Inc. as of December 31, 1994, and for
the years ended December 31, 1993, 1994 and the period from
January 1, 1995 to September 22, 1995, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The consolidated financial statements of The Imperial Electric Company and
Subsidiaries as of December 31, 1994 and 1995, and for each of the three years
in the period ended December 31, 1995, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The financial statements of Barber Colman Motors Division as of March 31,
1995 and December 31, 1995, and for the year ended March 31, 1995 and the nine
month period ended December 31, 1995, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The supplemental consolidated financial statements of Motors and Gears, Inc.
as of December 31, 1995 and for the period from September 23, 1995 to December
31, 1995, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission the Registration Statement
pursuant to the Securities Act, and the rules and regulations promulgated
thereunder, covering the New Notes being offered hereby. This Prospectus does
not contain all the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the New Notes, reference is hereby made to the Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to in the Registration
Statement are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. Upon consummation of the Exchange Offer, the Company will
become subject to the periodic and other informational requirements of the
Exchange Act. Periodic reports and other information filed by the Company with
the Commission may be inspected at the public reference facilities maintained
by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, or at its regional offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, New
York, New York 10048 at prescribed rates. Such materials may also be accessed
electronically by means of the Commission's home page on the Internet at http:
//www.sec.gov.
86
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
MOTORS AND GEARS, INC.
Report of Independent Auditors.......................................... F-3
Consolidated Balance Sheet as of December 31, 1995...................... F-4
Consolidated Statement of Income for the period from September 23, 1995
to
December 31, 1995...................................................... F-5
Consolidated Statement of Changes in Shareholder's Equity for the period
from
September 23, 1995 to December 31, 1995................................ F-6
Consolidated Statement of Cash Flows for the period from September 23,
1995
to December 31, 1995................................................... F-7
Notes to Consolidated Financial Statements.............................. F-8
MERKLE-KORFF INDUSTRIES, INC.,
MERCURY INDUSTRIES, INC. AND
ELMCO INDUSTRIES, INC.
Report of Independent Auditors.......................................... F-12
Combined Balance Sheet as of December 31, 1994.......................... F-13
Combined Statements of Income and Retained Earnings for each of the
years
ended December 31, 1993 and 1994, and the period from January 1, 1995
to
September 22, 1995..................................................... F-14
Combined Statements of Cash Flows for each of the years ended December
31,
1993 and 1994, and the period from January 1, 1995 to September 22,
1995................................................................... F-15
Notes to Combined Financial Statements.................................. F-16
BARBER-COLMAN MOTORS DIVISION
Report of Independent Auditors.......................................... F-20
Balance Sheets as of March 31, 1995 and December 31, 1995............... F-21
Statements of Divisional Operations for the year ended March 31, 1995,
and the
nine months ended December 31, 1995.................................... F-22
Statements of Cash Flows for the year ended March 31, 1995, and the nine
months
ended December 31, 1995................................................ F-23
Notes to Financial Statements........................................... F-24
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES
Report of Independent Auditors.......................................... F-29
Consolidated Balance Sheets as of December 31, 1994 and 1995............ F-30
Consolidated Statements of Income for each of the years ended December
31, 1993,
1994, and 1995......................................................... F-31
Consolidated Statements of Shareholder's Equity for each of the years
ended
December 31, 1993, 1994 and 1995....................................... F-32
Consolidated Statements of Cash Flows for each of the years ended
December 31, 1993,
1994 and 1995.......................................................... F-33
Notes to Consolidated Financial Statements.............................. F-34
MOTORS AND GEARS, INC.
Consolidated Balance Sheet as of September 30, 1996 (unaudited)......... F-40
Consolidated Statement of Income for the nine months ended September 30,
1996 (unaudited)....................................................... F-41
Consolidated Statement of Changes in Shareholder's Equity for the nine
months
ended September 30, 1996 (unaudited)................................... F-42
Consolidated Statement of Cash Flows for the nine months ended September
30, 1996 (unaudited)................................................... F-43
Notes to Consolidated Financial Statements (unaudited).................. F-44
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
BARBER-COLMAN MOTORS DIVISION
Balance Sheet as of March 8, 1996 (unaudited)........................... F-47
Statement of Divisional Operations and Division Equity for the period
from January 1, 1996 to
March 8, 1996 (unaudited).............................................. F-48
Statement of Cash Flows for the period from January 1, 1996 to March 8,
1996 (unaudited)....................................................... F-49
Notes to Financial Statements (unaudited)............................... F-50
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES
Consolidated Balance Sheet as of September 30, 1996 (unaudited)......... F-51
Consolidated Statements of Income for the nine months ended September
30, 1995 and 1996 (unaudited).......................................... F-52
Consolidated Statements of Shareholder's Equity for the nine months
ended September 30,
1995 and 1996 (unaudited).............................................. F-53
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1995 and 1996 (unaudited)................................ F-54
Notes to Consolidated Financial Statements (unaudited).................. F-55
MOTORS AND GEARS, INC.
Report of Independent Auditors.......................................... F-56
Supplemental Consolidated Balance Sheet as of December 31, 1995......... F-57
Supplemental Consolidated Statement of Income for the period from
September 23, 1995 to December 31, 1995................................ F-58
Supplemental Consolidated Statement of Changes in Shareholder's Equity
for the period from September 23, 1995 to December 31, 1995............ F-59
Supplemental Consolidated Statement of Cash Flows for the period from
September 23, 1995 to December 31, 1995................................ F-60
Notes to Supplemental Consolidated Financial Statements................. F-61
MOTORS AND GEARS, INC.
Supplemental Consolidated Balance Sheet as of September 30, 1996
(unaudited)............................................................ F-70
Supplemental Consolidated Statement of Income for the nine months ended
September 30, 1996 (unaudited)......................................... F-71
Supplemental Consolidated Statement of Changes in Shareholder's Equity
for the nine months ended September 30, 1996 (unaudited)............... F-72
Supplemental Consolidated Statement of Cash Flows for the nine months
ended September 30, 1996 (unaudited)................................... F-73
Notes to Supplemental Consolidated Financial Statements (unaudited)..... F-74
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Boards of Directors
Motors and Gears, Inc.
We have audited the accompanying consolidated balance sheet of Motors and
Gears, Inc. (formerly MK Group, Inc.) as of December 31, 1995, and the related
consolidated statements of income, changes in shareholder's equity, and cash
flows for the period from September 23, 1995 to December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Motors and
Gears, Inc. as of December 31, 1995, and the consolidated results of its
operations and its cash flows for the period from September 23, 1995 to
December 31, 1995, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Chicago, Illinois February 23, 1996,
except for Note 9, as to which the date is
March 8, 1996
F-3
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 2,744,981
Accounts receivable, less allowance for doubtful accounts of
$13,750........................................................ 5,835,005
Inventories..................................................... 4,922,462
Prepaid expenses and other...................................... 130,187
------------
Total current assets.......................................... 13,632,635
Property and equipment--Net....................................... 3,550,993
Other assets:
Goodwill--Net................................................... 87,431,201
Covenant not to compete--Net.................................... 472,918
Deferred financing costs and other--Net......................... 6,799,119
------------
Total assets.................................................. $111,886,866
============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable................................................ $ 4,705,712
Note payable.................................................... 500,000
Management fee payable.......................................... 130,254
Accrued interest payable........................................ 717,661
Accrued expenses and other...................................... 1,242,127
Current portion of long-term debt............................... 5,250,000
------------
Total current liabilities..................................... 12,545,754
Long-term debt.................................................... 69,125,000
Shareholder's equity:
Common stock; $.01 par value; 100,000 shares authorized; 100,000
shares issued and outstanding.................................. 1,000
Additional paid-in capital...................................... 29,905,250
Retained earnings............................................... 309,862
------------
Total shareholder's equity.................................... 30,216,112
------------
Total liabilities and shareholder's equity.................... $111,886,866
============
</TABLE>
See accompanying notes.
F-4
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER
23,
1995 TO
DECEMBER
31,
1995
-----------
<S> <C>
Net sales......................................................... $14,127,750
Cost of sales, excluding depreciation............................. 9,444,351
Selling, general, and administrative expenses, excluding
depreciation..................................................... 1,000,330
Depreciation and amortization..................................... 1,123,257
Management fees................................................... 141,326
-----------
Operating income.................................................. 2,418,486
Interest expense, net............................................. (1,901,624)
-----------
Income before income taxes........................................ 516,862
Provision for income taxes........................................ 207,000
-----------
Net income........................................................ $ 309,862
===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
MOTORS AND GEARS, INC. (A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------- ADDITIONAL TOTAL
NUMBER OF PAID-IN RETAINED SHAREHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------ ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance at September 22,
1995..................... 100 $ 1 $ 99 $ -- $ 100
Issuance of common stock.. 99,900 999 29,905,151 -- 29,906,150
Net income................ -- -- -- 309,862 309,862
------- ------ ----------- -------- -----------
Balance at December 31,
1995..................... 100,000 $1,000 $29,905,250 $309,862 $30,216,112
======= ====== =========== ======== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 23,
1995 TO
DECEMBER 31,
1995
-------------
<S> <C>
Cash flows from operating activities
Net income..................................................... $ 309,862
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................ 1,123,257
Provision for bad debts...................................... 13,750
Changes in operating assets and liabilities:
Accounts receivable........................................ 802,889
Inventories................................................ 684,464
Prepaid expenses and other................................. 179,406
Accounts payable........................................... 362,805
Accrued expenses and other................................. 1,336,310
-------------
Net cash provided by operating activities...................... 4,812,743
Cash flows from investing activities
Purchases of property and equipment.......................... (138,878)
Acquisition of subsidiaries.................................. (107,406,000)
Cash acquired in purchase of subsidiaries.................... 695,866
-------------
Net cash used in investing activities.......................... (106,849,012)
Cash flows from financing activities
Proceeds of debt issuance--Senior secured term loans......... 70,000,000
Proceeds from line of credit................................. 2,500,000
Proceeds of debt issuance--Subordinated debt................. 5,000,000
Proceeds of common stock issuance............................ 29,906,150
Payments on line of credit................................... (2,000,000)
Payments on long-term debt................................... (625,000)
-------------
Net cash provided by financing activities...................... 104,781,150
-------------
Increase in cash............................................... 2,744,881
Cash and cash equivalents at beginning of period............... 100
-------------
Cash and cash equivalents at end of period..................... $ 2,744,981
=============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest................................................... $ 1,198,072
=============
</TABLE>
See accompanying notes.
F-7
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Motors and Gears, Inc. (the Company and formerly MK Group, Inc.), a wholly
owned subsidiary of Motors and Gears Holdings, Inc. (formerly M&G Holdings,
Inc.), a majority-owned subsidiary of Jordan Industries, Inc. (Jordan), was
formed on September 8, 1995, to combine a group of companies engaged in the
manufacture and sale of reversible, permanent split-capacitor, shaded-pole,
and DC subfractional horsepower motors and gear motors primarily to customers
located throughout the United States.
The consolidated financial statements include all accounts of the Company
and its subsidiaries: Motors and Gears Industries, Inc. and Merkle-Korff
Industries, Inc. (Merkle-Korff). All significant intercompany balances and
transactions have been eliminated.
On September 22, 1995, the Company acquired all of the outstanding shares of
Merkle-Korff, Mercury Industries, Inc. (Mercury), and Elmco Industries, Inc.
(Elmco), (Acquisition) for approximately $107,406,000. The purchase price of
$107,406,000, including costs incurred directly related to the transaction,
was preliminarily allocated to working capital of $8,201,000; property and
equipment of $3,652,000; noncompete agreements of $500,000; deferred financing
fees of $6,765,000; and resulted in an excess purchase price over net
identifiable assets of $88,288,000. These financial statements include the
results of operations of the Company and its subsidiaries from September 23,
1995 to December 31, 1995.
In connection with the Acquisition, the Company issued to the seller a
$90,000,000 installment note which is due and payable on December 26, 1996
(Installment Note). The Installment Note has not been reflected on the
Company's balance sheet as it has been considered extinguished for financial
reporting purposes. This indebtedness was, in substance, defeased through a
$90,000,000 letter of credit which is secured by a $90,000,000 cash collateral
account.
Cash and Cash Equivalents
All highly liquid debt instruments purchased with an initial maturity of
three months or less are considered to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by
the first in, first out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
determined using either straight-line or accelerated methods over the
estimated useful lives of the assets. Leasehold improvements are amortized
using the straight-line method over the life of the leasehold improvement.
Intangible Assets
Goodwill is being amortized using the straight-line method over 30 years.
The noncompete agreement is being amortized using the straight-line method
over the life of the agreement. Deferred financing costs are amortized using
the straight-line method over the shorter of the terms of the related loans or
the period such loans are expected to be outstanding.
Research and Development Costs
Research and development costs related to both present and future products
are charged to expense when incurred.
F-8
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Income Taxes
The Company utilizes the liability method to account for income taxes. Under
the liability method, deferred tax assets and liabilities are determined based
on differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. In conjunction with
the acquisition, the operating results of the Company since that date are
included in the consolidated federal and state income tax returns of Jordan.
The income tax provision has been determined as if the Company would have
filed separate federal and state income tax returns.
Financial Instruments
Cash and trade receivables may subject the Company to credit risk. The
Company holds cash at highly rated financial institutions which are federally
insured up to prescribed limits. Cash balances may exceed the federally
insured limits at any given time.
From September 23, 1995 through December 31, 1995, the Company's three
largest customers accounted for 30.36% of sales. At December 31, 1995, the
three largest customers accounted for 24.68% of trade accounts receivable. The
Company closely monitors the credit quality of its customers, and credit
losses have been insignificant on an historical basis.
2. RELATED PARTY TRANSACTIONS
The Company leases its plants, warehouse, and offices under net leases from
affiliated entities. Rent expenses, including real estate taxes attributable
to these leases, amounted to $260,934 for the period from September 23, 1995
to December 31, 1995.
Future minimum rental payments required under the leases are as follows:
<TABLE>
<S> <C>
1996............................................................. $735,781
1997............................................................. 750,498
1998............................................................. 765,507
1999............................................................. 780,818
2000............................................................. 594,354
</TABLE>
The Company, through its parent, Motors and Gears Holdings, Inc., pays fees
to Jordan equal to 1% of the Company's gross sales under a management
consulting agreement with Jordan. The Company accrued $130,254 of fees under
this agreement.
The Company, through its parent, and TJC Management Corporation (TJC), an
affiliated entity, entered into a management consulting agreement whereby TJC
is to be paid an investment banking fee of up to 2%, based on the aggregate
consideration paid or received, for its assistance in acquisitions or sales
undertaken by the Company, and a financial consulting fee not to exceed 1% of
the aggregate debt and equity financing that is arranged by TJC, plus the
reimbursement of out-of-pocket expense. The Company paid $2,000,000 to TJC in
1995 related to the Company's acquisition of Merkle-Korff, Mercury, and Elmco.
F-9
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Raw materials.................................................. $ 3,167,135
Work in process................................................ 698,621
Finished goods................................................. 1,056,706
-----------
$ 4,922,462
===========
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Machinery and equipment........................................ $ 2,735,901
Dies and tooling............................................... 481,437
Furniture and fixtures......................................... 255,330
Vehicles....................................................... 77,500
Leasehold improvements......................................... 240,600
-----------
3,790,768
Less: Accumulated depreciation and amortization................ (239,775)
-----------
$ 3,550,993
===========
5. INCOME TAXES
The provision for income taxes at December 31 consists of the following:
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Current:
Federal...................................................... $ 175,950
State........................................................ 31,050
-----------
$ 207,000
===========
The total amount due to Jordan at December 31, 1995, related to a tax-sharing
agreement whereby the Company reimburses Jordan for any tax liabilities
computed as if the Company were a stand-alone entity, is $207,000.
6. LONG-TERM DEBT
The Company has long-term obligations, net of current maturities as follows:
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Senior Secured "A" Term Loan Facility(1)....................... $37,500,000
Senior Secured "B" Term Loan Facility(2)....................... 26,625,000
Subordinated Note(3)........................................... 5,000,000
-----------
$69,125,000
===========
</TABLE>
F-10
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------
(1) The Senior "A" Term loans are secured by all of the assets of the Company
and bear interest at a floating rate of LIBOR + 2.75% per annum payable
semiannually, and maturing in 2001. The applicable rate was 8.4375% at
December 31, 1995.
(2) The Senior "B" Term loans are secured by all of the assets of the Company
and bear interest at a floating rate of LIBOR + 3.25% per annum, payable
semiannually, and maturing in 2003. The applicable rate was 8.9375% at
December 31, 1995.
(3) The subordinated note payable is due to the former shareholder in
installments through 2003 and bears interest at 9% per annum. The note is
unsecured.
Aggregate maturities of long-term debt at December 31, 1995, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
1996............................................................ $ 5,250,000
1997............................................................ 6,625,000
1998............................................................ 7,250,000
1999............................................................ 8,250,000
2000............................................................ 9,250,000
Thereafter...................................................... 38,250,000
-----------
$74,875,000
===========
</TABLE>
The Company has revolving credit facilities available of $12,000,000 bearing
interest at a floating rate of LIBOR + 2.75% maturing in 2001. At December
31, 1995, there was $500,000 outstanding under these facilities.
7. COMMON STOCK
Concurrent with its formation, the Company issued 100 shares of its stock
for $100. On September 22, 1995, the Company sold an additional 99,900 shares
of its common stock for $29,906,150. The proceeds were used to finance a
portion of the acquisition of all of the outstanding shares of Merkle-Korff,
Mercury, and Elmco, as described in Note 1.
8. PROFIT-SHARING PLAN
The Company maintains a profit-sharing plan with a 401(k) provision. The
plan covers all eligible employees with specified years of service and
attainment of minimum age requirements. The Company's voluntary contribution
to the plan was approximately $55,000 during the period from September 23,
1995 to December 31, 1995.
9. SUBSEQUENT EVENT
On March 8, 1996, the Company acquired the net assets of Barber-Colman
Motors Division (Division), a division of Barber-Colman Company, which was
wholly owned by Siebe, plc. The Division consisted of Colman OEM and Colman
Motor Products, wholly-owned subsidiaries of Barber-Colman Company, and the
motors division of Barber-Colman Company, and is a vertically integrated
manufacturer of subfractional horsepower AC and DC motors and gear motors,
with applications in such products as vending machines, copiers, printers, ATM
machines, currency changers, X-ray machines, peristaltic pumps, HVAC
actuators, and other products.
The purchase price of $21,700,000, including costs incurred directly related
to the transaction, was preliminarily allocated to working capital of
$4,388,000; property, plant, and equipment of $6,591,000; noncompete
agreements of $1,000,000, and resulted in an excess purchase price over net
identifiable assets of $9,721,000. The acquisition was financed with
$21,700,000 of new and existing credit facilities.
F-11
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Boards of Directors
Merkle-Korff Industries, Inc.,
Mercury Industries, Inc. and Elmco Industries, Inc.
We have audited the accompanying combined balance sheet of Merkle-Korff
Industries, Inc., Mercury Industries, Inc., and Elmco Industries, Inc. as of
December 31, 1994, and the related combined statements of income and retained
earnings and cash flows for the years ended December 31, 1993 and 1994 and the
period from January 1, 1995 to September 22, 1995. These financial statements
are the responsibility of the Companies' management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement representation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects the combined financial position of Merkle-Korff
Industries, Inc., Mercury Industries, Inc. and Elmco Industries, Inc. as of
December 31, 1994, and the combined results of their operations and their cash
flows for the years ended December 31, 1993 and 1994 and the period from
January 1, 1995 to September 22, 1995, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Chicago, Illinois
February 23, 1996
F-12
<PAGE>
MERKLE-KORFF INDUSTRIES, INC.,
MERCURY INDUSTRIES, INC. AND
ELMCO INDUSTRIES, INC.
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
ASSETS
Current assets:
Cash............................................................. $ 69,574
Short-term investments........................................... 5,539,994
Accounts receivable.............................................. 5,877,107
Inventories...................................................... 4,529,148
Prepaid expenses and other....................................... 139,034
Note receivable.................................................. 11,415
-----------
Total current assets........................................... 16,166,272
Property and equipment--Net........................................ 482,766
Other assets:
Note receivable.................................................. 57,083
Due from related parties......................................... 1,231,426
Other noncurrent assets.......................................... 1,014,845
-----------
Total assets................................................... $18,952,392
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Outstanding checks in excess of bank balance..................... $ 56,857
Accounts payable................................................. 3,086,278
Accrued expenses and other....................................... 1,476,899
-----------
Total current liabilities...................................... 4,620,034
Stockholders' equity:
Common stock..................................................... 2,248,325
Retained earnings................................................ 12,084,033
-----------
Total stockholders' equity..................................... 14,332,358
-----------
Total liabilities and stockholders' equity..................... $18,952,392
===========
</TABLE>
See accompanying notes.
F-13
<PAGE>
MERKLE-KORFF INDUSTRIES, INC., MERCURY INDUSTRIES, INC. AND ELMCO INDUSTRIES,
INC.
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED YEAR ENDED 1995 TO
DECEMBER 31, DECEMBER 31, SEPTEMBER 22,
1993 1994 1995
------------ ------------ -------------
<S> <C> <C> <C>
Net sales............................. $43,766,171 $ 49,340,321 $ 39,294,103
Cost of sales......................... 27,706,529 31,564,365 24,188,376
----------- ------------ ------------
Gross profit.......................... 16,059,642 17,775,956 15,105,727
Selling, general, and administrative
expenses............................. 7,512,421 5,466,521 3,489,567
----------- ------------ ------------
Operating income...................... 8,547,221 12,309,435 11,616,160
Other income (expense):
Interest income..................... 172,186 231,089 273,970
Other............................... (454,117) (448,639) (2,293)
----------- ------------ ------------
Income before income taxes............ 8,265,290 12,091,885 11,887,837
State income taxes.................... 143,255 170,529 283,778
----------- ------------ ------------
Net income............................ 8,122,035 11,921,356 11,604,059
Retained earnings--beginning of
period............................... 9,808,279 10,267,075 12,084,033
Dividends paid........................ (7,663,239) (10,104,398) (16,718,535)
----------- ------------ ------------
Retained earnings--end of period...... $10,267,075 $ 12,084,033 $ 6,969,557
=========== ============ ============
Pro forma income data (unaudited):
Pro forma income taxes, including
amounts recorded................... $ 3,306,116 $ 4,836,754 $ 4,755,135
Pro forma net income................ 4,959,174 7,255,131 7,132,702
</TABLE>
See accompanying notes.
F-14
<PAGE>
MERKLE-KORFF INDUSTRIES, INC.,
MERCURY INDUSTRIES, INC. AND
ELMCO INDUSTRIES, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED YEAR ENDED 1995 TO
DECEMBER 31, DECEMBER 31, SEPTEMBER 22,
1993 1994 1995
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income:......................... $ 8,122,035 $ 11,921,356 $ 11,604,059
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization..... 334,584 323,657 101,411
Provision for bad debts........... 72,455 -- --
Changes in operating assets and
liabilities:
Accounts receivable............. (720,101) (954,472) (772,042)
Inventories..................... (62,634) (511,136) (717,088)
Prepaid expenses and other...... 46,353 (82,360) (269,254)
Deposits........................ (135,065) (187,123) --
Outstanding checks in excess of
bank balance................... (321,847) (309,780) (56,857)
Accounts payable................ (461,094) 1,017,562 1,481,436
Accrued expenses and other...... 115,173 6,671 (853,705)
----------- ------------ ------------
Net cash provided by operating
activities......................... 6,989,859 11,224,375 10,517,960
Cash flows from investing activities
(Purchases) sales of property and
equipment........................ (267,279) (190,223) 46,527
Decrease (increase) in short-term
investments...................... 1,009,923 (789,266) 5,539,994
Decrease (increase) in note
receivable....................... 43,388 (23,819) 11,415
(Increase) in accrued interest
receivable....................... -- -- (2,495)
----------- ------------ ------------
Net cash provided by (used in)
investing activities............... 786,032 (1,003,308) 5,595,441
Cash flows from financing activities
(Increase) decrease in due from
related parties.................. (122,673) (113,542) 1,231,426
Dividends paid.................... (7,663,239) (10,104,398) (16,718,535)
----------- ------------ ------------
Net cash (used in) financing
activities......................... (7,785,912) (10,217,940) (15,487,109)
----------- ------------ ------------
(Decrease) increase in cash......... (10,021) 3,127 626,292
Cash at beginning of period......... 76,468 66,447 69,574
----------- ------------ ------------
Cash at end of period............... $ 66,447 $ 69,574 $ 695,866
=========== ============ ============
Supplemental disclosures of cash
flow information
Cash paid during the period for:
Income taxes.................... $ 143,000 $ 171,000 $ 59,673
=========== ============ ============
</TABLE>
See accompanying notes.
F-15
<PAGE>
MERKLE-KORFF INDUSTRIES, INC.,
MERCURY INDUSTRIES, INC., AND
ELMCO INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 22, 1995
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Merkle-Korff Industries, Inc. (Merkle-Korff), Mercury Industries, Inc.
(Mercury), and Elmco Industries, Inc. (Elmco), collectively referred to as the
"Companies," are owned by an individual and trusts, the beneficiaries of which
are related to the individual. Merkle-Korff manufactures and sells reversible,
permanent split-capacitor, shaded-pole, and DC sub-fractional horsepower
motors and gearmotors primarily to customers located throughout the United
States. Mercury and Elmco manufacture various electro-mechanical products and
components exclusively for Merkle-Korff.
Short-Term Investments
Short-term investments consist of U.S. Treasury bills and are carried at
cost, which approximates market.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by
the first in, first out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
determined using either straight-line or accelerated methods over the
estimated useful lives of the assets. Leasehold improvements are amortized
using the straight-line method over the life of the leasehold improvement.
Research and Development Costs
Research and development costs related to both present and future products
are charged to expense when incurred.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Income Taxes
The Companies elected to be taxed as S corporations under applicable
provisions of the Internal Revenue Code and, therefore, are generally not
liable for federal and certain state income taxes, as the income of the
Companies is included in the taxable income of its stockholders.
Financial Instruments
Cash and trade receivables may subject the Companies to credit risk. The
Companies hold cash at highly rated financial institutions which are federally
insured up to prescribed limits. Cash balances may exceed the federally
insured limits at any given time.
For the years ended December 31, 1993 and 1994, and for the period from
January 1, 1995 to September 22, 1995, the three largest customers accounted
for 36%, 35% and 37% of sales, respectively. At December 31,
F-16
<PAGE>
MERKLE-KORFF INDUSTRIES, INC.,
MERCURY INDUSTRIES, INC. AND
ELMCO INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
1994, the three largest customers accounted for 29% of trade accounts
receivable. The Companies closely monitor the credit quality of their
customers and credit losses have been insignificant on a historical basis.
2. RESTATED PARTY TRANSACTIONS
Merkle-Korff leases its plants, warehouse, and offices under net leases from
affiliated entities. Rent expenses, including real estate taxes attributable
to these leases, amounted to $361,967, $361,962 and $274,731 for the years
ended December 31, 1993 and 1994, and for the period from January 1, 1995 to
September 22, 1995, respectively. Future annual minimum rental payments
required under this lease amount to $303,480 for 1996.
Mercury leases its plant under a net lease from a corporation which is an
affiliated entity. Rent expenses, including real estate taxes attributable to
this lease, amounted to $196,638, $194,419 and $146,431 for the years ended
December 31, 1993 and 1994, and for the period from January 1, 1995 to
September 22, 1995, respectively. Future minimum rental payments required
under this lease amount to $174,600 for 1996.
Elmco leases its plant under a net lease from a corporation which is an
affiliated entity. Rent expenses, including real estate taxes attributable to
this lease, amounted to $314,702, $334,938 and $162,421 for the years ended
December 31, 1993 and 1994, and for the period from January 1, 1995 to
September 22, 1995, respectively. Future minimum rental payments required
under this lease amount to $254,040 for 1996.
The amount shown as due from related parties at December 31, 1994
principally includes amounts due from related trusts and individuals under
certain insurance agreements entered into for the benefit of certain officers
of the Companies. The Companies are entitled to be reimbursed by the trusts
for the lesser of all premiums paid relating to these policies or their cash
surrender values upon either payment of the face value of the policies or
termination of the policies for any reason. As of December 31, 1994, these
amounts were secured by the cash surrender value of the related life insurance
policies.
The Companies contributed $450,000 to a foundation controlled by a related
party during each of the years ended December 31, 1993 and 1994.
Transactions and accounts existing between the Companies have been
eliminated in the combined financial statements.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Raw materials................................................... $2,796,630
Work in process................................................. 764,058
Finished goods.................................................. 968,460
----------
$4,529,148
==========
</TABLE>
F-17
<PAGE>
MERKLE-KORFF INDUSTRIES, INC.,
MERCURY INDUSTRIES, INC. AND
ELMCO INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Machinery and equipment........................................ $ 4,088,405
Dies and tooling............................................... 1,687,477
Furniture and fixtures......................................... 834,661
Vehicles....................................................... 205,304
Leasehold improvements......................................... 740,135
-----------
7,555,982
Less: Accumulated depreciation and amortization................ (7,073,216)
-----------
$ 482,766
===========
5. NOTE RECEIVABLE
Note receivable consists of the following:
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
9.75% note receivable due in monthly installments of $1,466
including interest through November 1999...................... $ 68,498
Less: Current portion.......................................... (11,415)
-----------
$ 57,083
===========
6. COMMON STOCK
Common stock consists of the following:
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Merkle-Korff Industries, Inc.
Common stock; no par value; 1,000,000 shares authorized;
803,250 shares
issued and outstanding...................................... $ 2,222,235
Mercury Industries, Inc.
Common stock; no par value; 2,500 shares authorized; 1,000
shares issued and outstanding............................... 25,000
Elmco Industries, Inc.
Common stock; $10 par value; 100,000 shares authorized; 100
shares issued and outstanding............................... 1,000
-----------
$ 2,248,325
===========
</TABLE>
7. PROFIT-SHARING PLANS
The Companies maintain profit-sharing plans with a 401(k) provision. The
plans cover all eligible employees with specified years of service and
attainment of minimum age requirements. The Companies' voluntary contributions
to the plans were $99,047 and $98,765 for the years ended December 31, 1993
and 1994, respectively. The Companies did not make any voluntary contributions
to the plans during the period from January 1, 1995 to September 22, 1995.
F-18
<PAGE>
MERKLE-KORFF INDUSTRIES, INC.,
MERCURY INDUSTRIES, INC. AND
ELMCO INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
8. SUBSEQUENT EVENT
On September 22, 1995, Motors and Gears, Inc., formerly MK Group, Inc., a
wholly-owned subsidiary of M&G Holdings, Inc., a majority-owned subsidiary of
Jordan Industries, Inc., acquired all of the outstanding common stock of the
Companies for approximately $107,406,000.
F-19
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Barber-Colman Company
We have audited the accompanying balance sheets of Barber-Colman Company--
Barber-Colman Motors Division (the Division) as of March 31, 1995 and December
31, 1995, and the related statements of divisional operations and cash flows
for the year ended March 31, 1995 and the nine month period ended December 31,
1995. These financial statements are the responsibility of the Division's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
Barber-Colman Company--Barber-Colman Motors Division is a part of Barber-
Colman Company, a wholly owned subsidiary of Siebe, plc., and has no separate
legal status or existence. Transactions with Barber-Colman Company and other
affiliates are described in Note 1.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Barber-Colman Company--
Barber-Colman Motors Division at March 31, 1995 and December 31, 1995, and the
results of its operations and its cash flows for the year ended March 31, 1995
and the nine months ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the financial statements, the Division changed its
method of accounting for advertising costs on April 1, 1995 to conform with
Statement of Position 93-7, "Reporting on Advertising Costs."
Ernst & Young LLP
Chicago, Illinois
January 19, 1996
F-20
<PAGE>
BARBER-COLMAN MOTORS DIVISION
(A DIVISION OF BARBER-COLMAN COMPANY, A
WHOLLY OWNED SUBSIDIARY OF SIEBE, PLC.)
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1995
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 6,000 $ 6,000
Accounts receivable from third parties, less allow-
ance of $33,000.................................... 3,129,000 1,586,000
Accounts receivable from related entities........... 507,000 428,000
Inventories......................................... 2,908,000 2,726,000
Prepaid expenses and other current assets........... 837,000 599,000
Deferred income taxes............................... 78,000 128,000
----------- -----------
Total current assets.............................. 7,465,000 5,473,000
Property, equipment, and leasehold improvements--Net.. 7,265,000 6,989,000
Goodwill, less accumulated amortization of $626,000 at
March 31, 1995; $687,000 at December 31, 1995........ 2,652,000 2,591,000
----------- -----------
Total assets...................................... $17,382,000 $15,053,000
=========== ===========
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable to third parties................... $ 2,501,000 $ 591,000
Accounts payable to related entities................ 362,000 119,000
Accrued expenses and other current liabilities...... 650,000 551,000
----------- -----------
Total current liabilities......................... 3,513,000 1,261,000
Deferred income taxes................................. 2,042,000 1,971,000
Commitments (Note 8)
Division equity....................................... 11,827,000 11,821,000
----------- -----------
Total liabilities and division equity............. $17,382,000 $15,053,000
=========== ===========
</TABLE>
See accompanying notes.
F-21
<PAGE>
BARBER-COLMAN MOTORS DIVISION
(A DIVISION OF BARBER-COLMAN COMPANY, A WHOLLY OWNED SUBSIDIARY OF SIEBE, PLC.)
STATEMENTS OF DIVISIONAL OPERATIONS
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
MARCH 31, DECEMBER 31,
1995 1995
----------- ------------
<S> <C> <C>
Net sales:
Third parties....................................... $21,362,000 $14,890,000
Related entities.................................... 2,090,000 1,452,000
----------- -----------
23,452,000 16,342,000
Cost of sales:
Third parties....................................... 15,296,000 11,105,000
Related entities.................................... 1,497,000 1,083,000
----------- -----------
16,793,000 12,188,000
----------- -----------
Gross profit........................................ 6,659,000 4,154,000
Selling, general, and administrative expenses:
Allocated by parent................................. 981,000 886,000
Other............................................... 3,953,000 2,935,000
----------- -----------
4,934,000 3,821,000
----------- -----------
Operating income...................................... 1,725,000 333,000
Other expense......................................... 11,000 18,000
Allocated interest expense............................ 425,000 321,000
----------- -----------
Income (loss) before income taxes and cumulative
effect of change in accounting for advertising
costs................................................ 1,289,000 (6,000)
Provision for income taxes............................ 671,000 130,000
----------- -----------
Income (loss) before cumulative effect of change in
accounting for advertising costs..................... 618,000 (136,000)
Cumulative effect of change in accounting for
advertising costs (Note 1)........................... -- 122,000
----------- -----------
Divisional income (loss) ............................. $ 618,000 $ (258,000)
=========== ===========
</TABLE>
See accompanying notes.
F-22
<PAGE>
BARBER-COLMAN MOTORS DIVISION
(A DIVISION OF BARBER-COLMAN COMPANY, A WHOLLY OWNED SUBSIDIARY OF SIEBE, PLC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
MARCH 31, DECEMBER 31,
1995 1995
---------- ------------
<S> <C> <C>
Cash flows from operating activities
Divisional income (loss) ............................ $ 618,000 $ (258,000)
Adjustments to reconcile divisional income (loss) to
net cash provided by operating activities:
Depreciation and amortization...................... 831,000 641,000
Deferred income taxes.............................. (590,000) (39,000)
Cumulative effect of change in accounting for
advertising costs................................. -- 122,000
Changes in operating assets and liabilities:
Accounts receivable.............................. (507,000) 1,622,000
Inventories...................................... (567,000) 182,000
Prepaid expenses and other current assets........ 35,000 34,000
Accounts payable................................. 340,000 (2,153,000)
Accrued expenses and other current liabilities... (60,000) (99,000)
---------- -----------
Net cash provided by operating activities............ 100,000 52,000
Cash flows from investing activities
Purchases of property, equipment, and leasehold im-
provements........................................ (699,000) (458,000)
Proceeds from disposals of property, equipment, and 1,433,000 154,000
leasehold improvements............................ ---------- -----------
Net cash provided by (used for) investing activi-
ties................................................ 734,000 (304,000)
Cash flows from financing activities
(Distributions to) contributions by Parent......... (834,000) 252,000
---------- -----------
Net cash (used for) provided by financing activi- (834,000) 252,000
ties................................................ ---------- -----------
Net change in cash................................... -- --
Cash at beginning of period.......................... 6,000 6,000
---------- -----------
Cash at end of period................................ $ 6,000 $ 6,000
========== ===========
</TABLE>
See accompanying notes.
F-23
<PAGE>
BARBER-COLMAN MOTORS DIVISION
(A DIVISION OF BARBER-COLMAN COMPANY, A WHOLLY OWNED SUBSIDIARY OF SIEBE,
PLC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Barber-Colman Motors Division (the Division) is a division of Barber-Colman
Company, which is a wholly owned subsidiary of Siebe, plc. (collectively, the
Parent). The Division consists of Colman OEM and Colman Motor Products, wholly
owned subsidiaries of Barber-Colman Company, and the motors division of
Barber-Colman Company. The Division is a vertically integrated manufacturer of
subfractional horsepower AC and DC motors and gear motors and sells its
products to customers located in North America.
Basis of Presentation
These financial statements present the assets, liabilities, and results of
operations of the Division. Costs related to functions performed by the Parent
and certain other costs which are attributable to the Division are allocated
to the Division by the Parent. Costs related to these functions performed by
the Parent include legal, property and casualty insurance, human resources,
financial reporting, general accounting, and other administrative services. In
addition, interest expense is allocated by the Parent. Refer to Note 9 for a
summary of allocated costs.
The Division is part of a consolidated group and as such has significant
transactions with related entities. The terms of these transactions were
determined between related parties and may, therefore, differ from terms which
would have occurred between wholly unrelated parties and may also differ from
the costs which would have been incurred had the Division operated as a
completely autonomous entity.
The assets, liabilities, income, and expenses shown on the Division's
financial statements are only part of those of a larger entity and are not
subject to the constraints of law and custom applicable to legal entities.
Consequently, they may be available to satisfy claims unrelated to and not
reflected in the financial statements of the nonlegal entity.
Cash Management
The Division transfers its cash to the Parent and the Parent advances funds
to the Division to finance its operations, the expansion of its business, and
its working capital requirements. The net activity in the regard is reflected
as a part of Division equity.
Inventories
Inventories are valued at the lower of cost or market. The Division costs
certain inventories using the last in, first out (LIFO) method and other
inventories using the first in, first out (FIFO) method.
Property, Equipment, and Leasehold Improvements
Property and equipment are stated at cost, less accumulated depreciation.
Provisions for depreciation of property and equipment are determined using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are stated at cost, less accumulated amortization. Amortization
is determined using the straight-line method over the life of the leasehold
improvement.
Goodwill
Goodwill is being amortized over 40 years using the straight-line method.
All of the goodwill was allocated by the Parent to the Division after the
acquisition of Barber-Colman Company in 1987.
F-24
<PAGE>
BARBER-COLMAN MOTOR DIVISION
(A DIVISION OF BARBER-COLMAN COMPANY, A
WHOLLY OWNED SUBSIDIARY OF SIEBE, PLC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Financial Instruments
Trade receivables may subject the Division to credit risk. Credit risk
associated with trade receivables is limited by the large number of customers
in the Division's customer base. The Division monitors the credit quality of
its customers and maintains allowances for potential credit losses which,
historically, have been within the range of the Division's expectations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Advertising Costs
On April 1, 1995, the Division adopted Statement of Position 93-7,
"Reporting on Advertising Costs" (SOP 93-7). The adoption of SOP 93-7 changes
the Division's method of accounting for advertising costs. Previously, the
Division deferred advertising costs and amortized them over the related period
of advertising. Advertising costs are now expensed as incurred. The cumulative
effect of this change in accounting was to increase the divisional loss for
the nine months ended December 31, 1995 by $122,000, net of an $82,000 income
tax benefit.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1995
---------- ------------
<S> <C> <C>
Raw materials....................................... $ 152,000 $ 62,000
Work in process..................................... 3,341,000 3,220,000
Finished goods...................................... 135,000 199,000
Inventory obsolescence reserve...................... (451,000) (451,000)
---------- ----------
3,177,000 3,030,000
LIFO reserve........................................ (269,000) (304,000)
---------- ----------
$2,908,000 $2,726,000
========== ==========
</TABLE>
Inventories with a current cost of approximately $1,842,000 and $1,944,000,
respectively, have been costed using the LIFO method.
F-25
<PAGE>
BARBER-COLMAN MOTORS DIVISION
(A DIVISION OF BARBER-COLMAN COMPANY, A
WHOLLY OWNED SUBSIDIARY OF SIEBE, PLC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
Property, equipment, and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1995
----------- ------------
<S> <C> <C>
Machinery and equipment.............................. $10,132,000 $10,468,000
Furniture and fixtures............................... 503,000 514,000
Construction in process.............................. 534,000 386,000
Leasehold improvements............................... 421,000 432,000
Allocated software costs............................. 1,093,000 1,079,000
Other fixed assets................................... 46,000 57,000
----------- -----------
12,729,000 12,936,000
Less: Accumulated depreciation and amortization...... (5,512,000) (5,995,000)
----------- -----------
7,217,000 6,941,000
Allocated building costs, net........................ 48,000 48,000
----------- -----------
$ 7,265,000 $ 6,989,000
=========== ===========
</TABLE>
Allocated building costs, net represents the portion of the cost of Barber-
Colman Company's headquarters facility allocated to the Division. This
facility was disposed of during the year ended March 31, 1995 and the related
allocation was reversed.
4. DIVISION EQUITY
Division equity consists of the following:
<TABLE>
<S> <C>
Balance at April 1, 1994........................................ $12,043,000
Divisional income............................................... 618,000
Distributions to Parent, net.................................... (834,000)
-----------
Balance at March 31, 1995....................................... 11,827,000
Divisional loss................................................. (258,000)
Contributions by Parent, net.................................... 252,000
-----------
Balance at December 31, 1995.................................... $11,821,000
===========
</TABLE>
Distributions to/Contributions by Parent represent the change in net assets
of the Division, net of divisional income or loss during each respective
period.
5. INCOME TAXES
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
MARCH 31, DECEMBER 31,
1995 1995
---------- ------------
<S> <C> <C>
Current:
Federal.............................................. $ 977,000 $131,000
State................................................ 284,000 38,000
---------- --------
1,261,000 169,000
Deferred............................................... (590,000) (39,000)
---------- --------
$ 671,000 $130,000
========== ========
</TABLE>
F-26
<PAGE>
BARBER-COLMAN MOTORS DIVISION
(A DIVISION OF BARBER-COLMAN COMPANY, A
WHOLLY OWNED SUBSIDIARY OF SIEBE, PLC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The primary reasons for the difference between the statutory federal income
tax rate and the effective tax rate are state income taxes and amortization of
goodwill and other expenses not deductible for tax purposes.
The Division's operating results are included in the Parent's income tax
returns. The provision for current income taxes is based on the Division's
taxable income calculated on a separate return basis.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and income tax purposes.
Significant components of the Division's deferred tax assets and liabilities
consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1995
----------- ------------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts.................... $ 13,000 $ 13,000
Inventory obsolescence reserve..................... 180,000 180,000
Accrued vacation................................... 32,000 11,000
Accrued warranty................................... 10,000 10,000
Other.............................................. 14,000 84,000
----------- -----------
249,000 298,000
Deferred income tax liabilities:
Book value in excess of tax basis
of property, equipment, and
leasehold improvements............................ (2,042,000) (1,971,000)
Prepaid expenses................................... (171,000) (170,000)
----------- -----------
(2,213,000) (2,141,000)
----------- -----------
$(1,964,000) $(1,843,000)
=========== ===========
</TABLE>
6. RETIREMENT BENEFITS
Substantially all of the Division's employees are covered by a qualified
retirement savings and/or profit sharing plan of the Parent. The Division is
charged for its share of the Parent's contributions to the plans. The Division
was charged approximately $214,000 and $161,000 for these contributions during
year ended March 31, 1995 and nine months ended December 31, 1995,
respectively.
7. MAJOR CUSTOMERS
During the year ended March 31, 1995 and the nine months ended December 31,
1995, the same three customers accounted for approximately 31% and 34% of
sales, respectively. At March 31, 1995 and December 31, 1995, these same three
customers accounted for approximately 37% and 31% of trade accounts
receivable, respectively.
One of these customers is a related entity which accounted for approximately
9% of sales during both the year ended March 31, 1995 and the nine months
ended December 31, 1995. At March 31, 1995 and December 31, 1995, this related
entity accounted for approximately 14% and 21% of trade accounts receivable,
respectively.
F-27
<PAGE>
BARBER-COLMAN MOTORS DIVISION
(A DIVISION OF BARBER-COLMAN COMPANY, A
WHOLLY OWNED SUBSIDIARY OF SIEBE, PLC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. COMMITMENTS
The Division leases manufacturing, office, and storage facilities and
certain equipment under noncancelable operating leases expiring in various
years through 2000. The leases require the Division to pay real estate taxes
and maintenance costs.
Commitments for future minimum payments under noncancelable leases are as
follows as of December 31, 1995:
<TABLE>
<S> <C>
1996........................................................... $1,244,000
1997........................................................... 1,031,000
1998........................................................... 960,000
1999........................................................... 762,000
2000 and thereafter............................................ 386,000
</TABLE>
Rental expense for the year ended March 31, 1995 and the nine months ended
December 31, 1995 was approximately $984,000 and $842,000, respectively.
Included in these amounts is related party rental expense of approximately
$158,000 and $132,000 for the year ended March 31, 1995 and the nine months
ended December 31, 1995, respectively.
9. ALLOCATED COSTS
Costs related to functions performed by the Parent and certain other costs
which are attributable to the Division are allocated to the Division by the
Parent as follows:
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
MARCH 31, DECEMBER 31,
1995 1995 BASIS FOR ALLOCATION
--------- ------------ --------------------
<S> <C> <C> <C>
Cost of sales*:
Building rent......... $ 38,000 $ 31,000 Square feet occupied
Data processing....... 157,000 124,000 Hourly use
Insurance............. 168,000 112,000 Actual experience
-------- --------
$363,000 $267,000
======== ========
Selling, general and ad-
ministrative expenses:
Building rent......... $120,000 $101,000 Square feet occupied
Data processing....... 31,000 23,000 Hourly use
Insurance............. 63,000 68,000 Actual experience
Royalties............. 216,000 147,000 Actual third-party sales
Management fees....... 78,000 98,000 Budgeted sales
Other................. 473,000 449,000 Budgeted sales, headcount, and
actual use of corporate services
-------- --------
$981,000 $886,000
======== ========
Interest................ $425,000 $321,000 Average net assets
======== ========
</TABLE>
- --------
* These costs are included in cost of sales of both third parties and related
entities.
F-28
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholder
The Imperial Electric Company and Subsidiaries
We have audited the accompanying consolidated balance sheets of The Imperial
Electric Company and subsidiaries as of December 31, 1994 and 1995, and the
related consolidated statements of income, shareholder's equity and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of The Imperial Electric Company and subsidiaries at December 31, 1994 and
1995, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Akron, Ohio
October 1, 1996
F-29
<PAGE>
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES
(A SUBSIDIARY OF JORDAN INDUSTRIES, INC.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
(IN THOUSANDS,
EXCEPT SHARE AND
PER SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 56 $ 36
Accounts receivable, net of allowance for doubtful
accounts of $15 in 1994 and 1995........................ 5,434 7,378
Inventories.............................................. 7,000 8,481
Prepaid expenses......................................... 287 272
--------- ---------
Total current assets................................... 12,777 16,167
Property, plant and equipment--Net......................... 3,010 3,615
Goodwill less accumulated amortization of $3,748 in 1994
and $4,172 in 1995........................................ 13,434 13,005
Other non-current assets................................... 29 27
--------- ---------
Total assets........................................... $ 29,250 $ 32,814
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable......................................... $ 2,313 $ 2,911
Accrued expenses and other current liabilities........... 469 594
Current portion of capital lease obligations............. 163 136
Current portion of note payable to Parent................ 2,200 3,357
Due to parent............................................ 3,551 4,802
--------- ---------
Total current liabilities.............................. 8,696 11,800
Long-term capital lease obligations........................ 348 709
Deferred income taxes...................................... 83 73
Note payable to Parent..................................... 7,827 4,470
Other non-current liabilities.............................. 157 53
Shareholder's equity:
Common stock, Class A, $100 per share stated value, 50
shares authorized, issued and outstanding............... 5 5
Common stock, Class B, $100 per share stated value, 950
shares authorized, issued and outstanding............... 95 95
Retained earnings........................................ 12,039 15,609
--------- ---------
Total shareholder's equity............................. 12,139 15,709
--------- ---------
Total liabilities and shareholder's equity............. $29,250 $32,814
========= =========
</TABLE>
See accompanying notes.
F-30
<PAGE>
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES
(A SUBSIDIARY OF JORDAN INDUSTRIES, INC.)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1993 1994 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales........................................... $32,242 $36,243 $40,090
Cost of sales, excluding depreciation............... 21,217 23,461 27,055
Selling, general and administrative expenses, ex-
cluding depreciation............................... 2,425 2,267 2,239
Depreciation........................................ 912 595 707
Amortization of goodwill and other intangibles...... 687 474 431
Management fees to Parent........................... 1,967 2,065 2,168
------- ------- -------
Operating income.................................... 5,034 7,381 7,490
Other (income) and expenses:
Interest expense:
Parent............................................ 2,285 1,813 1,352
Other............................................. 6 45 85
Miscellaneous--Net................................. (49) (45) (9)
------- ------- -------
2,242 1,813 1,428
------- ------- -------
Income before income taxes.......................... 2,792 5,568 6,062
Provision for income taxes.......................... 1,185 2,254 2,492
------- ------- -------
Net income.......................................... $ 1,607 $ 3,314 $ 3,570
======= ======= =======
</TABLE>
See accompanying notes.
F-31
<PAGE>
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES (A SUBSIDIARY OF JORDAN
INDUSTRIES, INC.)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON COMMON
STOCK STOCK RETAINED
CLASS A CLASS B EARNINGS TOTAL
------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at January 1, 1993.................... $ 5 $95 $ 7,118 $ 7,218
Net income................................... -- -- 1,607 1,607
--- --- ------- -------
Balance at December 31, 1993.................. 5 95 8,725 8,825
Net income................................... -- -- 3,314 3,314
--- --- ------- -------
Balance at December 31, 1994.................. 5 95 12,039 12,319
Net income................................... -- -- 3,570 3,570
--- --- ------- -------
Balance at December 31, 1995.................. $ 5 $95 $15,609 $15,709
=== === ======= =======
</TABLE>
See accompanying notes.
F-32
<PAGE>
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES
(A SUBSIDIARY OF JORDAN INDUSTRIES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1993 1994 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities
Net income......................................... $ 1,607 $ 3,314 $ 3,570
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 1,599 1,069 1,138
Deferred income taxes............................ (211) 31 (10)
Changes in assets and liabilities:
Accounts receivable............................. 297 (505) (1,944)
Inventories..................................... 42 (1,070) (1,481)
Prepaid expenses................................ (240) 18 15
Accounts payable, accrued expenses and other
account liabilities............................ (233) 1,214 722
Non-current liabilities......................... 44 63 (104)
------- ------- -------
Net cash provided by operating activities.......... 2,905 4,134 1,906
Cash flows from investing activities
Net additions to property, plant and equipment... (291) (194) (731)
------- ------- -------
Net cash used in investing activities.............. (291) (194) (731)
Cash flows from financing activities
Increase in due to Parent........................ 889 265 1,251
Payments on note payable to Parent............... (3,503) (4,031) (2,200)
Payment of capital lease obligations............. -- (118) (246)
------- ------- -------
Net cash used in financing activities.............. (2,614) (3,884) (1,195)
------- ------- -------
Increase (decrease) in cash........................ -- 56 (20)
Cash and cash equivalents at beginning of year..... -- -- 56
------- ------- -------
Cash and cash equivalents at end of year........... $ -- $ 56 $ 36
======= ======= =======
Supplemental cash flow disclosure:
Interest:
Parent........................................... $ 2,582 $ 1,933 $ 1,432
Other............................................ 6 45 85
Income taxes paid................................. 65 89 142
Property acquired under capital leases............ -- 556 581
</TABLE>
See accompanying notes.
F-33
<PAGE>
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES
(A SUBSIDIARY OF JORDAN INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Imperial Electric Company ("Imperial") designs, manufactures and
distributes specialty electric motors, generators and gears for industry and
commercial use. Sales are principally in the United States. Imperial is owned
100% by Jordan Industries, Inc. ("Parent" or "Jordan Industries").
Principles of Consolidation
The consolidated financial statements include the accounts of Imperial and
its wholly-owned subsidiaries, Scott Motors Company ("Scott"), a manufacturer
of specialty electric motors; and Gear Research Inc. ("Gear"), a manufacturer
of gears and precision gear assemblies. Imperial and its subsidiaries are
referred to collectively as "the Company". All significant intercompany
transactions and accounts have been eliminated.
Cash and cash equivalents
Cash equivalents consist of highly liquid investments with an initial
maturity of three months or less at the time of purchase.
Inventories
Inventories are stated at the lower of cost or market. Inventories are
primarily valued at either average or first-in, first-out (FIFO) cost.
Property, Plant and Equipment
Property, plant and equipment is carried at cost less accumulated
depreciation. Depreciation is provided on the straight-line and accelerated
methods over the estimated useful lives as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 5 to 30 years
Machinery and equipment..................................... 3 to 7 years
Furniture and fixtures...................................... 5 to 10 years
</TABLE>
Leasehold improvements and assets under capital leases are amortized using
the straight-line method over the lower of the lease term or their estimated
productive lives. Amortization of leasehold improvements and capital leased
assets is included in depreciation expense.
Goodwill
Goodwill is the excess of cost over net assets acquired from the acquisition
of Imperial by the Parent, and the acquisitions of Scott and Gear by Imperial.
Goodwill is being amortized on the straight-line method over forty years. The
carrying amount of goodwill is reviewed if facts and circumstances suggest
that it may be impaired. If this review indicates that goodwill will not be
recoverable, as determined based on the undiscounted cash flows of the entity
acquired over the remaining amortization period, the Company's carrying value
of the goodwill will be reduced by the estimated shortfall of cash flows.
Adoption of FAS 121
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
SFAS 121 requires, among other things, that the Company consider whether
F-34
<PAGE>
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES
(A SUBSIDIARY OF JORDAN INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
indicators of impairment of long-lived assets held for use are present, that
if such indicators are present the Company determines whether the sum of the
estimated undiscounted future cash flows attributable to such assets is less
than their carrying amount, and if so, that the Company recognizes an
impairment at loss based on the excess of the carrying amount of the assets
over their fair value.
The Company adopted the provisions of SFAS 121 in the fourth quarter of
1995. Accordingly, the Company evaluated the ongoing value of its property,
plant and equipment and other long-lived assets at that time. From this
evaluation, the Company determined that there were no indications of
impairment significant enough to warrant recognition of an impairment loss,
and as such, no impairment loss has been recognized for the year ended
December 31, 1995.
Income Taxes
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Under the provisions of this statement, deferred tax assets and liabilities
are determined based on the difference between the financial statement and tax
basis of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. A valuation allowance is
provided when it is more likely than not that some portion of the deferred tax
assets arising from temporary differences and net operating losses will not be
realized. The adoption of SFAS No. 109 did not have a material effect on the
financial condition or results of operations of the Company.
Concentration of Credit Risk
Credit is extended based on an evaluation of the customer's financial
condition and generally collateral is not required. Credit terms are
consistent with the industry, and credit losses are provided for in the
financial statements and consistently have been within management's
expectations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company's financial instruments include trade accounts receivable,
accounts payable, accrued expenses, and notes payable to Jordan Industries.
The fair values of all financial instruments were not materially different
from their carrying values.
2. INVENTORIES
Inventories consist of the following at December 31:
<TABLE>
<CAPTION>
1994 1995
------ ------
(IN
THOUSANDS)
<S> <C> <C>
Raw materials.................................................. $5,613 $6,598
Work-in-process................................................ 736 867
Finished goods ................................................ 651 1,016
------ ------
$7,000 $8,481
====== ======
</TABLE>
F-35
<PAGE>
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES
(A SUBSIDIARY OF JORDAN INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land and improvements...................................... $ 265 $ 265
Buildings.................................................. 2,492 2,648
Machinery and equipment.................................... 8,827 9,826
Furniture and fixtures..................................... 287 298
------- -------
11,871 13,037
Less accumulated depreciation and amortization............. (8,861) (9,422)
------- -------
Net property, plant and equipment.......................... $ 3,010 $ 3,615
======= =======
</TABLE>
4. LEASE
The Company leases certain land, buildings and equipment under capital and
noncancelable operating lease agreements expiring in various years through
2003. Under the terms of one of these operating leases, monthly rental payments
may be adjusted every 36 months. Minimum future lease payments, by year and in
aggregate, under capital and noncancelable operating leases are as follows at
December 31, 1995:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
1996...................................................... $ 342 $ 272
1997...................................................... 281 272
1998...................................................... 216 198
1999...................................................... 136 198
2000...................................................... 31 198
Thereafter................................................ -- 398
------ ------
Total minimum lease payments.............................. 1,006 $1,536
======
Amount representing interest.............................. (161)
------
Present value of net minimum lease payments............... $ 845
======
</TABLE>
Total rent expense related to operating leases for 1993, 1994 and 1995
amounted to $275, $276 and $288, respectively.
F-36
<PAGE>
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES
(A SUBSIDIARY OF JORDAN INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. INCOME TAXES
The Company's taxable income is included in the consolidated federal income
tax return of Jordan Industries, Inc. The amount of income taxes allocated to
the Company is based on the amount of taxes determined as if the Company filed
a separate federal income tax return.
Significant components of the provision for income taxes attributable to
operations are as follows for the years ended December 31:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1993 1994 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.......................................... $ 1,208 $ 1,931 $ 2,194
State............................................ 188 292 308
------- ------- -------
Total current.................................. 1,396 2,223 2,502
Deferred:
Federal.......................................... (211) 31 (10)
State............................................ -- -- --
------- ------- -------
Total deferred................................. (211) 31 (10)
------- ------- -------
$ 1,185 $ 2,254 $ 2,492
======= ======= =======
</TABLE>
The provision for income taxes differs from the amount of income tax
provision computed by applying the federal income tax rate to income before
income taxes. A reconciliation of the differences is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1993 1994 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Computed statutory tax provision.................... $ 949 $ 1,893 $ 2,061
Increase (decrease) resulting from:
State and local taxes, net of federal benefit..... 110 193 203
Nondeductible amortization........................ 145 145 146
Other--Net........................................ (19) 23 82
------- ------- -------
Provision for income taxes.......................... $ 1,185 $ 2,254 $ 2,492
======= ======= =======
</TABLE>
Deferred tax liabilities and assets are comprised of the following at
December 31:
<TABLE>
<CAPTION>
1994 1995
----- -----
(IN
THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Depreciation.................................................. $ 783 $ 759
----- -----
Total deferred tax liabilities.............................. 783 759
Deferred tax assets:
Vacation accrual.............................................. 55 63
Franchise tax................................................. 146 128
Employee benefits............................................. 94 53
Uniform capitalization........................................ 201 243
Other......................................................... 204 199
----- -----
Total deferred tax assets................................... 700 686
----- -----
Net deferred tax liabilities.................................... $ 83 $ 73
===== =====
</TABLE>
F-37
<PAGE>
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES
(A SUBSIDIARY OF JORDAN INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. RELATED PARTY TRANSACTION
During the years ended December 31, 1993, 1994 and 1995, the Company engaged
in various related party transactions with its parent, Jordan Industries, Inc.
Following are the details of material transactions between the Company and
Jordan Industries.
The Company's note payable to Parent is primarily financed through a
revolving credit arrangement with Jordan Industries, Inc. Borrowings under the
arrangement are due on demand and bear interest at 14.5%. The borrowings were
used primarily to purchase Imperial, Scott, and Gear. The Parent has
represented that it does not intend to call this note in any part during the
year ended December 31, 1996. The portion of the note payable which the
Company has repaid or intends to repay within the next year has been
classified as current in the financial statements.
Jordan Industries, Inc. provides consulting services to the Company in
exchange for annual fees which are payable in accordance with terms stipulated
in the management consulting agreement between the Company and Jordan
Industries. Management fee expenses recorded by the Company for such services
amounted to $1,967, $2,065 and $2,168 for the years ended December 31, 1993,
1994 and 1995, respectively.
Due to Parent at December 31 consists of:
<TABLE>
<CAPTION>
1994 1995
------ ------
(IN
THOUSANDS)
<S> <C> <C>
Interest under revolving credit agreement..................... $ 414 $ 334
Management fee................................................ 516 542
Taxes payable................................................. 2,008 3,073
Other......................................................... 613 853
------ ------
$3,551 $4,802
====== ======
</TABLE>
7. BENEFIT PLANS
The Company has several employee benefit plans covering substantially all
employees. The Company makes contributions to the plans equal to the amounts
determined by accepted actuarial methods for the defined benefit plan and on a
cents-per-hour basis for certain defined contribution plans.
Benefits under the defined benefit plan are based on years of service and
employee compensation.
The following table sets forth the status of the defined benefit plan of the
Company at December 31:
<TABLE>
<CAPTION>
1994 1995
----- -----
(IN
THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested...................................................... $ 151 $ 72
Non-vested.................................................. 9 8
----- -----
Projected benefit obligation.................................. 160 80
Plan assets at fair value primarily invested in money market
accounts, equity securities, loans and mortgages............. 128 32
----- -----
Under-funded projected benefit obligation..................... (32) (48)
Unrecognized net gain......................................... (40) (6)
----- -----
Accrued pension cost recorded as a current liability.......... $ (72) $ (54)
===== =====
</TABLE>
F-38
<PAGE>
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES
(A SUBSIDIARY OF JORDAN INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net pension cost of the defined benefit plan includes the following
components for the years ended December 31:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1993 1994 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Interest cost..................................... $ 16 $ 17 $ 8
Return on assets.................................. (21) 17 (4)
Net amortization of deferral...................... 8 (31) (3)
-------- -------- -------
Net periodic pension cost....................... $ 3 $ 3 $ 1
======== ======== =======
</TABLE>
The following actuarial assumptions were used in determining the projected
benefit at December 31:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate............................. 7.00% 7.75% 6.00%
Expected long-term rate on plan assets..................... 8.00% 8.00% 7.75%
</TABLE>
Certain employees not covered by collective bargaining agreements
participate in 401(k) plans sponsored by the Company or Jordan Industries,
Inc. The plans provide for employer contributions either based on a formula or
at the discretion of the Board of Directors. Employer contributions to their
401(k) and other defined contribution plans amounted to approximately $416,
$401 and $299 in 1993, 1994 and 1995, respectively.
8. RESTRICTED SUBSIDIARIES
The Company is a wholly-owned subsidiary of Jordan Industries and is one of
the "Restricted Subsidiaries" of Jordan Industries under the JII Indentures
relating to the Senior Notes and Senior Subordinated Discount Debentures of
Jordan Industries (the "JII Indentures"). As a result, certain covenants in
the JII Indentures are applicable to the Company and will limit its ability to
make dividends, distributions and investments in entities that are not
"Restricted Subsidiaries", incur indebtedness, grant liens, enter into
affiliate transactions, and enter into agreements which limit the Company's
ability to make dividends and distributions and make asset sales. The JII
Indentures are also collateralized by all of the assets of the Company.
F-39
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
------------------
(IN THOUSANDS,
EXCEPT SHARE AND
PER SHARE AMOUNTS)
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents.................................. $ 4,636
Accounts receivable, less allowance for doubtful accounts
of $45.................................................... 8,463
Inventories................................................ 8,473
Prepaid expenses and other................................. 853
--------
Total current assets.................................... 22,425
Property, plant and equipment--Net.......................... 8,254
Other assets:
Goodwill--Net.............................................. 92,756
Covenant not to compete--Net............................... 440
Deferred financing costs and other--Net.................... 8,753
--------
Total assets............................................ $132,628
========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable........................................... $ 4,652
Management fee payable..................................... 211
Accrued interest payable................................... 988
Accrued expenses and other................................. 2,344
--------
Total current liabilities............................... 8,195
Long-term debt.............................................. 89,908
Deferred income taxes....................................... 899
Shareholder's equity:
Common stock; $.01 par value; 100,000 shares authorized,
issued and outstanding.................................... 1
Additional paid-in capital................................. 29,905
Retained earnings.......................................... 3,720
--------
Total shareholder's equity.............................. 33,626
--------
Total liabilities and shareholder's equity.............. $132,628
========
</TABLE>
See accompanying notes.
F-40
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1996
------------------
(IN THOUSANDS)
<S> <C>
Net sales................................................... $57,734
Cost of sales, excluding depreciation....................... 35,985
Selling, general, and administrative expenses, excluding
depreciation............................................... 4,604
Depreciation and amortization............................... 4,151
Management fees............................................. 577
-------
Operating income............................................ 12,417
Other (expense):
Other expense............................................... (48)
Interest expense............................................ (6,684)
-------
Income before income taxes.................................. 5,685
Provision for income taxes.................................. 2,275
-------
Net income.................................................. $ 3,410
=======
</TABLE>
See accompanying notes.
F-41
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
----------------
ADDITIONAL TOTAL
NUMBER OF PAID-IN RETAINED SHAREHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996.. 100,000 $ 1 $29,905 $ 310 $30,216
Net income.................. - - - 3,410 3,410
------- --- ------- ------ -------
Balance at September 30,
1996....................... 100,000 $ 1 $29,905 $3,720 $33,626
======= === ======= ====== =======
</TABLE>
See accompanying notes.
F-42
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1996
--------------
(IN THOUSANDS)
<S> <C>
Cash flows from operating activities
Net income..................................................... $ 3,410
Adjustments to reconcile net income to net cash provided by op-
erating activities:
Depreciation and amortization................................ 5,042
Provision for deferred taxes................................. 899
Changes in operating assets and liabilities:
Accounts receivable........................................ 405
Inventories................................................ (326)
Prepaid expense and other.................................. (43)
Accounts payable........................................... (1,345)
Accrued expenses and other................................. 847
--------
Net cash provided by operating activities...................... 8,889
Cash flows from investing activities
Purchases of property, plant and equipment, net.............. (348)
Acquisition of subsidiary.................................... (21,700)
--------
Net cash used in investing activities.......................... (22,048)
Cash flows from financing activities
Increase in Due to Jordan.................................... 81
Proceeds of debt issuance.................................... 20,000
Payments of long term debt................................... (4,531)
Proceeds from line of credit................................. 1,700
Payments on line of credit................................... (2,200)
--------
Net cash provided by financing activities...................... 15,050
--------
Increase in cash and cash equivalents.......................... 1,891
Cash and cash equivalents at beginning of period............... 2,745
--------
Cash and cash equivalents at end of period..................... $ 4,636
========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest..................................................... $ 7,125
Income taxes................................................. 500
</TABLE>
See accompanying notes.
F-43
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED) (IN THOUSANDS)
1.BASIS OF PRESENTATION
Motors and Gears, Inc. (the Company and formerly MK Group, Inc.), a wholly-
owned subsidiary of Motors and Gears Holdings, Inc. (Parent and formerly M&G
Holdings, Inc.), a majority-owned subsidiary of Jordan Industries, Inc.
(Jordan), was formed on September 8, 1995, to combine a group of companies
engaged in the manufacture and sale of reversible, permanent split-capacitor,
shaded-pole, and DC subfractional horsepower motors and gear motors primarily
to customers located throughout the United States.
On September 22, 1995, the Company acquired all of the outstanding shares of
Merkle-Korff Industries, Inc. (Merkle-Korff), Mercury Industries, Inc.
(Mercury) and Elmco Industries, Inc. (Elmco). Mercury and Elmco were
subsequently merged into Merkle-Korff. In connection with the acquisition, the
Company issued to the seller a $90,000 installment note which is due and
payable on December 26, 1996 (Installment Note). The Installment Note has not
been reflected on the Company's balance sheet as it has been considered
extinguished for financial reporting purposes. This indebtedness was, in
substance, defeased through a $90,000 letter of credit which is secured by a
$90,000 cash collateral account.
The unaudited consolidated financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in annual
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes these disclosures are
adequate to make the information presented not misleading. In the opinion of
management, all adjustments necessary for a fair presentation for the period
presented have been reflected and are of a normal recurring nature. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto for the period from
September 23, 1995 to December 31, 1995.
Results of operations for the nine month period ended September 30, 1996 are
not necessarily indicative of the results that may be achieved for the entire
year ending December 31, 1996.
2.BARBER-COLMAN MOTORS DIVISION ACQUISITION
On March 8, 1996, the Company acquired the net assets of Barber-Colman
Motors Division ("Colman Motor Products", formerly "Barber-Colman"), a
division of Barber-Colman Company, which was wholly-owned by Siebe, plc. This
division consisted of Colman OEM and Colman Motor Products, wholly-owned
subsidiaries of Barber-Colman Company, and the motors division of Barber-
Colman Company (collectively "Barber-Colman"). Barber-Colman is a vertically
integrated manufacturer of sub fractional horsepower AC/DC motors and gear
motors with applications in such products as vending machines, copiers,
printers, ATM machines, currency changers, X-ray machines, peristaltic pumps,
HVAC actuators, and other products.
The purchase price of $21,700, which included costs incurred directly
related to the transaction, was allocated to working capital of $5,111,
property, plant and equipment of $6,541, non-compete agreements of $1,000, and
resulted in an excess purchase price over net identifiable assets of $9,048.
The acquisition was financed with $21,700 of new and existing credit
facilities.
The results of operations include Barber-Colman from its acquisition date of
March 8, 1996.
F-44
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3.INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
--------------
(IN THOUSANDS)
<S> <C>
Raw materials................................................. $3,037
Work in process............................................... 4,146
Finished goods................................................ 1,290
------
$8,473
======
</TABLE>
4.SUBSEQUENT EVENTS
Completion of Debt Offering
On November 7, 1996, the Company issued and sold $170,000 aggregate
principal amount of 10 3/4% Series A Senior Notes due 2006 (New Senior Notes).
Interest on the New Senior Notes is payable in arrears on May 15 and November
15 of each year, commencing May 15, 1997. The New Senior Notes are unsecured
obligations of the Company and mature on November 15, 2006. The New Senior
Notes are redeemable at the option of the Company, in whole or in part, at any
time on or after November 15, 2001. In addition, notwithstanding the
foregoing, the Company may redeem up to 35% of the original aggregate
principal amount prior to November 15, 1999 under certain circumstances.
The Indenture relating to the New Senior Notes contains certain covenants
which, among other things, restricts the ability of the Company to incur
additional indebtedness, to declare or pay dividends, to repurchase stock or
make other restricted payments, create liens, engage in transactions with
affiliates, or complete certain mergers or consolidations.
Seventy five million of the proceeds from the above debt offering was used
to acquire Imperial and subsidiaries, approximately $85 million of proceeds
was used to repay all of the Company's obligations under the existing Credit
Agreement, and approximately $10 million of the proceeds was used to pay
related fees and expenses.
Acquisition of Imperial and Subsidiaries
Concurrent with the consummation of the above debt offering, the Company
acquired Imperial Electric Company (Imperial), a wholly-owned subsidiary of
Jordan Industries, Inc. (Jordan), and Imperial's wholly-owned subsidiaries,
Scott Motors Company (Scott) and Gear Research, Inc. (Gear), (Imperial, Scott
and Gear are hereafter referred to collectively as Imperial), for a $75
million cash payment from the offering proceeds, which includes approximately
$6.5 million of Imperial liabilities owed to Jordan, and a contingent payment
payable pursuant to a contingent earnout arrangement. Under the terms of the
contingent earnout arrangement, 50% of Imperial, Scott and Gear's cumulative
earnings before interest, taxes, depreciation and amortization, as defined,
exceeding $50 million during the five fiscal years ended December 31, 1996
through December 31, 2000 will be paid to an affiliate of Jordan. Payments, if
any, under the contingent earnout arrangement will be determined and made on
April 30, 2001. As the Company and Imperial came under the common control of
Jordan on September 22, 1995, the date the Company acquired a controlling
interest in Merkle-Korff, Mercury, and Elmco and the Company commenced
operations, the acquisition of Imperial will be accounted for in a manner
similar to a pooling of interests.
Imperial designs, manufactures, and distributes specialty electric motors,
generators, and gears for industrial and commercial use. Scott manufactures
specialty electric motors. Gear manufactures gears and precision gear
assemblies. Imperial, Scott and Gear's customers are located mainly in the
United States.
F-45
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
New Credit Agreement
In conjunction with the Company's November 1996 debt offering, the Company
repaid all of its outstanding indebtedness under the existing credit
agreement, cancelled this agreement, and entered into a new credit agreement
(New Credit Agreement) with a bank. Accordingly, the unamortized balance of
deferred financing costs related to the previous agreement of $7,731 was
written-off in November 1996 as an extraordinary charge.
The New Credit Agreement provides for borrowings of up to $75 million over a
five year term. The New Credit Agreement is in the form of a revolving credit
facility. Borrowings under the revolving credit facility bear interest at a
floating rate of LIBOR + 2.50% or base rate + 1.50%, subject to reduction
based on the Company's leverage ratio, as defined. Unused commitments under
the revolving credit facility are subject to an availability fee of 1/2 of 1%
per annum as defined. Borrowings under the New Credit Agreement are secured by
the stock and substantially all of the assets of the Company.
The New Credit Agreement contains certain covenants which, among other
things, provides for a minimum level of interest coverage, as defined, and
limits the Company's ability to incur additional indebtedness, create liens,
make restricted payments, engage in affiliate transactions or mergers and
consolidations, and make asset sales.
F-46
<PAGE>
BARBER-COLMAN MOTORS DIVISION
(A DIVISION OF BARBER-COLMAN COMPANY, A
WHOLLY-OWNED SUBSIDIARY OF SIEBE, PLC.)
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 8,
1996
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Current assets:
Cash............................................................. $ 6
Accounts receivable from third parties, less allowance of $33.... 2,399
Accounts receivable from related entities........................ 634
Inventories...................................................... 2,935
Prepaids expenses and other current assets....................... 636
Deferred income taxes............................................ 175
-------
Total current assets........................................... 6,785
Property, equipment and leasehold improvements, net.............. 6,918
Goodwill, less accumulated amortization of $701.................. 2,577
-------
Total assets................................................... $16,280
=======
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable to third parties................................ $ 1,361
Accounts payable to related entities............................. 121
Accrued expenses and other current liabilities................... 305
-------
Total current liabilities...................................... 1,787
Deferred income taxes............................................ 1,959
Division equity.................................................. 12,534
-------
Total liabilities and division equity.......................... $16,280
=======
</TABLE>
See accompanying notes.
F-47
<PAGE>
BARBER-COLMAN MOTORS DIVISION
(A DIVISION OF BARBER-COLMAN COMPANY, A WHOLLY-OWNED SUBSIDIARY OF SIEBE, PLC.)
STATEMENT OF DIVISIONAL OPERATIONS AND DIVISION EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1996 TO MARCH
8, 1996
--------------
(IN THOUSANDS)
<S> <C>
Net sales:
Third parties................................................ $ 4,378
Related entities............................................. 428
-------
4,806
-------
Cost of sales, excluding depreciation:
Third parties................................................ 3,242
Related entities............................................. 317
-------
3,559
-------
Selling, general and administrative expenses, excluding
depreciation:
Allocated by Parent.......................................... 164
Other........................................................ 707
-------
871
-------
Depreciation................................................... 103
Amortization of goodwill and other intangibles................. 100
-------
Operating income............................................... 173
Other expense.................................................. 2
Allocated interest expense..................................... 66
-------
Income before income taxes..................................... 105
Provision for income taxes..................................... 42
-------
Divisional income.............................................. 63
Division equity at beginning of period......................... 11,821
Contributions by Parent, net................................... 650
-------
Division equity at end of period............................... $12,534
=======
</TABLE>
See accompanying notes.
F-48
<PAGE>
BARBER-COLMAN MOTORS DIVISION
(A DIVISION OF BARBER-COLMAN COMPANY, A WHOLLY-OWNED SUBSIDIARY OF SIEBE, PLC.)
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1996 TO MARCH
8, 1996
--------------
(IN THOUSANDS)
<S> <C>
Cash flows from operating activities
Divisional income................................................ $ 63
Adjustments to reconcile divisional income to
net cash used in operating activities:
Depreciation and amortization.................................. 203
Deferred income taxes.......................................... (59)
Changes in operating assets and liabilities:
Accounts receivable.......................................... (1,019)
Inventories.................................................. (209)
Prepaid expenses and other current assets.................... (37)
Accounts payable............................................. 772
Accrued expenses and other current liabilities............... (246)
------
Net cash used in operating activities............................ (532)
Cash flows from investing activities
Purchases of property, equipment,
and leasehold improvements.................................... (118)
------
Net cash used in investing activities............................ (118)
Cash flows from financing activities
Contributions by Parent........................................ 650
------
Net cash provided by financing activities........................ 650
------
Net change in cash............................................... --
Cash at beginning of period...................................... 6
------
Cash at end of period............................................ $ 6
======
</TABLE>
See accompanying notes.
F-49
<PAGE>
BARBER-COLMAN MOTORS DIVISION
(A DIVISION OF BARBER-COLMAN COMPANY, A
WHOLLY-OWNED SUBSIDIARY OF SIEBE, PLC.)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
(IN THOUSANDS)
MARCH 8, 1996
1.BASIS OF PRESENTATION
The unaudited financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes these disclosures are adequate to make the information
presented not misleading. In the opinion of management, all adjustments
necessary for a fair presentation for the period presented have been reflected
and are of a normal recurring nature. These financial statements should be
read in conjunction with the financial statements and the notes thereto for
the year ended March 31, 1995 and the nine month period ended December 31,
1995.
Results of operations for the period from January 1, 1996 to March 8, 1996
is not necessarily indicative of the results that may be achieved for the
entire year ending December 31, 1996.
The Division is part of a consolidated group and as such has significant
transactions with related entities. The terms of these transactions were
determined between related parties and may, therefore, differ from terms which
would have occurred between wholly unrelated parties and may also differ from
the costs which would have been incurred had the Division operated as a
completely autonomous entity.
2.INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 8,
1996
--------------
(IN THOUSANDS)
<S> <C>
Raw materials................................................. $ 66
Work in process............................................... 3,432
Finished goods................................................ 212
Inventory obsolescence reserve................................ (451)
------
3,259
LIFO reserve.................................................. (324)
------
$2,935
======
</TABLE>
Inventories with a current cost of approximately $2,072 have been costed
using the LIFO method.
F-50
<PAGE>
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES
(A SUBSIDIARY OF JORDAN INDUSTRIES, INC.)
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------
(IN THOUSANDS,
EXCEPT SHARE AND
PER SHARE AMOUNTS)
<S> <C>
ASSETS
Currents assets:
Accounts receivable, net of allowance for doubtful ac-
counts of $15............................................ $ 6,914
Inventories............................................... 8,651
Prepaid expenses.......................................... 111
-------
Total current assets.................................... 15,676
Property, plant and equipment--Net.......................... 3,462
Goodwill--Net............................................... 12,682
Other non-current assets.................................... 26
-------
Total assets............................................ $31,846
=======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,182
Accrued expenses and other current liabilities............ 413
Current portion of capital lease obligations.............. 126
Due to Jordan............................................. 4,870
-------
Total current liabilities............................... 7,591
Note payable to Jordan...................................... 4,799
Long-term capital lease obligations......................... 508
Deferred income taxes....................................... 76
Other non-current liabilities............................... 53
Shareholder's equity:
Common stock, Class A, $100 per share state value, 50
shares authorized, issued and outstanding................ 5
Common stock, Class B, $100 per share stated value, 950
shares authorized, issued and outstanding................ 95
Retained earnings......................................... 18,719
-------
Total shareholder's equity.............................. 18,819
-------
Total liabilities and shareholder's equity.............. $31,846
=======
</TABLE>
See accompanying notes.
F-51
<PAGE>
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES
(A SUBSIDIARY OF JORDAN INDUSTRIES, INC.)
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net sales.................................................. $ 29,534 $ 32,420
Cost of sales, excluding depreciation...................... 20,071 22,022
Selling, general and administrative expenses, excluding
depreciation.............................................. 1,675 1,800
Depreciation............................................... 531 614
Amortization of goodwill and other intangibles............. 323 323
Management fees............................................ 1,626 1,708
-------- --------
Operating income........................................... 5,308 5,953
Other (income) expense:
Interest expense:
Jordan................................................... 1,051 672
Other................................................... 28 58
Miscellaneous--Net......................................... (42) (46)
-------- --------
1,037 684
-------- --------
Income before income taxes................................. 4,271 5,269
Provision for income taxes................................. 1,751 2,159
-------- --------
Net income................................................. $ 2,520 $ 3,110
======== ========
</TABLE>
See accompanying notes.
F-52
<PAGE>
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES
(A SUBSIDIARY OF JORDAN INDUSTRIES, INC.)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON COMMON
STOCK STOCK
CLASS CLASS RETAINED
A B EARNINGS TOTAL
------ ------ -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at January 1, 1995...................... $ 5 $95 $12,039 $12,139
Net income.................................... -- -- 2,520 2,520
--- --- ------- -------
Balance at September 30, 1995................... $ 5 $95 $14,559 $14,659
=== === ======= =======
Balance at January 1, 1996...................... $ 5 $95 $15,609 $15,709
Net income.................................... -- -- 3,110 3,110
--- --- ------- -------
Balance at September 30, 1996................... $ 5 $95 $18,719 $18,819
=== === ======= =======
</TABLE>
See accompanying notes.
F-53
<PAGE>
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES
(A SUBSIDIARY OF JORDAN INDUSTRIES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities
Net income................................................ $ 2,520 $ 3,110
Adjust to reconcile net income to net cash provided by op-
erating activities:
Depreciation and amortization........................... 854 936
Deferred income taxes................................... (7) 3
Changes in assets and liabilities:
Accounts receivable................................... (1,207) 464
Inventories........................................... (1,667) (170)
Prepaid expense and other............................. 170 163
Accounts payable, accrued expenses and other current
liabilities.......................................... 387 (910)
Non-current liabilities............................... (85) --
-------- --------
Net cash provided by operating activities................. 965 3,596
Cash flows from investing activities
Net additions to property, plant and equipment.......... (601) (459)
-------- --------
Net cash (used in) investing activities................... (601) (459)
Cash flows from financing activities
(Decrease) increase in Due to Jordan.................... 303 (3,289)
Borrowings (repayments) under note payable to Jordan.... (565) 329
Payment of capital lease obligations.................... (158) (213)
-------- --------
Net cash (used in) financing activities................... (420) (3,173)
-------- --------
Decrease in cash and cash equivalents..................... (56) (36)
Cash and cash equivalents at beginning of period.......... 56 36
-------- --------
Cash and cash equivalents at end of period................ $ -- $ --
======== ========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest:
Jordan.................................................. $ 817 $ 805
Other................................................... 61 58
Income taxes paid......................................... 93 339
Supplemental schedule of noncash investing activities
Property acquired under capital leases.................... $ 581 $ --
</TABLE>
See accompanying notes.
F-54
<PAGE>
THE IMPERIAL ELECTRIC COMPANY AND SUBSIDIARIES
(A SUBSIDIARY OF JORDAN INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS)
1.BASIS OF PRESENTATION
The unaudited consolidated financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in annual
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Companies believe these disclosures are
adequate to make the information presented not misleading. In the opinion of
management, all adjustments necessary for a fair presentation for the period
presented have been reflected and are of a normal recurring nature. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto for the three years
ended December 31, 1995.
Results of operations for the nine month period ended September 30, 1996 are
not necessarily indicative of the results that may be achieved for the entire
year ending December 31, 1996.
2.RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 1996, the Company engaged in
various related party transactions with its parent, Jordan Industries, Inc.
(Jordan). Following are the details of material transactions between the
Company and Jordan.
The Company's note payable to Jordan is primarily financed through a
revolving credit arrangement with Jordan. Borrowings under the arrangement are
due on demand and bear interest at 14.5%.
Jordan provides consulting services to the Company in exchange for annual
fees which are payable in accordance with terms stipulated in the management
consulting agreement between the Company and Jordan. Management fee expenses
recorded by the Company for such services amounted to $1,708 for the nine
months ended September 30, 1996.
3.INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
--------------
(IN THOUSANDS)
<S> <C>
Raw materials................................................. $6,927
Work in process............................................... 740
Finished goods................................................ 984
------
$8,651
======
</TABLE>
4.SUBSEQUENT EVENT
On November 7, 1996, Imperial and its wholly-owned subsidiaries, Scott and
Gear, were sold to Motors and Gears, Inc., a wholly-owned subsidiary of Motors
and Gears Holdings, Inc., a majority-owned subsidiary of Jordan for a $75
million cash payment, which includes approximately $6.5 million in Imperial
liabilities owed to Jordan, and a contingent payment payable pursuant to a
contingent earnout arrangement. Under the terms of the contingent earnout
arrangement, 50% of Imperial, Scott and Gear's cumulative earnings before
interest, taxes, depreciation and amortization, as defined, exceeding $50
million during the five fiscal years ended December 31, 1996 through December
31, 2000 will be paid to an affiliate of Jordan. Payments, if any, under the
contingent earnout arrangement will be determined and made on April 30, 2001.
F-55
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Motors and Gears, Inc.
We have audited the supplemental consolidated balance sheet of Motors and
Gears, Inc. (formed as a result of the combination of Motors and Gears, Inc.
and The Imperial Electric Company and subsidiaries) as of December 31, 1995,
and the related supplemental consolidated statement of income, shareholder's
equity, and cash flows for the period from September 23, 1995 to December 31,
1995. The supplemental consolidated financial statements give retroactive
effect to the acquisition of The Imperial Electric Company and subsidiaries
(Imperial) on November 7, 1996, which has been accounted for in a manner
similar to the pooling of interests method as described in Note 2 to the
supplemental consolidated financial statements. These supplemental
consolidated financial statements are the responsibility of the management of
Motors and Gears, Inc. Our responsibility is to express an opinion on these
supplemental consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the supplemental consolidated financial statements referred
to above present fairly, in all material respects, the consolidated financial
position of Motors and Gears, Inc. as of December 31, 1995, and the
consolidated results of its operations and its cash flows for the period from
September 23, 1995 to December 31, 1995, after giving retroactive effect to
the acquisition of Imperial as described in Note 2 to the supplemental
consolidated financial statements, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 25, 1996
F-56
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1995
-----------------
(IN THOUSANDS,
EXCEPT SHARE AND
PER SHARE AMOUNTS)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,781
Accounts receivable, less allowance for doubtful accounts
of $29................................................... 13,213
Inventories............................................... 13,404
Prepaid expenses and other................................ 402
--------
Total current assets.................................... 29,800
Property, plant and equipment--Net.......................... 7,166
Other assets:
Goodwill--Net............................................. 100,436
Covenant not to compete--Net.............................. 473
Deferred financing costs and other--Net................... 6,799
Other non-current assets.................................. 27
--------
Total assets............................................ $144,701
========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 7,617
Accrued interest payable.................................. 718
Accrued expenses and other................................ 1,629
Due to Jordan............................................. 5,139
Current portion of capital lease obligations.............. 136
Revolving credit facility................................. 500
--------
Total current liabilities............................... 15,739
Senior Notes payable........................................ 69,375
Subordinated Note payable................................... 5,000
Note payable to Jordan...................................... 7,827
Capital lease obligations, less current portion............. 709
Deferred income taxes....................................... 73
Other non-current liabilities............................... 53
Shareholder's equity:
Common stock, $.01 par value, 100,000 shares authorized,
issued and outstanding................................... 1
Additional paid-in capital................................ 30,005
Retained earnings......................................... 15,919
--------
Total shareholder's equity.............................. 45,925
--------
Total liabilities and shareholder's equity.............. $144,701
========
</TABLE>
See accompanying notes.
F-57
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
SUPPLEMENTAL CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 23, 1995
TO DECEMBER 31, 1995
--------------------
(IN THOUSANDS)
<S> <C>
Net sales................................................. $24,684
Cost of sales, excluding depreciation..................... 16,429
Selling, general, and administrative expenses, excluding
depreciation............................................. 1,564
Depreciation and amortization............................. 1,407
Management fees to Jordan................................. 683
-------
Operating income.......................................... 4,601
Other (expense):
Interest expense:
Jordan................................................ (301)
Other................................................. (1,959)
Miscellaneous, net...................................... (33)
-------
Income before income taxes................................ 2,308
Provision for income taxes................................ 948
-------
Net income................................................ $ 1,360
=======
</TABLE>
See accompanying notes.
F-58
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------- ADDITIONAL TOTAL
NUMBER OF PAID-IN RETAINED SHAREHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at September 22,
1995....................... 100 $-- $ 100 $14,559 $14,659
Issuance of common stock.... 99,900 1 29,905 -- 29,906
Net income.................. -- -- -- 1,360 1,360
------- ---- ------- ------- -------
Balance at December 31,
1995....................... 100,000 $ 1 $30,005 $15,919 $45,925
======= ==== ======= ======= =======
</TABLE>
See accompanying notes.
F-59
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 23,
1995 TO
DECEMBER 31,
1995
--------------
(IN THOUSANDS)
<S> <C>
Cash flows from operating activities
Net income..................................................... $ 1,360
Adjustments to reconcile net income to net cash provided by op-
erating activities:
Depreciation and amortization................................ 1,407
Provision for bad debts...................................... 14
Deferred income taxes........................................ (3)
Changes in assets and liabilities:
Accounts receivable........................................ 66
Inventories................................................ 871
Prepaid expenses and other................................. 24
Accounts payable........................................... 363
Accrued expenses and other................................. 1,671
Non-current liabilities.................................... (19)
---------
Net cash provided by operating activities...................... 5,754
Cash flows from investing activities
Purchases of property, plant and equipment..................... (269)
Acquisition of subsidiaries.................................... (107,406)
Cash acquired in purchase of subsidiaries...................... 696
---------
Net cash used in investing activities.......................... (106,979)
Cash flows from financing activities
Proceeds of debt issuance--Senior Notes........................ 70,000
Payments on Senior Notes....................................... (625)
Proceeds from revolving credit facility........................ 2,500
Payments on revolving credit facility.......................... (2,000)
Proceeds of debt issuance--Subordinated Note................... 5,000
Proceeds of common stock issuance.............................. 29,906
Payments on note payable to Jordan............................. (1,635)
Payments on capital lease obligations.......................... (88)
Increase in due to Jordan...................................... 948
---------
Net cash provided by financing activities...................... 104,006
---------
Increase in cash and cash equivalents.......................... 2,781
Cash and cash equivalents at beginning of period............... --
---------
Cash and cash equivalents at end of period..................... $ 2,781
=========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest:
Jordan..................................................... $ 589
Other...................................................... 23
Income taxes................................................. 94
</TABLE>
See accompanying notes.
F-60
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. FORMATION OF THE COMPANY AND ACQUISITIONS
Motors and Gears, Inc. (the Company and formerly MK Group, Inc.), a wholly-
owned subsidiary of Motors and Gears Holdings, Inc. (Parent and formerly M&G
Holdings, Inc.), a majority-owned subsidiary of Jordan Industries, Inc.
(Jordan), was formed on September 8, 1995, to combine a group of companies
engaged in the manufacture and sale of reversible, permanent split-capacitor,
shaded-pole, and DC subfractional horsepower motors and gear motors primarily
to customers located throughout the United States.
On September 22, 1995, the Company acquired all of the outstanding shares of
Merkle-Korff Industries, Inc. (Merkle-Korff), Mercury Industries, Inc.
(Mercury) and Elmco Industries, Inc. (Elmco), for approximately $107,406. The
purchase price of $107,406, including costs incurred directly related to the
transaction, was allocated to working capital of $8,201; property and
equipment of $3,652; noncompete agreements of $500; deferred financing fees of
$6,765; and resulted in an excess purchase price over net identifiable assets
of $88,288. Mercury and Elmco were subsequently merged into Merkle-Korff.
In connection with the acquisition, the Company issued to the seller a
$90,000 installment note which is due and payable on December 26, 1996
(Installment Note). The Installment Note has not been reflected on the
Company's balance sheet as it has been considered extinguished for financial
reporting purposes. This indebtedness was, in substance, defeased through a
$90,000 letter of credit which is secured by a $90,000 cash collateral
account.
2. BASIS OF PRESENTATION
Concurrent with the consummation of a debt offering on November 7, 1996
(Note 12), the Company acquired Imperial Electric Company (Imperial), a
wholly-owned subsidiary of Jordan, and Imperial's wholly-owned subsidiaries,
Scott Motors Company (Scott) and Gear Research, Inc. (Gear), (Imperial, Scott
and Gear are hereafter collectively referred to as Imperial), for a $75
million cash payment from the offering proceeds, which includes approximately
$6.5 million in Imperial liabilities owed to Jordan, and a contingent payment
payable pursuant to a contingent earnout arrangement. Under the terms of the
contingent earnout arrangement, 50% of Imperial, Scott and Gear's cumulative
earnings before interest, taxes, depreciation and amortization, as defined,
exceeding $50 million during the five fiscal years ended December 31, 1996
through December 31, 2000 will be paid to an affiliate of Jordan. Payments, if
any, under the contingent earnout arrangement will be determined and made on
April 30, 2001.
Imperial designs, manufactures, and distributes specialty electric motors,
generators, and gears for industrial and commercial use. Scott manufactures
specialty electric motors. Gear manufactures gears and precision gear
assemblies. Imperial, Scott and Gear's customers are located mainly in the
United States.
The Company and Imperial came under the common control of Jordan on
September 22, 1995, the date the Company acquired a controlling interest in
Merkle-Korff, Mercury, and Elmco and the Company commenced operations. The
supplemental consolidated financial statements give retroactive effect to the
acquisition of Imperial, which has been accounted for in a manner similar to
the pooling-of-interests method. Accordingly, the results of operations of the
Company include the historical results of operations of Imperial as of
September 22, 1995. The supplemental consolidated financial statements will
become the historical financial statements upon issuance of the financial
statements for the period that includes the date of the Company's acquisition
of Imperial.
F-61
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The supplemental consolidated financial statements, including the notes
thereto, should be read in conjunction with the historical consolidated
financial statements of the Company as of December 31, 1995, and for the
period from September 23, 1995 to December 31, 1995 and Imperial as of and for
the year ended December 31, 1995.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The supplemental consolidated financial statements include all accounts of
the Company and its wholly-owned subsidiaries, Motors and Gears Industries,
Inc. and Merkle-Korff, as well as Imperial and its wholly-owned subsidiaries,
Scott and Gear. All significant intercompany transactions and accounts have
been eliminated.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with an initial
maturity of three months or less at the time of purchase.
Inventories
Inventories are stated at the lower of cost or market. Inventories are
primarily valued at either average or first-in, first-out (FIFO) cost.
Property, Plant, and Equipment
Property, plant, and equipment is stated at cost, less accumulated
depreciation. Depreciation is provided using either straight-line or
accelerated methods over the estimated useful lives of the assets.
Leasehold improvements and assets under capital leases are amortized using
the straight-line method over the shorter of the lease term or their estimated
productive lives. Amortization of leasehold improvements and assets under
capital leases is included in depreciation expense.
Intangible Assets
Goodwill is being amortized using the straight-line method over 30 years at
Merkle-Korff, and over 40 years at all other subsidiaries. Goodwill at
December 31, 1995 is net of accumulated amortization of $5,028. The noncompete
agreement is being amortized using the straight-line method over the life of
the agreement. The covenant not to compete at December 31, 1995 is net of
accumulated amortization of $27. Deferred financing costs are amortized using
the straight-line method over the shorter of the terms of the related loans or
the period such loans are expected to be outstanding. Deferred financing costs
at December 31, 1995 are net of accumulated amortization of $263. Amortization
of deferred financing costs is included in interest expense.
Research and Development Costs
Research and development costs related to both present and future products
are charged to expense when incurred.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-62
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
The Company utilizes the liability method to account for income taxes. Under
the liability method, deferred tax assets and liabilities are determined based
on differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. The Company is party
to a tax-sharing agreement with Jordan. As such, the operating results of the
Company are included in the consolidated federal and state income tax returns
of Jordan. The Company's income tax provision has been calculated as if the
Company would have filed separate federal and state income tax returns.
Fair Value of Financial Instruments
The Company's financial instruments include trade accounts receivable,
accounts payable, accrued expenses, the Senior Notes, the Subordinated Note,
the revolving credit facility, and the note payable to Jordan. The fair values
of the Company's financial instruments are not materially different from their
carrying values.
Concentration of Credit Risk
Cash and trade receivables may subject the Company to credit risk. The
Company holds cash at highly rated financial institutions which are federally
insured up to prescribed limits. Cash balances may exceed these limits at any
given time. The Company closely monitors the credit quality of its customers.
Credit losses have been insignificant on a historical basis.
The Company's three largest customers accounted for 17.4% of net sales
during the period from September 23, 1995 to December 31, 1995. These three
customers comprised 10.9% of trade accounts receivable at December 31, 1995.
Adoption of SFAS 121
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
SFAS 121 requires, among other things, that the Company consider whether
indicators of impairment of long-lived assets held for use are present, that
if such indicators are present the Company determines whether the sum of the
estimated undiscounted future cash flows attributable to such assets is less
than their carrying amount, and if so, that the Company recognizes an
impairment loss based on the excess of the carrying amount of the assets over
their fair value.
The Company adopted the provisions of SFAS 121 during the period from
September 23, 1995 to December 31, 1995. Accordingly, the Company evaluated
the ongoing value of its property, plant and equipment and other long-lived
assets at that time. From this evaluation, the Company determined that there
were no indications of impairment significant enough to warrant recognition of
an impairment loss, and as such, no impairment loss has been recognized during
the period from September 23, 1995 to December 31, 1995.
4. RELATED PARTY TRANSACTIONS
The Company leases certain plants, warehouses, and offices under net leases
from affiliated entities. Rent expenses, including real estate taxes
attributable to these leases, amounted to $261 for the period from September
23, 1995 to December 31, 1995.
F-63
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum rental payments required under the leases are as follows:
<TABLE>
<S> <C>
1996.............................................. $736
1997.............................................. 750
1998.............................................. 766
1999.............................................. 781
2000.............................................. 594
</TABLE>
The Company receives consulting services from Jordan in exchange for fees
payable in accordance with terms stipulated in a management consulting
agreement between the two entities. Management fee expenses recorded by the
Company for such services amounted to $683 for the period from September 23,
1995 to December 31, 1995.
The Company, through its Parent, and TJC Management Corporation (TJC), an
affiliated entity, entered into a management consulting agreement whereby TJC
is to be paid an investment banking fee of up to 2%, based on the aggregate
consideration paid or received, for its assistance in acquisitions or sales
undertaken by the Company, and a financial consulting fee not to exceed 1% of
the aggregate debt and equity financing that is arranged by TJC, plus the
reimbursement of out-of-pocket expenses. The Parent paid $2,000 to TJC during
the period from September 23, 1995 to December 31, 1995 related to the
Company's acquisition of Merkle-Korff, Mercury, and Elmco.
The Company's note payable to Jordan is primarily financed through a credit
arrangement with Jordan. Borrowings under the arrangement are due on demand
and bear interest at 14.5%.
Due to Jordan consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Interest under credit arrangement............................... $ 334
Management fee.................................................. 672
Taxes payable................................................... 3,280
Other........................................................... 853
------
$5,139
======
</TABLE>
The note payable to Jordan as well as amounts due to Jordan, excluding taxes
payable, were repaid in November 1996 subsequent to the completion of the
Company's debt offering (Note 12).
5. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Raw materials.................................................. $ 9,766
Work in process................................................ 1,565
Finished goods................................................. 2,073
-------
$13,404
=======
</TABLE>
F-64
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Land and improvements........................................... $ 265
Buildings....................................................... 2,648
Machinery and equipment......................................... 12,562
Dies and tooling................................................ 481
Furniture and fixtures.......................................... 553
Vehicles........................................................ 78
Leasehold improvements.......................................... 241
--------
16,828
Less: Accumulated depreciation and amortization................. (9,662)
--------
$ 7,166
========
</TABLE>
7. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 23,
1995 TO
DECEMBER 31,
1995
-------------
<S> <C>
Current:
Federal..................................................... $ 827
State....................................................... 124
-------
Total current............................................. 951
Deferred:
Federal..................................................... (3)
State....................................................... --
-------
Total deferred:........................................... (3)
-------
$ 948
=======
</TABLE>
The provision for income taxes differs from the amount of income tax
provision computed by applying the federal income tax rate to income before
income taxes. A reconciliation of the differences is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 23,
1995 TO
DECEMBER 31,
1995
-------------
<S> <C>
Computed statutory tax provision............................... $785
Increase resulting from:
State and local taxes, net of federal benefit.............. 82
Nondeductible amortization................................. 37
Other--Net................................................. 44
----
Provision for income taxes.................................... $948
====
</TABLE>
F-65
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred tax liabilities and assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Deferred tax liabilities:
Depreciation..................................................... $759
----
Total deferred tax liabilities..................................... 759
Deferred tax assets:
Vacation accrual................................................. 63
Franchise tax.................................................... 128
Employee benefits................................................ 53
Uniform capitalization........................................... 243
Other............................................................ 199
----
Total deferred tax assets.......................................... 686
----
Net deferred tax liabilities....................................... $ 73
====
</TABLE>
8. INDEBTEDNESS
Merkle-Korff was party to a Credit Agreement with a bank. Borrowings
consisted of a Senior Secured "A" Term Loan facility and a Senior Secured "B"
Term Loan facility (together, the "Senior Notes") with outstanding principal
balances at December 31, 1995 of $42,500 and $26,875, respectively. The Senior
Notes were secured by all of the assets of Merkle-Korff. The Senior "A" Term
Loan accrued interest at a floating rate of LIBOR +2.75% per annum, payable
semi-annually, and matured in 2001. The applicable rate was 8.4375% at
December 31, 1995. The Senior "B" Term Loan accrued interest at a floating
rate of LIBOR + 3.25% per annum, payable semi-annually, and matured in 2003.
The applicable rate was 8.9375% at December 31, 1995.
The Company also had up to $12,000 available under the Credit Agreement in
the form of a revolving credit facility. Borrowings were at a floating rate of
LIBOR + 2.75% and matured in 2001. There was $500 outstanding under the
revolving credit facility at December 31, 1995.
In conjunction with the Company's November 7, 1996 debt offering (Note 12),
the Company has repaid all of its outstanding indebtedness under the Credit
Agreement, cancelled the Credit Agreement, and entered into a new Credit
Agreement (Note 12). Accordingly, the unamortized balance of deferred
financing costs related to this indebtedness of $7,731 was written-off in
November 1996 as an extraordinary charge.
The Subordinated Note payable is due to the former shareholder of Merkle-
Korff in installments beginning December 31, 2000 through December 31, 2003
and bears interest at 9% per annum. The note is unsecured.
F-66
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. LEASES
The Company leases certain land, buildings, and equipment under capital and
noncancellable operating lease agreements expiring in various years through
2003. Under the terms of one of these operating leases, monthly rental
payments may be adjusted every 36 months. Minimum future lease payments, by
year and in aggregate, under capital and noncancellable operating leases are
as follows at December 31, 1995:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
1996....................................................... $ 272 $ 342
1997....................................................... 272 281
1998....................................................... 198 216
1999....................................................... 198 136
2000....................................................... 198 31
Thereafter................................................. 398 --
------ -----
Total minimum lease payments............................... $1,536 1,006
======
Amount representing interest............................... (161)
-----
Present value of net minimum lease payments................ $ 845
=====
</TABLE>
Total rent expense related to operating leases for the period from September
23, 1995 to December 31, 1995 amounted to $72.
10. COMMON STOCK
Concurrent with its formation, the Company issued 100 shares of its stock
for one hundred dollars. On September 22, 1995, the Company sold an additional
99,900 shares of its common stock for $29,906. The proceeds were used to
finance a portion of the acquisition of all of the outstanding shares of
Merkle-Korff, Mercury, and Elmco, as described in Note 1.
11. BENEFIT PLANS
The Company maintains a defined-benefit plan covering substantially all
employees of Imperial, Scott, and Gear. Benefits are calculated based on years
of service and employee compensation.
The following table sets forth the status of the plan at December 31, 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Actuarial present value of benefit obligations:
Vested...................................................... $ 72
Non-vested.................................................. 8
----
Projected benefit obligation.................................. 80
Plan assets at fair value, primarily invested in money market
accounts, equity securities, loans and mortgages............. 32
----
Under-funded projected benefit obligation..................... (48)
Unrecognized net gain......................................... (6)
----
Accrued pension cost recorded as a current liability.......... $(54)
====
</TABLE>
F-67
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net pension cost includes the following components for the period from
September 23, 1995 to December 31, 1995:
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 23,
1995 TO
DECEMBER 31,
1995
-------------
<S> <C>
Interest cost.................................................. $ 2
Return on plan assets.......................................... (1)
Net amortization of deferral................................... (1)
----
Net periodic pension cost...................................... $--
====
</TABLE>
The following actuarial assumptions were used in determining the projected
benefit obligation at December 31, 1995:
<TABLE>
<S> <C>
Weighted average discount rate......................................... 6.00%
Expected long-term rate of return on plan assets....................... 7.75%
</TABLE>
The Company maintains a 401(k) profit sharing plan covering substantially
all employees of Merkle-Korff who have satisfied minimum years of service and
age requirements. The Company's contribution to the plan was approximately $55
during the period from September 23, 1995 to December 31, 1995.
Employees of Imperial who are not covered by collective bargaining
agreements and have satisfied minimum years of service and age requirements
are eligible to participate in a 401(k) savings plan sponsored by Jordan.
Imperial, Scott and Gear also maintain other defined-contribution plans
covering substantially all of their respective employees. Employer
contributions to these plans were approximately $75 during the period from
September 23, 1995 to December 31, 1995.
12. SUBSEQUENT EVENTS
Acquisition of Barber--Colman Motors Division
On March 8, 1996, the Company acquired the net assets of Barber-Colman
Motors Division (Division), a division of Barber-Colman Company, which was
wholly owned by Siebe, plc. The Division consisted of Colman OEM and Colman
Motor Products, wholly-owned subsidiaries of Barber-Colman Company, and the
motors division of Barber-Colman Company, and is a vertically integrated
manufacturer of subfractional horsepower AC and DC motors and gear motors,
with applications in such products as vending machines, copiers, printers, ATM
machines, currency changers, X-ray machines, peristaltic pumps, HVAC
actuators, and other products.
The purchase price of $21,700, including costs incurred directly related to
the transaction, was allocated to working capital of $5,111; property, plant,
and equipment of $6,541; noncompete agreements of $1,000, and resulted in an
excess purchase price over net identifiable assets of $9,048. The acquisition
was financed with $21,700 of new and existing credit facilities.
Completion of Debt Offering
On November 7, 1996, the Company issued and sold $170,000 aggregate
principal amount of 10 3/4% Series A Senior Notes due 2006 (New Senior Notes).
Interest on the New Senior Notes is payable in arrears on May 15 and November
15 of each year, commencing May 15, 1997. The New Senior Notes are unsecured
obligations of
F-68
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the Company and mature on November 15, 2006. The New Senior Notes are
redeemable at the option of the Company, in whole or in part, at any time on
or after November 15, 2001. In addition, notwithstanding the foregoing, the
Company may redeem up to 35% of the original aggregate principal amount prior
to November 15, 1999 under certain circumstances.
The Indenture relating to the New Senior Notes contains certain covenants
which, among other things, restricts the ability of the Company to incur
additional indebtedness, to declare or pay dividends, to repurchase stock or
make other restricted payments, create liens, engage in transactions with
affiliates, or complete certain mergers or consolidations.
Seventy-five million dollars of the proceeds from the above debt offering
were used to acquire Imperial and subsidiaries (Note 2), approximately $85
million of proceeds were used to repay the Company's obligations under the
existing Credit Agreement, and approximately $10 million of the proceeds were
used to pay related fees and expenses.
New Credit Agreement
Concurrent with the consummation of the above offering, the Company repaid
all of its outstanding indebtedness under the existing Credit Agreement,
cancelled the Credit Agreement, and entered into a new Credit Agreement (New
Credit Agreement) with a bank which provides for borrowings of up to $75
million over a five year term. The New Credit Agreement is in the form of a
revolving credit facility. Borrowings under the revolving credit facility bear
interest at a floating rate of LIBOR + 2.50% or base rate + 1.50%, subject to
reduction based on the Company's leverage ratio, as defined. Unused
commitments under the revolving credit facility are subject to an availability
fee of 1/2 of 1% per annum, as defined. Borrowings under the New Credit
Agreement are secured by the stock and substantially all of the assets of the
Company.
The New Credit Agreement contains covenants which, among other things,
provides for a minimum level of interest coverage, as defined, and limits the
Company's ability to incur additional indebtedness, create liens, make
restricted payments, engage in affiliate transactions or mergers and
consolidations, and make asset sales.
F-69
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
------------------
(IN THOUSANDS,
EXCEPT SHARE AND
PER SHARE AMOUNTS)
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents.................................. $ 4,636
Accounts receivable, less allowance for doubtful accounts
of $60.................................................... 15,377
Inventories................................................ 17,124
Prepaid expenses and other................................. 964
--------
Total current assets.................................... 38,101
Property, plant and equipment--Net.......................... 11,716
Other assets:
Goodwill--Net.............................................. 105,438
Covenant not to compete--Net............................... 440
Deferred financing costs and other--Net.................... 8,779
--------
Total assets............................................ $164,474
========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable........................................... $ 6,834
Accrued interest payable................................... 988
Accrued expenses and other................................. 2,757
Due to Jordan.............................................. 5,081
Note payable to Jordan..................................... 4,799
Current portion of capital lease obligations............... 139
--------
Total current liabilities............................... 20,598
Senior Notes payable........................................ 84,849
Subordinated Note payable................................... 5,000
Capital lease obligations, less current portion............. 554
Deferred income taxes....................................... 975
Other non-current liabilities............................... 53
Shareholder's equity:
Common stock; $.01 par value; 100,000 shares authorized,
issued and outstanding.................................... 1
Additional paid-in capital................................. 30,005
Retained earnings.......................................... 22,439
--------
Total shareholder's equity.............................. 52,445
--------
Total liabilities and shareholder's equity.............. $164,474
========
</TABLE>
See accompanying notes.
F-70
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
SUPPLEMENTAL CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1996
------------------
(IN THOUSANDS)
<S> <C>
Net sales................................................... $90,154
Cost of sales, excluding depreciation....................... 58,007
Selling, general, and administrative expenses, excluding
depreciation............................................... 6,404
Depreciation and amortization............................... 5,088
Management fees to Jordan................................... 2,285
-------
Operating income............................................ 18,370
Other (expense):
Interest expense:
Jordan.................................................... (672)
Other..................................................... (6,742)
Miscellaneous--net.......................................... (2)
-------
Income before income taxes.................................. 10,954
Provision for income taxes.................................. 4,434
-------
Net income.................................................. $ 6,520
=======
</TABLE>
See accompanying notes.
F-71
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- -------- -------
<S> <C> <C> <C> <C>
Balance at January 1, 1996.................. $ 1 $30,005 $15,919 $45,925
Net income.................................. -- -- 6,520 6,520
--- ------- ------- -------
Balance at September 30, 1996............... $ 1 $30,005 $22,439 $52,445
=== ======= ======= =======
</TABLE>
See accompanying notes.
F-72
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1996
--------------
(IN THOUSANDS)
<S> <C>
Cash flows from operating activities
Net income..................................................... $ 6,520
Adjustments to reconcile net income to net cash provided by op-
erating activities:
Depreciation and amortization................................ 5,978
Provision for deferred taxes................................. 902
Changes in operating assets and liabilities:
Accounts receivable........................................ 869
Inventories................................................ (496)
Prepaid expense and other.................................. 120
Accounts payable, accrued expenses and other current
liabilities............................................... (1,408)
--------
Net cash provided by operating activities...................... 12,485
Cash flows from investing activities
Purchases of property, plant and equipment, net.............. (807)
Acquisition of subsidiary.................................... (21,700)
--------
Net cash used in investing activities.......................... (22,507)
Cash flows from financing activities
Proceeds of debt issuance--Senior Notes...................... 20,000
Payments of Senior Notes..................................... (4,744)
Proceeds from revolving credit facility...................... 1,700
Payments on revolving credit facility........................ (2,200)
Borrowings under note payable to Jordan...................... 329
Decrease in due to Jordan.................................... (3,208)
--------
Net cash provided by financing activities...................... 11,877
--------
Increase in cash and cash equivalents.......................... 1,855
Cash and cash equivalents at beginning of period............... 2,781
--------
Cash and cash equivalents at end of period..................... $ 4,636
========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest:
Jordan...................................................... $ 805
Other....................................................... 7,183
Income taxes paid............................................ 839
</TABLE>
See accompanying notes.
F-73
<PAGE>
MOTORS AND GEARS, INC.
(A SUBSIDIARY OF MOTORS AND GEARS HOLDINGS, INC.)
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED) (IN THOUSANDS)
1.BASIS OF PRESENTATION
Concurrent with the consummation of a debt offering on November 7, 1996
(Note 4), Motors and Gears, Inc. (the Company and formerly MK Group, Inc.)
acquired Imperial Electric Company (Imperial), a wholly-owned subsidiary of
Jordan Industries, Inc. (Jordan), and Imperial's wholly-owned subsidiaries,
Scott Motors Company (Scott) and Gear Research, Inc. (Gear), (Imperial, Scott
and Gear are hereafter collectively referred to as Imperial), for a $75
million cash payment from the offering proceeds, which includes approximately
$6.5 million in Imperial liabilities owed to Jordan, and a contingent payment
payable pursuant to a contingent earnout arrangement. Under the terms of the
contingent earnout arrangement, 50% of Imperial, Scott and Gear's cumulative
earnings before interest, taxes, depreciation and amortization, as defined,
exceeding $50 million during the five fiscal years ended December 31, 1996
through December 31, 2000 will be paid to an affiliate of Jordan. Payments, if
any, under the contingent earnout arrangement will be determined and made on
April 30, 2001.
Imperial designs, manufactures, and distributes specialty electric motors,
generators, and gears for industrial and commercial use. Scott manufactures
specialty electric motors. Gear manufactures gears and precision gear
assemblies. Imperial, Scott and Gear's customers are located mainly in the
United States.
The Company and Imperial came under the common control of Jordan on
September 22, 1995, the date the Company acquired a controlling interest in
Merkle-Korff, Mercury, and Elmco and the Company commenced operations. The
supplemental consolidated financial statements give retroactive effect to the
acquisition of Imperial, which has been accounted for in a manner similar to
the pooling-of-interests method. Accordingly, the results of operations of the
Company include the historical results of operations of Imperial as of
September 22, 1995. The supplemental consolidated financial statements will
become the historical financial statements upon issuance of the financial
statements for the period that includes the date of the Company's acquisition
of Imperial.
The unaudited consolidated financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in annual
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes these disclosures are
adequate to make the information presented not misleading. In the opinion of
management, all adjustments necessary for a fair presentation for the period
presented have been reflected and are of a normal recurring nature. These
supplemental consolidated financial statements, including the notes thereto,
should be read in conjunction with the historical consolidated financial
statements of the Company as of December 31, 1995, and for the period from
September 23, 1995 to December 31, 1995 and Imperial as of and for the year
ended December 31, 1995.
Results of operations for the nine month period ended September 30, 1996 are
not necessarily indicative of the results that may be achieved for the entire
year ending December 31, 1996.
2.BARBER-COLMAN MOTORS DIVISION ACQUISITION
On March 8, 1996, the Company, through its subsidiary Merkle-Korff, acquired
the net assets of Barber-Colman Motors Division ("Colman Motor Products",
formerly "Barber-Colman"), a division of Barber-Colman Company, which was
wholly-owned by Siebe, plc. This division consisted of Colman OEM and Colman
Motor Products, wholly-owned subsidiaries of Barber-Colman Company, and the
motors division of Barber-Colman Company (collectively "Barber-Colman").
Barber-Colman is a vertically integrated manufacturer of
F-74
<PAGE>
sub fractional horsepower AC/DC motors and gear motors with applications in
such products as vending machines, copiers, printers, ATM machines, currency
changers, X-ray machines, peristaltic pumps, HVAC actuators, and other
products.
The purchase price of $21,700, which included costs incurred directly
related to the transaction, was allocated to working capital of $5,111,
property, plant and equipment of $6,541, non-compete agreements of $1,000, and
resulted in an excess purchase price over net identifiable assets of $9,048.
The acquisition was financed with $21,700 of new and existing credit
facilities.
The results of operations include Barber-Colman from its acquisition date of
March 8, 1996.
3.INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
--------------
(IN THOUSANDS)
<S> <C>
Raw materials................................................. $9,964
Work in process............................................... 4,886
Finished goods................................................ 2,274
-------
$17,124
=======
</TABLE>
4. SUBSEQUENT EVENTS
Completion of Debt Offering
On November 7, 1996, the Company issued and sold $170,000 aggregate
principal amount of 10 3/4% Series A Senior Notes due 2006 (New Senior Notes).
Interest on the New Senior Notes is payable in arrears on May 15 and November
15 of each year, commencing May 15, 1997. The New Senior Notes are unsecured
obligations of the Company and mature on November 15, 2006. The New Senior
Notes are redeemable at the option of the Company, in whole or in part, at any
time on or after November 15, 2001. In addition, notwithstanding the
foregoing, the Company may redeem up to 35% of the original aggregate
principal amount prior to November 15, 1999 under certain circumstances.
The Indenture relating to the New Senior Notes contains certain covenants
which, among other things, restricts the ability of the Company to incur
additional indebtedness, to declare or pay dividends, to repurchase stock or
make other restricted payments, create liens, engage in transactions with
affiliates, or complete certain mergers or consolidations.
Seventy-five million of the proceeds from the above debt offering were used
to acquire Imperial, approximately $85 million of proceeds were used to repay
the Company's obligations under the existing Credit Agreement, and
approximately $10 million of the proceeds were used to pay related fees and
expenses.
New Credit Agreement
In conjunction with the Company's November 1996 debt offering, the Company
repaid all of its outstanding indebtedness under the existing credit
agreement, cancelled this agreement, and entered into a new credit agreement
(New Credit Agreement) with a bank. Accordingly, the unamortized balance of
deferred financing costs related to the previous agreement of $7,731 was
written-off in November 1996 as an extraordinary charge.
The New Credit Agreement provides for borrowings of up to $75 million over a
five year term. The New Credit Agreement is in the form of a revolving credit
facility. Borrowings under the revolving credit facility bear interest at a
floating rate of LIBOR + 2.50% or base rate + 1.50%, subject to reduction
based on the Company's leverage ratio, as defined. Unused commitments under
the revolving credit facility are subject to an availability fee of 1/2 of 1%
per annum, as defined. Borrowings under the New Credit Agreement are secured
by the stock and substantially all of the assets of the Company.
The New Credit Agreement contains certain covenants which, among other
things, provides for a minimum level of interest coverage, as defined, and
limits the Company's ability to incur additional indebtedness, create liens,
make restricted payments, engage in affiliate transactions or mergers and
consolidations, and make asset sales.
F-75
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON IS AUTHORIZED IN CONNECTION WITH ANY
OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
NOT CONTAINED IN THIS OFFERING MEMORANDUM, AND, IF GIVEN OR MADE, SUCH INFOR-
MATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE COMPANY OR BY THE INITIAL PURCHASERS. THIS OFFERING MEMORANDUM DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN SECURITIES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO
ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER
OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS OFFERING MEMORAN-
DUM NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLI-
CATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSE-
QUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Summary................................................................... 1
Risk Factors.............................................................. 13
The Company............................................................... 18
Use of Proceeds........................................................... 20
Capitalization............................................................ 21
Unaudited Pro Forma Condensed Financial Statements........................ 22
Unaudited Pro Forma Condensed Balance Sheet............................... 26
Selected Historical Financial Data........................................ 27
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 29
Business.................................................................. 32
Management................................................................ 41
Principal Stockholders.................................................... 44
The Exchange Offer........................................................ 45
Description of Senior Notes............................................... 54
Description of Certain Indebtedness....................................... 81
Certain Transactions...................................................... 82
Plan of Distribution...................................................... 84
Federal Income Tax Consequences........................................... 85
Legal Matters............................................................. 85
Experts................................................................... 85
Available Information..................................................... 86
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$170,000,000
MOTORS AND GEARS, INC.
10 3/4% SERIES B SENIOR NOTES DUE 2006
----------------
PROSPECTUS
----------------
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) The Delaware General Corporation Law (Section 145) gives Delaware
corporations broad powers to indemnify their present and former directors and
officers and those of affiliated corporations against expenses incurred in the
defense of any lawsuit to which they are made parties by reason of being or
having been such directors or officers, subject to specified conditions and
exclusions; gives a director or officer who successfully defends an action the
right to be so indemnified; and authorizes the registrant to buy directors'
and officers' liability insurance. Such indemnification is not exclusive of
any other rights to which those indemnified may be entitled under any by-laws,
agreement, vote of stockholders or otherwise.
(b) The Certificate of Incorporation of the registrant requires, and the By-
Laws of the registrant provides for, indemnification of directors, officers,
employees and agents to the full extent permitted by law.
(c) The Purchase Agreement and the Registration Rights Agreement (the forms
of which are included as Exhibits 1 and 4.4 to this Registration Statement)
provide for the indemnification under certain circumstances of the registrant,
its directors and certain of its officers by the Underwriters.
(d) In accordance with Section 102(b)(7) of the Delaware General Corporation
Law, the registrant's Amended and Restated Certificate of Incorporation
provides that directors shall not be personally liable for monetary damages
for breaches of their fiduciary duty as directors except for (1) breaches of
their duty of loyalty to the registrant or its stockholders, (2) acts or
omissions not in good faith or which involve intentional misconduct or knowing
violations of law, (3) under Section 174 of the Delaware General Corporation
Law (unlawful payment of dividends or stock purchase or redemption) or (4)
transactions from which a director derives an improper personal benefit.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
A list of the exhibits included as part of this Registration Statement is
set forth in the Exhibit Index that immediately precedes such exhibits and is
incorporated herein by reference.
(b) Financial Statement Schedules:
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
-------- -----------
<S> <C>
II Valuation and Qualifying Accounts
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted
because they are not required, are inapplicable or the required information
has already been provided elsewhere in the registration statement.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from
II-1
<PAGE>
the low or high and of the estimated maximum offering range may be
reflected in the form of prospectus file with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effecitve amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(d) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day
of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(f) The registrant has not entered into any arrangement or understanding
with any person to distribute the securities to be received in the Exchange
Offer and to the best of the registrant's information and belief, each
person participating in the Exchange Offer is acquiring the securities in
its ordinary course of business and has no arrangement or understanding
with any person to participate in the distribution of the securities to be
received in the Exchange Offer. In this regard, the registrant will make
each person participating in
II-2
<PAGE>
the Exchange Offer aware (through the Exchange Offer Prospectus or
otherwise) that if the Exchange Offer is being registered for the purpose
of secondary resales, any securityholder using the exchange offer to
participate in a distribution of the securities to be acquired in the
registered exchange offer (1) could not rely on the staff position
enunciated in Exxon Capital Holdings Corporation (available April 13, 1989)
or similar letters and (2) must comply with registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction. The registrant acknowledges that such a secondary
resale transaction should be covered by an effective registration statement
containing the selling securityholder information required by Item 507 of
Regulation S-K.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on January 3, 1997.
MOTORS AND GEARS, INC.
/s/ Jonathan F. Boucher
By __________________________________
JONATHAN F. BOUCHER
VICE PRESIDENT AND DIRECTOR
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Jonathan F. Boucher and Ron A. Sansom, and each of them, the true and lawful
attorneys-in-fact and agents of the undersigned, with full power of
substitution and resubstitution, for and in the name, place and stead of the
undersigned and to file the same, with all exhibits thereto, in any and all
capabilities, to sign any and all amendments and any registration statement
filed pursuant to Rule 462(b) of the Securities Act of 1933, as amended
(including post-effective amendments thereto and other documents in connection
therewith), with the Securities and Exchange Commission, and hereby grants to
such attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities indicated on January 3, 1997.
SIGNATURES TITLE
/s/ Thomas H. Quinn Chairman, Chief Executive Officer
- ------------------------------------- and a Director (Principal Executive
THOMAS H. QUINN Officer)
/s/ Ron A. Sansom President, Chief Operating Officer
- ------------------------------------- and a Director
RON A. SANSOM
/s/ Thomas C. Spielberger Chief Financial Officer (Principal
- ------------------------------------- Financial and Accounting Officer)
THOMAS C. SPIELBERGER
/s/ Jonathan F. Boucher Vice President and Director
- -------------------------------------
JONATHAN F. BOUCHER
/s/ John W. Jordan II Director
- -------------------------------------
JOHN W. JORDAN II
/s/ David W. Zalaznick Director
- -------------------------------------
DAVID W. ZALAZNICK
II-4
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS, ON SCHEDULE S-II
The Board of Directors
Motors and Gears, Inc.
We have audited the accompanying consolidated balance sheet of Motors and
Gears, Inc. (formerly MK Group, Inc.) as of December 31, 1995, and the related
consolidated statements of income, changes in shareholder's equity, and cash
flows for the period from September 23, 1995 to December 31, 1995, and have
issued our report thereon dated February 23, 1996, except for Note 9 as to
which the date is March 8, 1996 (included elsewhere in this Registration
Statement). We have audited the accompanying combined balance sheet of Merkle-
Korff Industries, Inc., Mercury Industries Inc., and Elmco Industries, Inc. as
of December 31, 1994, and the related combined statements of income and
retained earnings, and cash flows for the years ended December 31, 1993 and
1994 and the period from January 1, 1995 to September 22, 1995, and have
issued our report thereon dated February 23, 1996 (included elsewhere in this
Registration Statement). Our audits also included the financial statement
schedule listed in item 16(b) of this Registration Statement. This schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Chicago, Illinois
February 23, 1996
S-1
<PAGE>
SCHEDULE II
MOTORS AND GEARS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNCOLLECTIBLE
ADDITIONS BALANCES
BALANCE AT CHARGED TO WRITTEN OFF BALANCE AT
BEGINNING OF COSTS AND NET OF END OF
PERIOD EXPENSES RECOVERIES OTHER PERIOD
------------ ---------- ------------- ----- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1993:
Allowance for doubtful
accounts $72 $ 0 $72 $0 $--
December 31, 1994:
Allowance for doubtful
accounts $-- $ 0 $ 0 $0 $--
September 22, 1995:
Allowance for doubtful
accounts $-- $ 0 $ 0 $0 $--
December 31, 1995:
Allowance for doubtful
accounts $-- $14 $ 0 $0 $14
</TABLE>
S-II
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
1 Purchase Agreement, dated as of November 1, 1996, by
and among Motors and Gears, Inc. (the "Registrant"),
Donaldson, Lufkin & Jenrette Securities Corporation, BT
Securities Corporation and Jefferies & Company, Inc. .. +
2.1 Agreement for Purchase and Sale of Assets, dated as of
November 7, 1996, by and among the Registrant, Motors
and Gears Industries, Inc., The New Imperial Electric
Company, The New Scott Motors Company, New Gear
Research, Inc., The Imperial Electric Company, The
Scott Motors Company and Gear Research, Inc. .......... +
2.2 Contingent Earnout Agreement, dated as of November 7,
1996, by and among the Registrant, Motors and Gears
Industries, Inc., The New Imperial Electric Company,
The New Scott Motors Company, New Gear Research, Inc.,
The Imperial Electric Company, The Scott Motors Company
and Gear Research, Inc. ............................... +
2.3 Agreement and Plan of Merger, dated November 1, 1996,
between the Registrant and Motors and Gears, Inc. .....
3.1 Certificate of Incorporation of the Registrant.........
3.2 Bylaws of the Registrant...............................
4.1 Indenture, dated as of November 7, 1996, between the
Registrant and Fleet National Bank, as Trustee......... +
4.2 Global Series A Senior Note in the aggregate principal
amount of $170,000,000 made payable to Cede & Co. .....
4.3 Form of Global Series B Senior Note in the aggregate
principal amount of $170,000,000 made payable to Cede &
Co. ...................................................
4.4 Registration Rights Agreement, dated as of November 7,
1996, by and among the Registrant, Donaldson, Lufkin &
Jenrette Securities Corporation, BT Securities
Corporation and Jefferies & Company, Inc. ............. +
4.5 Credit Agreement, dated as of November 7, 1996, by and
among Motors and Gears Industries, Inc., the other
lenders party thereto and Bankers Trust Company, as
agent.................................................. +
4.6 Revolving Note in the aggregate principal amount of
$75,000,000............................................ +
4.7 Swingline Note in the aggregate principal amount of
$2,000,000.............................................
4.8 Subsidiary Guarantee, dated as of November 7, 1996, by
and among Merkle-Korff Industries, Inc., BCM Holdings,
Inc., The New Imperial Electric Company, The New Scott
Motors Company, New Gear Research, Inc. and Bankers
Trust Company, as agent................................
4.9 Stock Pledge Agreement, dated as of November 7, 1996,
by and among Motors and Gears Industries, Inc., Merkle-
Korff Industries, Inc., BCM Holdings, Inc., The New
Imperial Electric Company, The New Scott Motors
Company, New Gear Research, Inc. and Bankers Trust
Company, as agent...................................... +
4.10 Security Agreement, dated as of November 7, 1996, by
and among Motors and Gears Industries, Inc., Merkle-
Korff Industries, Inc., BCM Holdings, Inc., The New
Imperial Electric Company, The New Scott Motors
Company, New Gear Research, Inc. and Bankers Trust
Company, as agent...................................... +
5 Opinion of Mayer, Brown & Platt........................
10.1(a) Indemnification Agreement, dated as of November 7,
1996, between the Registrant and Thomas H. Quinn.......
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
10.1(b) Indemnification Agreement, dated as of November 7,
1996, between the Registrant and Jonathan F. Boucher...
10.1(c) Indemnification Agreement, dated as of November 7,
1996, between the Registrant and David W. Zalaznick....
10.1(d) Indemnification Agreement, dated as of November 7,
1996, between the Registrant and John W. Jordan, II....
10.1(e) Indemnification Agreement, dated as of November 7,
1996, between the Registrant and Ron A. Sansom.........
10.1(f) Indemnification Agreement, dated as of November 7,
1996, between the Registrant and Thomas C. Spielberger.
10.2 JII Management Services Agreement, dated as of November
7, 1996, by and among Motors and Gears Holdings, Inc.,
the Registrant, Motors and Gears Industries, Inc.,
Merkle-Korff Industries, Inc., BCM Holdings, Inc., The
New Imperial Electric Company, The New Scott Motors
Company, New Gear Research, Inc. and Jordan Industries,
Inc. .................................................. +
10.3 Tax Sharing Agreement, dated June 28, 1994, by and
among Jordan Industries, Inc. and each other
corporation which is a signatory thereto...............
10.4 Joinder Agreement to the Tax Sharing Agreement, dated
as of November 7, 1996, by and among Motors and Gears
Holdings, Inc., the Registrant, Motors and Gears
Industries, Inc., Merkle-Korff Industries, Inc., BCM
Holdings, Inc., The New Imperial Electric Company, The
New Scott Motors Company, and New Gear Research, Inc. .
10.5 TJC Management Consulting Agreement, dated as of
November 7, 1996, by and among Motors and Gears
Holdings, Inc., the Registrant, Motors and Gears
Industries, Inc., Merkle-Korff Industries, Inc., BCM
Holdings, Inc., The New Imperial Electric Company, The
New Scott Motors Company, New Gear Research, Inc. and
TJC Management Corporation............................. +
10.6 Merkle-Korff Industries, Inc. Secured Note in the
principal aggregate amount of $90,000,000 payable to
the John D. Simms Revocable Trust Under Agreement......
10.7 Letter of Credit Agreement, dated as of September 22,
1995 by and among MK Group, Inc., Merkle-Korff
Industries, Inc. and Bankers Trust Company (the "Letter
of Credit Agreement")..................................
10.8 First Amendment to the Letter of Credit Agreement,
dated as of November 7, 1996, by and among MK Group,
Inc., Merkle-Korff Industries, Inc. and Bankers Trust
Company................................................
10.9 Merkle-Korff Industries, Inc. Non-negotiable
Subordinated Note in the principal aggregate amount of
$5,000,000 payable to John D. Simms Revocable Trust
Under Agreement........................................
10.10 BCM Holdings, Inc. Intercompany Note in the principal
amount of $20,000,000 payable to Merkle-Korff
Industries, Inc........................................
10.11 Parent Subordinated Intercompany Note in the principal
amount of $170,000,000 of Motors and Gears Industries,
Inc. payable to the Registrant.........................
10.12 The New Scott Motors Company Intercompany Note, dated
as of November 7, 1996, payable to Motors and Gears
Industries, Inc........................................
10.13 New Gear Research, Inc. Intercompany Note, dated as of
November 7, 1996, payable to Motors and Gears
Industries, Inc........................................
10.14 The New Imperial Electric Company Intercompany Note,
dated as of November 7, 1996, payable to Motors and
Gears Industries, Inc..................................
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
10.15 Merkle-Korff Industries, Inc. Intercompany Note, dated
as of November 7, 1996, payable to Motors and Gears
Industries, Inc........................................
10.16 Industrial Building Lease, dated as of September 22,
1996, by and between Merkle-Korff Industries, Inc. and
Ridge Industries.......................................
10.17 Industrial Building Lease, dated as of September 22,
1996, by and between Merkle-Korff Industries, Inc. and
Bradrock Realty, Inc...................................
10.18 Industrial Building Lease, dated as of September 22,
1996, by and between Merkle-Korff Industries, Inc. and
FJM Realty, Inc........................................
10.19 Industrial Building Lease, dated as of September 22,
1996, by and between Merkle-Korff Industries, Inc. and
Bradrock Realty, Inc...................................
10.20 Employment and Noncompetition Agreement, dated as of
September 22, 1995, by and between Merkle-Korff
Industries, Inc. and John D. Simms.....................
10.21 Employment and Noncompetition Agreement, dated as of
September 22, 1995, by and between Merkle-Korff
Industries, Inc. and John W. Brown.....................
10.22 Agreement, dated as of September 12, 1993, by and
between The Imperial Electric Company and the United
Steelworkers of America AFL-CIO, on behalf of Local
Union 4544-3...........................................
10.23 Working Agreement, dated as of June 28, 1995, by and
between The Imperial Electric Company and International
Association of Machinists & Aerospace Workers (AFL-CIO)
and its affiliated Lodge 2164..........................
10.24 Agreement, dated as of October 1, 1995, by and between
Merkle-Korff Industries, Inc. and the International
Union of Electronic, Electrical, Salaried Machine &
Furniture Workers, AFL-CIO, in behalf of, and in
conjunction with Local 1199............................
10.25 Products Supply Agreement, dated as of March 8, 1996,
by and between Barber-Colman Company and BCM Holdings,
Inc.................................................... ++
12 Statements regarding computation of ratios.............
22 List of Subsidiaries of the Registrant.................
23.1 Consent of Mayer, Brown & Platt (included in the
opinion filed as Exhibit 5)............................
23.2 Consent of Ernst & Young LLP...........................
24 Power of Attorney (included on the signature page in
Part II of this Registration Statement)................
25 Statement on Form T-1 of eligibility of the Trustee
under the Trust Indenture Act (to be filed separately).
27 Financial Data Schedule................................
99.1 Form of Letter of Transmittal..........................
99.2 Form of Letter to Clients..............................
99.3 Form of Notice of Guaranteed Delivery..................
99.4 Form of Letter to Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees.....................
</TABLE>
- --------
+ Incorporated by reference to the exhibits filed with the Jordan Industries,
Inc.'s Form 8-K, dated November 20, 1996.
++ Confidential treatment requested.
3
<PAGE>
EXHIBIT 2.3
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (the "Merger Agreement") is entered into by
and between M&G Holdings, Inc, an Illinois corporation ("M&G"), AND MOTORS AND
GEARS HOLDINGS, INC., a Delaware corporation ("MOTORS AND GEARS").
1. M&G is a corporation duly organized and existing under the laws of the
State of Illinois.
2. Motors and Gears is a corporation duly organized and existing under the
laws of the State of Delaware.
3. On the date of this Merger Agreement, M&G's authorized capital consists of
10,000 shares of common stock, par value $0.01 per share, of which 9,700 common
shares are issued and outstanding; and 2,750 shares of preferred stock, par
value $1.00 per share, of which 2,750 shares are issued and outstanding;
4. On the date of this Merger Agreement, Motor and Gears' authorized capital
consists of 10,000 shares of common stock, par value $0.01 per share, of which
9,700 shares are issued and outstanding; and 2,750 shares preferred stock, par
value $1.00 per share, of which 2,750 shares are issued and outstanding.
ARTICLE I
THE MERGER
----------
SECTION 1.01. The Merger. At the Effective Time (as defined in Section 1.02),
----------
upon the terms and conditions hereof, and in accordance with The General
Corporation Law of the State of Delaware and the Business Corporation Act of the
State of Illinois, M&G shall be merged with and into Motors and Gears (the
"Merger") and Motors and Gears shall be the surviving corporation in the Merger
(the "Surviving Corporation").
SECTION 1.02. Effective Time. As soon as practicable after approval of the
--------------
Merger by M&G and Motors and Gears, as set forth herein (a) a Certificate of
Merger with respect to the Merger shall be filed with the Secretary of State of
the State of Delaware in accordance with the provisions of Section 252 of the
General Corporation Law of the State of Delaware and (b) Articles of Merger
shall be filed with the Secretary of State of the State of Illinois in
accordance with Section 11.25 of the Illinois Business Corporation Act. The
Merger shall be effective at such time as the Certificate of Merger shall have
been issued by the Secretary of State (the "Effective Time").
SECTION 1.03. CERTAIN EFFECTS OF THE MERGER. As of the Effective Time of the
-----------------------------
Merger, (i) the separate existence of M&G shall cease and M&G shall be merged
with and into Motors and Gears and (ii) the Merger shall have all the effects
set forth in the applicable statutes of Illinois and Delaware. Motors and Gears
shall assume all of the
<PAGE>
liabilities, obligations, responsibilities, rights, privileges and immunities of
M&G as of the Effective Time.
SECTION 1.04. CERTIFICATE OF INCORPORATION AND BY-LAWS. The Certificate of
----------------------------------------
Incorporation and By-Laws of Motors and Gears as in effect immediately prior to
the Effective Time shall be the Articles of Incorporation and By-Laws of the
Surviving Corporation.
SECTION 1.05. Name. The name of the Surviving Corporation shall continue to he
----
Motors and Gears Holdings, Inc..
SECTION 1.06. DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The
---------------------------------------------------
directors and officers of Motors and Gears in office immediately prior to the
Effective Time shall be the directors and officers of the Surviving Corporation
until such time as their respective successors shall have been duly elected and
qualified or until their earlier death, resignation or removal.
ARTICLE II
EFFECT OF MERGER ON CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
-------------------------------
SECTION 2.01. NO CONVERSION OF SHARES OF MOTORS AND GEARS. At the Effective
-------------------------------------------
Time, each share of the common stock, $0.01 par value, of Motors and Gears
outstanding immediately prior to the Effective Time shall not be converted, and
each such share that is issued and outstanding on such date shall continue to
represent one issued and outstanding share of Motors and Gears, as the Surviving
Corporation. Each such share shall continue to possess the same rights and
limitations as it possessed prior to the Effective Time of the Merger. At the
Effective Time, each share of the preferred stock, $1.00 par value, of Motors
and Gears outstanding immediately prior to the Effective Time shall not be
converted, and each such share that is issued and outstanding on such date shall
continue to represent one issued and outstanding share of Motors and Gears, as
the Surviving Corporation. Each such share shall continue to possess the same
rights and limitations as it possessed prior to the Effective Time of the
Merger. No shares of stock of Motors and Gears shall be issued pursuant to this
Plan of Merger.
SECTION 2.02. CANCELLATION OF COMMON STOCK OF M&G At the Effective Time of the
-----------------------------------
Merger, by virtue of the Merger and without any action on the part of any holder
thereof, each share of the $0.01 par value common stock of M&G outstanding
immediately prior to the Effective Time shall be cancelled for no consideration.
All of the issued shares of common stock of Motors and Gears and M&G are owned
by the same shareholders in identical proportions. At the Effective Time of the
Merger, by virtue of the Merger and without any action on the part of any holder
thereof, each share of the $1.00 par value preferred stock of M&G outstanding
immediately prior to the Effective Time shall be cancelled for no consideration.
All of the issued shares of preferred stock of Motors and Gears and M&G are
owned by the same shareholders in identical proportions.
2
<PAGE>
ARTICLE III
CONDITIONS TO MERGER
SECTION 3.01 CONDITIONS. The consummation of the Merger is subject to
----------
satisfaction of the following conditions prior to the Effective time:
a. The Merger shall have received the requisite approval of the holders of M&G
common stock and all necessary action shall have been taken to authorize the
execution, delivery and performance of the Merger Agreement by each of M&G and
Motors and Gears.
b. All approvals and consents necessary or desirable, if any, in connection
with the consummation of the Merger shall have been obtained.
SECTION 3.02 DEFERRAL OR ABANDONMENT. At any time prior to the Effective Time,
-----------------------
the Merger may be abandoned or the time of consummation of the Merger may be
deferred for a reasonable time by the Board of Directors of either of the
parties hereto, notwithstanding approval of this Plan of Merger by the
stockholders of M&G, if circumstances arise which, in the opinion of the Board
of Directors of either of said corporations make the Merger inadvisable or such
deferral of the time of consummation thereof advisable.
ARTICLE IV
SERVICE OF PROCESS;DISSENTERS' RIGHTS
-------------------------------------
SECTION 4.01 SERVICE OF PROCESS. It is agreed that upon and after the Effective
------------------
Time:
a. The Surviving Corporation may be served with process in the State of
Illinois in any proceeding for the enforcement of any obligation of M&G.
b. The Secretary of State of the State of Illinois shall be and hereby is
irrevocably appointed as the agent of the Surviving Corporation to accept
service of process in any proceeding to enforce any obligation of M&G; the
address to which the service of process in any such proceeding shall be mailed
is 1209 Orange Street, Wilmington, County of New Castle, Delaware 19801,
Attention: Corporation Trust Company.
SECTION 4.02 DISSENTERS' RIGHTS. The Surviving Corporation agrees to pay to
------------------
any shareholder of M&G dissenting to the Merger the amount, if any, to which
such shareholder is entitled under the provisions of the Illinois Business
Corporation Act.
(SIGNATURES ON THE FOLLOWING PAGE)
3
<PAGE>
IN WITNESS WHEREOF, M&G and Motors and Gears have caused this
Merger Agreement to be signed by their respective duly authorized officers and
delivered this 1 day of November, 1996.
- --------
M&G Holdings, Inc., an Illinois corporation
By: /s/ Jonathan F. Boucher
---------------------------------------------
Jonathan F. Boucher, Its Vice President
ATTEST:
By: /s/ G. Robert Fisher
-------------------------------------
G. Robert Fisher, Its Assistant Secretary
Motors and Gears Holdings, Inc., a Delaware
corporation
By: /s/ Jonathan F. Boucher
---------------------------------------------
Jonathan F. Boucher, Its Vice President
ATTEST:
By: /s/ G. Robert Fisher
-------------------------------------
G. Robert Fisher, Its Assistant Secretary
4
<PAGE>
SECRETARY'S CERTIFICATE
The undersigned Assistant Secretary of Motors and Gears Holdings, Inc.
("Motors and Gears"), hereby certifies that the foregoing Agreement and Plan of
Merger has been adopted pursuant to Subsection (f) of Section 251 of the
Delaware Corporation Law by action of the board of directors of Motors and Gears
and without any vote of its stockholders and that the following conditions of
said section have been satisfied: (i) the Agreement and Plan of Merger does not
amend the Certificate of Incorporation of Motors and Gears; (ii) each share of
stock of Motors and Gears outstanding immediately prior to the effective date of
the Merger is to be an identical outstanding share of the Surviving Corporation;
(iii) no shares of common stock of the Surviving Corporation and no shares
convertible into such stock are to be issued or delivered under the Plan of
Merger.
MOTORS AND GEARS HOLDINGS, INC., A DELAWARE
CORPORATION
By: /s/ G. Robert Fisher
------------------------------------------
G. Robert Fisher, Its Assistant Secretary
5
<PAGE>
SECRETARY'S CERTIFICATE
The undersigned Assistant Secretary of M&G Holdings, Inc., an Illinois
corporation ("M&G"), hereby certifies that pursuant to subsection (c) of Section
251 of the Delaware Corporation Law, the foregoing Agreement and Plan of Merger
has been adopted by the vote of the holders of all of the outstanding stock of
M&G entitled to vote thereon.
M&G HOLDINGS, INC., AN ILLINOIS CORPORATION
By: /s/ G. Robert Fisher
------------------------------------------
G. Robert Fisher, Its Assistant Secretary
6
<PAGE>
PAGE 1
EXHIBIT 3.1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "MOTORS AND GEARS, INC.", FILED IN THIS OFFICE ON THE
SEVENTEENTH DAY OF OCTOBER, A.D. 1996, AT 1:30 O'CLOCK P.M.
[GRAPHIC] /s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
2671063 8100
960314940
AUTHENTICATION: 8168375
DATE: 10-29-96
<PAGE>
CERTIFICATE OF INCORPORATION
OF
MOTORS AND GEARS, INC.
FIRST: The name of the Corporation is Motors and Gears, Inc. (the
-----
"Corporation").
SECOND: The address of the Corporation's registered office in the State of
------
Delaware is The Corporation Trust Company, l209 Orange Street, in the City of
Wilmington, County of New Castle, Delaware 19801. The name of its registered
agent at such address is The Corporation Trust Company.
THIRD: The nature of the business or purpose to be conducted or promoted
-----
by the Corporation is to engage in any lawful act or activity for which
corporations way be organized under the General Corporation Law of the State of
Delaware, as amended (the "GCL").
FOURTH: The total number of shares of capital stock which the Corporation
------
shall have authority to issue is Ten thousand (10,000) shares of common stock,
par value $1.00 per share (the "Common Stock").
A statement of the powers, designations, preferences, and relative
participating, optional or other special rights and the qualifications,
limitations and restrictions of the Common Stock is as follows:
(a) Dividends. The board of directors of the Corporation (the "Board of
---------
Directors") may cause dividends to be paid to the holders of shares of Common
Stock out of funds legally available for the payment of dividends by declaring
an amount per share as a dividend. When and as dividends are declared, whether
payable in cash, in property or in shares of stock or other securities of the
Corporation, the holders of Common Stock shall be entitled to share, ratably
according to the number of shares of Common Stock held by them, in such
dividends.
(b) Liquidation Rights. In the event of any voluntary or involuntary
------------------
liquidation, dissolution or winding up of the affairs of the Corporation, the
holders of Common Stock shall be entitled to share, ratably according to the
number of shares of Common Stock held by them, in all assets of the Corporation
available for distribution to its stockholders.
(c) Voting Rights. Except as otherwise provided in this Certificate of
-------------
Incorporation or by applicable law, the holders of common stock shall be
entitled to vote on each matter on which the stockholders of the Corporation
shall be entitled to vote, and each
<PAGE>
holder of Common Stock shall be entitled to one vote for each share of such
stock held by him.
FIFTH: The name and mailing address of the incorporator is as follows:
-----
Steven L. Rist
Bryan Cave LLP
1200 Main Street
Suite 350O
Kansas City, MO 64141-6914
SIXTH:
-----
1. Limits of Director Liability. Directors of the Corporation shall have no
----------------------------
personal liability to the Corporation or its stockholders for monetary damages
for breach of a fiduciary duty as a director; provided that nothing contained in
--------
this ARTICLE SIXTH shall eliminate or limit the liability of a director (i) for
any breach of a director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law, (iii) under Section 174 of
the GCL, or (iv) for any transaction from which a director derived an improper
personal benefit. If the GCL is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then by virtue of
this ARTICLE SIXTH the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the GCL, as so
amended.
2. Indemnification. The Corporation shall indemnify, in accordance with
---------------
the By-laws of the Corporation, to the fullest extent permitted from time to
time by the GCL or any other applicable laws as presently or hereafter in
effect, any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, including, without limitation, an
action by or in the right of the Corporation, by reason of his acting as a
director or officer of the Corporation (and the Corporation, in the discretion
of the Board of Directors, may so indemnify a person by reason of the fact that
he is or was an employee or agent of the corporation or is or was serving at the
request of the Corporation in any other capacity for or on behalf of the
Corporation) against any liability or expense actually and reasonably incurred
by such person in respect thereof; provided, however, the Corporation shall be
-------- -------
required to indemnify an officer or director in connection with an action, suit
or proceeding (or part thereof) initiated by such person only if (i) such
action, suit or proceeding (or part thereof) was authorized by the Board of
Directors or (ii) the indemnification does not relate to any liability arising
under Section 16(b) of the Securities Exchange Act of 1934, as amended, or any
of the rules or
2
<PAGE>
regulations promulgated thereunder. Such indemnification is not exclusive of any
other right to indemnification provided by law or otherwise. The right to
indemnification conferred by this Section (2) shall be deemed to be a contract
between the Corporation and each person referred to herein.
If a claim under Section (2) of this ARTICLE SIXTH is not paid in full by the
Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where any undertaking required by
the By-laws of the Corporation has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the GCL and Section 2 of this ARTICLE SIXTH for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including its Board
of Directors, legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he or she has met the applicable standard of
conduct set forth in the GCL, nor an actual determination by the Corporation
(including its Board of Directors, legal counsel, or its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
Indemnification shall include payment by the Corporation of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by the person indemnified to
repay such payment if it is ultimately determined that such person is not
entitled to indemnification under this ARTICLE SIXTH, which undertaking may be
accepted without reference to the financial ability of such person to make such
repayment.
The right to indemnification and the payment of expenses incurred in defending
a proceeding in advance of its final disposition conferred in this ARTICLE
SIXTH shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of this Certificate of
Incorporation, by-law, agreement, contract, vote of stockholders or
disinterested directors, or otherwise.
3. Additional Indemnification. The Corporation may, by action of its Board of
--------------------------
Directors, provide indemnification to such of the directors, officers, employees
and agents of the Corporation
3
<PAGE>
to such extent and to such effect as the Board of Directors shall determine to
be appropriate and authorized by Delaware law.
4. Insurance. The Corporation may purchase and maintain insurance on behalf of
---------
any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his Status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this ARTICLE SIXTH, the GCL, or
otherwise.
5. Effect of Amendments. Neither the amendment, change, alteration nor repeal
--------------------
of this ARTICLE SIXTH, nor the adoption of any provision of this Certificate of
Incorporation or the by-laws of the Corporation, nor, to the fullest extent
permitted by Delaware Law, any modification of law, shall eliminate or reduce
the effect of this ARTICLE SIXTH or the rights or any protections afforded
under this ARTICLE SIXTH in respect of any acts or omissions occurring prior to
such amendment, repeal, adoption or modification.
SEVENTH: At all meetings of stockholders, each stockholder shall be entitled
-------
to vote, in person or by proxy, the shares of voting stock owned by such
stockholders of record on the record date for the meeting. When a quorum is
present or represented at any meeting, the Vote of the holders of majority in
interest of the stockholders present in person or by proxy at such meeting and
entitled to vote thereon shall decide any question, matter or proposal brought
before such meeting unless the question is one upon which, by express provision
of law, this Certificate of Incorporation or the By-laws applicable thereto, a
different vote is required, in which case such express provision shall govern
and control the decision of such question.
EIGHTH:
------
l. Number of Directors. The number of directors of the Corporation shall be
-------------------
fixed from time to time by the vote of a majority of the entire Board of
Directors, but such number shall in no case be less than three (3) nor more than
seven (7). Any such determination made by the Board or Directors shall continue
in effect unless and until changed by the Board of Directors, but no such
changes shall affect the term of any directors then in office.
2. Term of Office; Quorum; Vacancies. A director shall hold office until the
---------------------------------
annual meeting for the year in which his or her term expires and until his or
her successor shall be elected and shall qualify, subject, however, to prior
death, resignation, retirement, disqualification or removal from office. Subject
to
4
<PAGE>
the By-laws, a majority of the entire Board of Directors shall constitute a
quorum for the transaction of business. Any vacancies and newly created
directorships resulting from an increase in the number of directors shall be
filed by majority of the Board of Directors then in office even though less than
a quorum and shall hold office until his successor is elected and qualified or
until his earlier death, resignation, retirement, disqualification or removal
from office.
3. Removal. Any director may be removed upon the affirmative vote of the
-------
holders of a majority of the votes which could be cast by the holders of a11
outstanding shares of capital stock entitled to vote for the election of
directors, voting together as a class, given at a duly called annual or special
meeting of stockholders.
NINTH: For the management of the business and for the conduct of the affairs
-----
of the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation and of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided:
(l) The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors.
(2) The directors shall have the power to make, adopt, alter,
amend, change, add to or repeal the By-laws of the Corporation.
(3) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby
empowered to exercise all such powers and do all such acts and things as
may be exercised or done by the Corporation, subject, nevertheless, to
the provisions of the GCL, this Certificate of Incorporation, and any
By-laws adopted by the stockholders; provided, however, that no By-laws
hereafter adopted by the stockholders shall invalidate any prior act of
the directors which would have been valid if such By-laws had not been
adopted.
TENTH:
-----
1. Stockholder Meetings; Keeping of Books and Records. Meetings of
--------------------------------------------------
stockholders may be held within or outside the State Of Delaware as the By-
laws may provide. The books of the Corporation may be kept (subject to any
provision contained in the GCL) outside the State of Delaware at such place or
places as may be designated from time to time by the Board of Directors or in
the By-laws of the Corporation.
5
<PAGE>
2. Special Stockholders Meetings. Special meetings of the stockholders, for
-----------------------------
any purpose or purposes, unless otherwise prescribed by law, may be called by
the President or the Chairman of the Board, if one is elected, and shall be
called by the Secretary at the direction of a majority of the Board of
Directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the Company issued and outstanding and
entitled to vote.
3. No Written Ballot. Elections of directors need not be by written ballot
-----------------
unless the By-laws of the Corporation shall so provide.
ELEVENTH: The Corporation reserves the right to repeal, alter or amend this
--------
Certificate of Incorporation in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are granted subject
to this reservation. No repeal, alteration or amendment of this Certificate of
Incorporation shall be made unless the same is first approved by the Board of
Directors of the Corporation pursuant to a resolution adopted by the directors
then in office in accordance with the By-laws and applicable law and thereafter
approved by the stockholders.
TWELFTH: The Corporation expressly elects not to be governed under Section 203
-------
of the GCL.
I, THE UNDERSIGNED, being the incorporator named herein, for the purpose of
forming a corporation pursuant to the GCL, do make this Certificate of
Incorporation, hereby declaring and certifying that this is my act and deed and
that facts herein stated are true, and accordingly have hereunto set my
signature as of October 17, 1996.
By: /s/ Steven L. Rist
------------------------
Name: Steven L. Rist
Title: Sole Incorporator
6
<PAGE>
Exhibit 3.2
BYLAWS
OF
MOTORS AND GEARS, INC.
Offices
-------
1. Registered Office and Registered Agent. The location of the registered
--------------------------------------
office and the name of the registered agent of the corporation in the State of
Delaware shall be such as shall be determined from time to time by the board of
directors and on file in the appropriate public offices of the State of Delaware
pursuant to applicable provisions of law.
2. Corporate Offices. The corporation may have such other corporate offices
-----------------
and places of business anywhere within or without the State of Delaware as the
board of directors may from time to time designate or the business of the
corporation may require.
Seal
----
3. Corporate Seal. The corporate seal shall have inscribed thereon the name of
--------------
the corporation and the words "Corporate Seal, Delaware". The corporate seal may
be used by causing it or a facsimile thereof to be impressed, affixed,
reproduced or otherwise.
Meeting of Stockholders
------------------------
4. Place of Meetings. All meetings of the stockholders shall be held at the
-----------------
offices of the corporation or at such other place either within or without the
State of Delaware as shall be designated from time to time by the board of
directors and stated in the notice of the meeting or in a duly executed waiver
of notice thereof.
5. Annual Meeting. An annual meeting of the stockholders of the corporation
--------------
shall be held on September 1 of each year, commencing in 1997, if not a legal
holiday, and if a legal holiday, then on the next secular day following, at
10:00 a.m., or at such other date and time as shall be determined from time to
time by the board of directors and stated in the notice of the meeting. At the
annual meeting the stockholders shall elect directors to serve until the next
annual meeting of the stockholders and until their successors are elected and
qualified, or until their earlier resignation or removal, and shall transact
such other business as may properly be brought before the meeting. The
stockholders may transact such other business as may be desired, whether or not
the same was specified
<PAGE>
in the notice of the meeting, unless the consideration of such other business
without its having been specified in the notice of the meeting as one of the
purposes thereof is prohibited by law.
6. Special Meetings. Special meetings of the stockholders may be held for any
----------------
purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, and may be called by any officer, by the board of
directors, or by the holders of, or by any officer or stockholder upon the
written request of the holders of, not less than 25 percent of the outstanding
stock entitled to vote at such meeting, and shall be called by any officer
directed to do so by the board of directors or requested to do so in writing by
a majority of the board of directors. Any such written request shall state the
purpose or purposes of the proposed meeting. The "call" and the "notice" of any
such meeting shall be deemed to be synonymous.
7. Voting. At all meetings of stockholders every stockholder having the right
------
to vote shall be entitled to vote in person, or by proxy appointed by an
instrument in writing subscribed by such stockholder and bearing a date not more
than three years prior to said meeting, unless said instrument shall provide for
a longer period. Unless otherwise provided by the certificate of incorporation,
each stockholder shall have one vote for each share of stock entitled to vote at
such meeting registered in his name on the books of the corporation. At all
meetings of stockholders, the voting may be by voice vote, except that, unless
otherwise provided by the certificate of incorporation, any qualified voter may
demand a vote by ballot on any matter, in which event such vote shall be taken
by ballot.
8. Quorum. The holders of a majority of the stock issued and outstanding and
------
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
any business, except as otherwise provided by law, by the certificate of
incorporation or by these bylaws. Every decision of a majority in the amount of
stock of such quorum shall be valid as a corporate act, except in those specific
instances in which a larger vote is required by law or by the certificate of
incorporation or by these bylaws.
At any meeting at which a quorum shall not be present, the holders of a
majority of the stock present in person or by proxy at such meeting shall have
power successively to adjourn the meeting from time to time to a specified time
and place, without notice to anyone other than announcement at the meeting,
until a quorum shall be present in person or by proxy. At such adjourned meeting
at which a quorum shall be present in person or by proxy, any business may be
transacted which might have been transacted at the original meeting which was
adjourned. If the
<PAGE>
adjournment is for more than 30 days, or if after adjournment a new record date
is fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
9. Stock Ledger. The original or duplicate stock ledger shall be the only
------------
evidence as to who are the stockholders entitled to examine the list required
under Section 10 of these bylaws or the books of the corporation, or to vote in
person or by proxy at any meeting of the stockholders.
10. Stockholders List. The secretary or assistant secretary, who shall have
-----------------
charge of the stock ledger, shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder for
any purpose germane to the meeting during ordinary business hours for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
11. Notice. Written or printed notice of each meeting of the stockholders,
------
whether annual or special, stating the place, date, and hour of the meeting,
and, in the case of a special meeting, the purpose or purposes thereof, shall be
given, either personally or by mail, to each stockholder of record of the
corporation entitled to vote at such meeting not less than 10 days nor more than
60 days prior to the meeting. The board of directors may fix in advance a date,
which shall not be more than 60 nor less than 10 days preceding the date of any
meeting of the stockholders, as a record date for the determination of the
stockholders entitled to notice of, and to vote at, any such meeting and any
adjournment thereof; provided, however, that the board of directors may fix a
new record date for any adjourned meeting.
12. Action by Stockholders Without Meeting. Any action required by law to be
--------------------------------------
taken at any annual or special meeting of stockholders of the corporation, or
any other action which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice, and without
a vote, if a consent in writing setting forth the action so taken shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares
<PAGE>
entitled to vote thereon were present and voted. Prompt notice of any taking of
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
Board of Directors
------------------
13. Powers: Number; Term; Qualification. The management of all the affairs,
-----------------------------------
property, and business of the corporation shall be vested in a board of
directors. Unless required by the certificate of incorporation, directors need
not be stockholders. In addition to the powers and authorities these bylaws and
the certificate of incorporation have expressly conferred upon it, the board of
directors may exercise all such powers of the corporation, and do all such
lawful acts and things as are not by statute or by the certificate of
incorporation or by these bylaws directed or required to be exercised or done by
the stockholders. The number of directors shall be as provided from time to time
by resolution duly adopted by the holders of a majority of the outstanding
shares entitled to vote thereon or by a majority of the whole board of
directors. Each director shall hold office until his successor shall have been
elected and qualified or until his earlier resignation and removal. Each
director, upon his election, shall be deemed to have qualified by filing with
the corporation his written acceptance of such office, which shall be placed in
the minute book, or by his attendance at, or consent to action in lieu of, any
regular or special meeting of directors. Any director may resign at any time by
filing a written resignation with the secretary of the corporation and, unless a
later date is fixed by its terms, said resignation shall be effective from the
filing thereof.
14. Vacancies. Vacancies and newly created directorships resulting from any
---------
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, unless it is otherwise provided in the certificate of incorporation or
bylaws, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and qualified, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute.
15. Meetings of the Newly Elected Board. The first meeting of the members of
-----------------------------------
each newly elected board of directors shall be held (i) at such time and place
either within or without the State of Delaware as shall be suggested or provided
by resolution of the stockholders at the meeting at which such newly elected
board was elected, and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present; or
<PAGE>
(ii) if not so suggested or provided for by resolution of the stockholders or if
a quorum shall not be present, at such time and place as shall be consented to
in writing by a majority of the newly elected board of directors, provided that
written or printed notice of such meeting shall be given to each of the other
directors in the same manner as provided in Section 17 of these bylaws with
respect to the giving of notice for special meetings of the board, except that
it shall not be necessary to state the purpose of the meeting in such notice; or
(iii) regardless of whether the time and place of such meeting shall be
suggested or provided for by resolution of the stockholders, at such time and
place as shall be consented to in writing by all of the newly elected directors.
16. Regular Meeting. Regular meetings of the board of directors may be held
---------------
without notice at such times and places either within or without the State of
Delaware as shall from time to time be fixed by resolution adopted by the full
board of directors. Any business may be transacted at a regular meeting.
17. Special Meeting. Special meetings of the board of directors may be called
---------------
at any time by the president, any vice president or the secretary, or by any
two or more of the directors. The place may be within or without the State of
Delaware as designated in the notice.
18. Notice of Special Meeting. Written or printed notice of each special
-------------------------
meeting of the board of directors, stating the place, day, and hour of the
meeting and the purpose or purposes thereof, shall be mailed to each director
addressed to him at his residence or usual place of business at least two days
before the day on which the meeting is to be held, or shall be sent to him by
telegram, or delivered personally, at least one day before the day on which the
meeting is to be held. The notice may be given by any officer having authority
to call the meeting. "Notice" and "call" with respect to such meetings shall be
deemed to be synonymous. Any meeting of the board of directors shall be a legal
meeting without any notice thereof having been given if all directors shall be
present thereat.
19. Quorum. Unless otherwise required by law, the certificate of incorporation
------
or these bylaws, a majority of the total number of directors shall be necessary
at all meetings to constitute a quorum for the transaction of business, and
except as may be otherwise provided by law, the certificate of incorporation or
these bylaws, the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the board of directors.
If at least one-third of the whole board of directors is present at any
meeting at which a quorum is not present, a majority of the directors present at
such meeting shall have
<PAGE>
power successively to adjourn the meeting from time to time to a subsequent
date, without notice to any director other than announcement at the meeting. At
such adjourned meeting at which a quorum is present, any business may be
transacted which might have been transacted at the original meeting which was
adjourned.
20. Attendance by Telephone. Unless otherwise restricted by the certificate of
-----------------------
incorporation, members of the board of directors, or any committee designated by
the board of directors, may participate in a meeting of such board or committee
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this provision shall constitute presence
in person at such meeting.
21. Committees. The board of directors may, by resolution or resolutions
----------
passed by a majority of the whole board, designate one or more committees, each
committee to consist of one or more directors of the corporation. The board of
directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. Any such committee, to the extent provided in said resolution or
resolutions or in these bylaws, shall have and may exercise all of the powers of
the board of directors in the management of the corporation, and may authorize
the seal of the corporation to be affixed to all papers which may require it;
provided, however, that in the absence or disqualification of any member of such
committee or committees, the member or members thereof present at any meeting
and not disqualified from voting, whether he or they constitute a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member. Such committee
or committees shall have such name or names as may be determined from time to
time by resolution adopted by the board of directors. All committees so
appointed shall, unless otherwise provided by the board of directors, keep
regular minutes of the transactions of their meetings and shall cause them to be
recorded in books kept for that purpose in the office of the corporation and
shall report the same to the board of directors at its next meeting. The
secretary or an assistant secretary of the corporation may act as secretary of
the committee if the committee so requests.
22. Compensation. The board of directors may, by resolution, fix a sum to be
------------
paid directors for serving as directors of this corporation and may, by
resolution, fix a sum which shall be allowed and paid for attendance at each
meeting of the board of directors and in each case may provide for reimbursement
of expenses incurred by directors in attending each meeting; provided that
nothing herein contained shall be construed to
<PAGE>
preclude any director from serving this corporation in any other capacity and
receiving his regular compensation therefor, Members of special or standing
committees may be allowed like compensation for attending committee meetings.
23. Resignation. Any director may resign at any time by giving a written
-----------
notice to the chairman of the board of directors, the president, or the
secretary of the corporation. Such resignation shall take effect at the time
specified therein; and unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
24. Indemnification of Directors and Officers. Each person who is or was a
-----------------------------------------
director or officer of the corporation or is or was serving at the request of
the corporation as a director or officer of another corporation (including the
heirs, successors, executors or administrators, or estate of such persons) shall
be indemnified by the corporation as of right to the full extent permitted or
authorized by the laws of the State of Delaware, as now in effect and as
hereafter amended, against any liability, judgment, fine, amount paid in
settlement, cost, and expense (including attorneys' fees) asserted or threatened
against and incurred by such person in his capacity as or arising out of his
status as a director or officer of the corporation or, if serving at the request
of the corporation, as a director or officer of another corporation. The
indemnification provided by this bylaw provision shall not be exclusive of any
other rights to which those indemnified may be entitled under any other bylaws
or under any agreement, vote of stockholders or disinterested directors or
otherwise, and shall not limit in any way any right which the corporation may
have to make different or further indemnification with respect to the same or
different persons or classes of persons.
25. Action by Directors without Meeting. Unless otherwise restricted by the
-----------------------------------
certificate of incorporation or these bylaws, any action required or permitted
to be taken at any meeting of the board of directors or any committee thereof
may be taken without a meeting if all members of the board of directors or of
such committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the board or committee.
Officers
--------
26. (a) Officers - Who Shall Constitute. The officers of the corporation shall
-------------------------------
consist of a chairman of the board of directors, a president, one or more vice
presidents, a secretary, and a treasurer, each of whom shall be elected by the
board of directors at their first meeting after the annual meeting of the
stockholders. The board of directors may also designate
<PAGE>
additional assistant secretaries and assistant treasurers. In the discretion of
the board of directors, the office of chairman of the board of directors may
remain unfilled. The chairman of the board of directors (if any) shall at all
times be, and other officers may be, members of the board of directors. Any
number of offices may be held by the same person.
An officer shall be deemed qualified when he enters upon the duties of the
office to which he has been elected or appointed and furnishes any bond required
by the board; but the board may also require of such person his written
acceptance and promise faithfully to discharge the duties of such office.
(b) Term. Each officer of the corporation shall hold his office at the
----
pleasure of the board of directors or for such other period as the board may
specify at the time of his election or appointment, or until his death,
resignation, or removal by the board, whichever first occurs. In any event, each
officer of the corporation who is not re-elected or re-appointed at the annual
meeting of the board of directors next succeeding his election or appointment
and at which any officer of the corporation is elected or appointed shall be
deemed to have been removed by the board, unless the board provides otherwise at
the time of his election or appointment.
(c) Other Officers and Agents. The board of directors from time to time may
-------------------------
also appoint such other officers and agents for the corporation as it shall deem
necessary or advisable, each of whom shall serve at the pleasure of the board or
for such period as the board may specify, and shall exercise such powers, have
such titles, and perform such duties as shall be determined from time to time by
the board or by an officer empowered by the board to make such determinations.
27. President. The president shall be the chief executive officer of the
---------
corporation with such general executive powers and duties of supervision and
management as are usually vested in the office of the chief executive officer of
a corporation and he shall carry into effect all directions and resolutions of
the board of directors. The president shall preside at all meetings of the
stockholders and directors.
The president may execute all bonds, notes, debentures, mortgages, and other
instruments for and in the name of the corporation, and may cause the corporate
seal to be affixed thereto.
Unless the board of directors otherwise provides, the president, or any person
designated in writing by him, shall have full power and authority on behalf of
this corporation (i) to attend and to vote or take action at any meeting of the
holders of securities of corporations in which this corporation may hold
<PAGE>
securities, and at such meetings shall possess and may exercise any and all
rights and powers incident to being a holder of such securities and which as the
holder thereof this corporation may have possessed and exercised if present, and
(ii) to execute and deliver waivers of notice and proxies for and in the name of
the corporation with respect to any such securities held by this corporation.
He shall, unless the board of directors otherwise provides, be ex officio a
member of all standing committees.
He shall have such other or further duties and authority as may be prescribed
elsewhere in these bylaws or from time to time by the board of directors.
28. Vice President. In the absence of the president or in the event of his
--------------
disability, inability, or refusal to act, the vice president (or in the event
there be more than one vice president, the vice presidents in the order
designated by the board, or in the absence of any designation, then in the order
of their election) shall perform the duties and exercise the powers of the
president, and shall perform such other duties as the board of directors may
from time to time prescribe.
29. Secretary and Assistant Secretaries. The secretary may attend all sessions
-----------------------------------
of the board of directors and all meetings of the stockholders, and shall record
or cause to be recorded all votes taken and the minutes of all proceedings in a
minute book of the corporation to be kept for that purpose. He shall perform
like duties for committees when requested to do so by the board of directors or
any such committee.
It shall be the principal responsibility of the secretary to give, or cause to
be given, notice of all meetings of the stockholders and of the board of
directors, but this shall not lessen the authority of others to give such notice
as is authorized elsewhere in these bylaws.
The secretary shall see that all books, records, lists, and information, or
duplicates, required to be maintained in the State of Delaware or elsewhere, are
so maintained.
The secretary shall keep in safe custody the seal of the corporation and shall
have the authority to affix the seal to any instrument requiring it, and when so
affixed, he shall attest the seal by his signature. The board of directors may
give general authority to any other officer to affix the seal of the corporation
and to attest the affixing by his signature.
<PAGE>
The secretary shall perform such other duties and have such other authority as
may be prescribed elsewhere in these bylaws or from time to time by the board of
directors or the chief executive officer of the corporation, under whose direct
supervision he shall be.
In the absence of the secretary or in the event of his disability, inability,
or refusal to act, the assistant secretary (or in the event there be more than
one assistant secretary, the assistant secretaries in the order designated by
the board of directors, or in the absence of any designation, then in the order
of their election) may perform the duties and exercise the powers of the
secretary, and shall perform such other duties as the board of directors may
from time to time prescribe.
30. Treasurer and Assistant Treasurers. The treasurer shall have
----------------------------------
responsibility for the safekeeping of the funds and securities of the
corporation, shall keep or cause to be kept full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall keep,
or cause to be kept, all other books of account and accounting records of the
corporation. He shall deposit or cause to be deposited all moneys and other
valuable effects in the name and to the credit of the corporation in such
depositories as may be designated by the board of directors or by any officer of
the corporation to whom such authority has been granted by the board of
directors.
He shall disburse, or permit to be disbursed, the funds of the corporation as
may be ordered, or authorized generally, by the board of directors, and shall
render to the chief executive officer of the corporation and the directors
whenever they may require it, an account of all his transactions as treasurer
and of those under his jurisdiction, and of the financial condition of the
corporation.
He shall perform such other duties and shall have such other responsibility
and authority as may be prescribed elsewhere in these bylaws or from time to
time by the board of directors.
He shall have the general duties, powers, and responsibilities of a treasurer
of a corporation.
If required by the board of directors, he shall give the corporation a bond in
a sum and with one or more sureties satisfactory to the board, for the faithful
performance of the duties of his office, and for the restoration to the
corporation, in the case of his death, resignation, retirement, or removal from
office, of all books, papers, vouchers, money, and other property of whatever
kind in his possession or under his control which belong to the corporation.
<PAGE>
In the absence of the treasurer or in the event of his disability, inability,
or refusal to act, the assistant treasurer (or in the event there be more than
one assistant treasurer, the assistant treasurers in the order designated by the
board of directors, or in the absence of any designation, then in the order of
their election) may perform the duties and exercise the powers of the treasurer,
and shall perform such other duties and have such other authority as the board
of directors may from time to time prescribe.
31. Duties of Officers May be Delegated. If any officer of the corporation be
-----------------------------------
absent or unable to act, or for any other reason that the board of directors may
deem sufficient, the board may delegate for the time being some or all of the
functions, duties, powers, and responsibilities of any officer to any other
officer, or to any other agent or employee of the corporation or other
responsible person, provided a majority of the whole board of directors concurs
therein.
32. Removal. Any officer or agent elected or appointed by the board of
-------
directors, and any employee, may be removed or discharged, with or without
cause, at any time by the affirmative vote of a majority of the board of
directors, but such removal or discharge shall be without prejudice to the
contract rights, if any, of the person so removed or discharged.
33. Salaries. Salaries and other compensation of all elected officers of the
--------
corporation shall be fixed, increased or decreased by the board of directors,
but this power, except as to the salary or compensation of the president, may,
unless prohibited by law, be delegated by the board to the president, or may be
delegated to a committee. Salaries and compensation of all other appointed
officers, agents, and employees of the corporation may be fixed, increased or
decreased by the board of directors, but until action is taken with respect
thereto by the board of directors, the same may be fixed, increased or decreased
by the president or such other officer or officers as may be designated by the
board of directors to do so.
34. Delegation of Authority. The board of directors from time to time may
-----------------------
delegate to the president or other officer or executive employee of the
corporation, authority to hire, discharge, fix, and modify the duties, salary,
or other compensation of employees of the corporation under their jurisdiction,
and the board may delegate to such officer or executive employee similar
authority with respect to obtaining and retaining for the corporation the
services of attorneys, accountants, and other experts.
<PAGE>
Stock
-----
35. Certificates. Certificates of stock shall be issued in numerical order,
------------
and each stockholder shall be entitled to a certificate signed by the president
or a vice president, and by the treasurer or an assistant treasurer or the
secretary or an assistant secretary, certifying to the number of shares owned by
the stockholder. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, such certificate may nevertheless be issued by the corporation with the
same effect as if such officer, transfer agent, or registrar who signed such
certificate, or whose facsimile signature shall have been placed thereon, had
not ceased to be such officer, transfer agent, or registrar of the corporation.
36. Transfer. Transfers of stock shall be made only upon the transfer books of
--------
the corporation, kept at the office of the corporation or respective transfer
agents designated to transfer the several classes of stock, and before a new
certificate is issued the old certificate shall be surrendered for cancellation.
Until and unless the board of directors appoints some other person, firm, or
corporation as its transfer agent or transfer clerk (and upon the revocation of
any such appointment, thereafter until a new appointment is similarly made) the
secretary of the corporation shall be the transfer agent or transfer clerk of
the corporation without the necessity of any formal action of the board, and the
secretary, or any person designated as him, shall perform all of the duties
thereof.
37. Registered Stockholders. Registered stockholders only shall be entitled to
-----------------------
be treated by the corporation as the holders and owners in fact of the shares
standing in their respective names and the corporation shall not be bound to
recognize any equitable or other claim to or interest in such shares on the part
of any other person, whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of the State of Delaware.
38. Lost Certificates. The board of directors may direct a new certificate or
-----------------
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation, alleged to have been lost, stolen, or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate or certificates to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or his legal representative, to give the corporation and its
transfer
<PAGE>
agents and registrars, if any, a bond in such sum as it may direct to indemnify
it against any claim that may be made against it with respect to the certificate
or certificates alleged to have been lost, stolen, or destroyed.
39. Regulations. The board of directors shall have power and authority to make
-----------
all such rules and regulations as it may deem expedient concerning the issue,
transfer, conversion, and registration of certificates for shares of the capital
stock of the corporation, not inconsistent with the laws of the State of
Delaware, the certificate of incorporation of the corporation and these bylaws.
40. Fixing Record Date. In order that the corporation may determine the
------------------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion, or exchange of stock or for the purpose of
any other lawful action, the board of directors may fix, in advance, a record
date, which shall not be more than 60 nor less than 10 days before the date of
such meeting, nor more than 60 days prior to any other action. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting except that the board
of directors may fix a new record date for the adjourned meeting.
Dividends and Finance
---------------------
41. Dividends. Dividends upon the outstanding shares of the corporation,
---------
subject to the provisions of the certificate of incorporation and of any
applicable law and of these bylaws, may be declared by the board of directors at
any meeting. Subject to such provisions, dividends may be paid in cash, in
property, or in shares of the capital stock of the corporation.
42. Moneys. The moneys of the corporation shall be deposited in the name of
------
the corporation in such bank or banks or trust company or trust companies as the
board of directors shall designate, and shall be drawn out only by check signed
by persons designated by resolution adopted by the board of directors, except
that the board of directors may delegate said powers in the manner hereinafter
provided in this Section 42 of these bylaws. The board of directors may by
resolution authorize an officer or officers of the corporation to designate any
bank or banks or trust company or trust companies in which moneys of the
<PAGE>
corporation may be deposited, and to designate the person or persons who may
sign checks drawn on any particular bank account or bank accounts of the
corporation, whether created by direct designation of the board of directors or
by an authorized officer or officers as aforesaid.
43. Fiscal Year. The board of directors shall have power to fix and from time
-----------
to time change the fiscal year of the corporation. In the absence of action by
the board of directors, however, the fiscal year of the corporation shall end
each year on the date which the corporation treated as the close of its first
fiscal year, until such time, if any, as the fiscal year shall be changed by the
board of directors.
Books and Records
-----------------
44. Books Accounts and Records. The books, accounts, and records of the
--------------------------
corporation, except as may be otherwise required by the laws of the State of
Delaware, may be kept outside the State of Delaware, at such place or places as
the board of directors from time to time determine. The board of directors shall
determine whether, to what extent and the conditions upon which the accounts and
books of the corporation, or any of them, shall be open to the inspection of the
stockholders, and no stockholder shall have any right to inspect any account or
book or document of the corporation, except as conferred by law or by resolution
of the stockholders.
Notice
------
45. Provisions. Whenever the provisions of the statutes of the State of
----------
Delaware, the certificate of incorporation or these bylaws require notice to be
given to any director, officer, or stockholder, they shall not be construed to
required actual personal notice. Notice by mail may be given in writing by
depositing the same in a post office or letter box, in a post paid, sealed
wrapper, addressed to such director, officer, or stockholder at his or her
address as the same appears in the books of the corporation, and the time when
the same shall be mailed shall be deemed to be the time of the giving of such
notice. If notice be given by telegraph, such notice shall be deemed to be given
when the same is delivered to the telegraph company.
46. Waiver. Whenever any notice is required to be given under the provisions
------
of the statutes of the State of Delaware or of the certificate of incorporation
or of these bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice whether before or after the time stated therein, shall
be deemed equivalent to notice. Attendance
<PAGE>
of a person at a meeting shall constitute a waiver of notice of such meeting,
except when the person attends a meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting need be
specified in any written waiver of notice unless so required by the certificate
of incorporation or the bylaws.
Amendments
----------
47. Amendments. These bylaws may be altered, amended or repealed by the
----------
affirmative vote of a majority of the shares of stock issued and outstanding and
entitled to vote thereon, or, if the certificate of incorporation so provides,
by the board of directors at any meeting thereof.
<PAGE>
EXHIBIT 4.2
10 3/4% Series A Senior Note due 2006
No. 1 $170,000,000.00
CUSIP No. 620103AA9
MOTORS AND GEARS, INC.
promises to pay to CEDE & CO., or registered assigns, the principal sum of
$170,000,000.00 Dollars on November 15, 2006.
Interest Payment Dates: May 15 and November 15.
Record Dates: May 1 and November 1.
Dated: November 7, 1996
MOTORS AND GEARS, INC.
By: /s/ Jonathan F. Boucher
----------------------------
Name: Jonathan F. Boucher
Title: Vice President
Trustee's Certificate of Authentication
Dated: November 7, 1996
This is one of the Global
Senior Notes referred to in the
within-mentioned Indenture:
Fleet National Bank,
as Trustee
By: /s/ Dennis Fisher
---------------------------
(Authorized Signatory)
DENNIS FISHER
ASSISTANT VICE PRESIDENT
<PAGE>
[Unless and until it is exchanged in whole or in part for Senior Notes in
definitive form, this Senior Note may not be transferred except as a whole by
the Depository to a nominee of the Depository or by a nominee of the Depository
to the Depository or another nominee of the Depository or by the Depository or
any such nominee to a successor Depository or a nominee of such successor
Depository. The Depository Trust Company shall act as the Depository until a
successor shall be appointed by the Company and the Registrar. Unless this
certificate is presented by an authorized representative of The Depository Trust
Company (55 Water Street, New York, New York) ("DTC"), to the Issuer or its
agent for registration of transfer, exchange or payment, and any certificate
issued is registered in the name of Cede & Co. or such other name as may be
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or such other entity as may be requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY Person IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.]/1/
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED
HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE
SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON
THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED
BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES
FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED
OR OTHERWISE TRANSFERRED, ONLY (1)(a) INSIDE THE UNITED STATES TO A PERSON WHO
THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN
PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE
SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF
THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.
Additional provisions of this Senior Note are set forth on the other side of
this Senior Note.
- ----------
1. This paragraph should be included only if the Senior Note is issued in global
form.
2
<PAGE>
(Back of Senior Note)
10 3/4% SERIES [A/B] SENIOR NOTE DUE 2006
1. INTEREST. Motors and Gears, Inc. (the "Company") promises to pay interest
on the principal amount of the Senior Notes at the rate and in the manner
specified below. Interest on the Senior Notes will accrue at 10 3/4% per annum
from the date this Senior Note is issued until maturity. The Company will pay
Liquidated Damages pursuant to Section 5 of the Registration Rights Agreement
referred to below. Interest and Liquidated Damages, if any, will be payable
semiannually in cash in arrears on May 15 and November 15 of each year, or if
any such day is not a Business Day on the next succeeding Business Day (each, an
"Interest Payment Date"). Interest on the Senior Notes will accrue from the most
recent date on which interest has been paid or, if no interest has been paid,
from the date of original issuance; provided that the first Interest Payment
Date shall be May 15, 1997. The Company shall pay interest on overdue principal
and premium, if any, from time to time on demand at the rate of 2% per annum in
excess of the interest rate then in effect and shall pay interest on overdue
installments of interest and Liquidated Damages, if any, (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful. Interest will be computed on a basis of a 360-day year of twelve
30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the Senior Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered holders of Senior Notes at the close of business on the record date
for the next Interest Payment Date even if such Senior Notes are cancelled after
such record date and on or before such Interest Payment Date. Holders must
surrender Senior Notes to a Paying Agent to collect principal payments on such
Senior Notes. The Company will pay principal, premium, if any, interest and
Liquidated Damages, if any, in money of the United States that at the time of
payment is legal tender for payment of public and private debts. The Company
will pay principal, premium, if any, interest and Liquidated Damages, if any, by
wire transfer of immediately available funds to the accounts specified by the
Holders or, if no such account is specified, by mailing a check to each such
Holder's registered address; provided that payment by wire transfer of
immediately available funds will be required with respect to principal, premium,
if any, interest and Liquidated Damages, if any, on all Global Senior Notes.
3. PAYING AGENT AND REGISTRAR. Fleet National Bank (the "Trustee") will
initially act as the Paying Agent and Registrar. The Company may appoint
additional paying agents or co-registrars, and change the Paying Agent, any
additional paying agent, the Registrar or any co-registrar without prior notice
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
4. INDENTURE. The Company issued the Senior Notes under an Indenture, dated as
of November 7, 1996 (the "Indenture"), among the Company and the Trustee. The
terms of the Senior Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.
Code S S 77aaa-77bbbb) as in effect on the date of the original issuance of
the Senior Notes (the "Trust Indenture Act"). The Senior Notes are subject to,
and qualified by, all such terms, certain of which are summarized herein, and
Holders are referred to the Indenture and the Trust Indenture Act for a
statement of such terms (all capitalized terms not defined herein shall have the
meanings assigned them in the Indenture). The Senior Notes are unsecured senior
obligations of the Company limited to $170,000,000 in aggregate principal
amount.
3
<PAGE>
5. OPTIONAL REDEMPTION. (a) Except as described in paragraph 5(b) below, the
Senior Notes may not be redeemed at the option of the Company prior to November
15, 2001. During the twelve (12) month period beginning November 15 of the years
indicated below, the Senior Notes will be redeemable at the option of the
Company, in whole or in part, on at least 30 but not more than 60 days' notice
to each Holder of Senior Notes to be redeemed, at the redemption prices
(expressed as percentages of the principal amount) set forth below, plus any
accrued and unpaid interest and Liquidated Damages, if any, to the date of
redemption:
Year Percentage
- ---- ----------
2001 ........................................... 105.375%
2002 ........................................... 103.583%
2003 ........................................... 101.792%
2004 and thereafter ............................ 100.000%
(b) Notwithstanding the foregoing, prior to November 15, 1999, the Company may
(but shall not have the obligation to) redeem up to 35% of the original
aggregate principal amount of the Senior Notes at a redemption price of 109.750%
of the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the redemption date, with the net proceeds of one or more
Equity Offerings; provided that at least 65% of the aggregate principal mount of
Senior Notes originally issued remain outstanding immediately after the
occurence of any such redemptions; and provided, further, that any such
redemption shall occur within 60 days of the date of the closing of such Equity
Offering.
6. MANDATORY REDEMPTION. Subject to the Company's obligation to make an offer
to purchase Senior Notes under certain circumstances pursuant to Sections 4.13
and 4.14 of the Indenture (as described in paragraph 7 below), the Company is
not required to make any mandatory redemption, purchase or sinking fund
payments with respect to the Senior Notes.
7. MANDATORY OFFERS TO PURCHASE SENIOR NOTES. (a) Upon the occurrence of a
Change of Control (such date being the "Change of Control Trigger Date"), each
Holder of Senior Notes shall have the right to require the Company to purchase
all or any part (equal to $1,000 or an integral multiple thereof, of such
Holder's Senior Notes pursuant to an offer (a "Change of Control Offer") at a
purchase price in cash equal to 101% to of the aggregate principal amount
thereof, plus any accrued and unpaid interest and Liquidated Damages, if any, to
the date of purchase.
(b) If the Company or any Restricted Subsidiary consummates one or more Asset
Sales and does not use all of the Net Proceeds from such Asset Sales as provided
in the Indenture, the Company will be required, under certain circumstances, to
utilize the Excess Proceeds from such Asset Sales to offer (an "Asset Sale
Offer") to purchase Senior Notes at a purchase price equal to 100% of the
principal amount of the Senior Notes, plus any accrued and unpaid interest and
Liquidated Damages, if any, to the date of purchase. If the Excess Proceeds are
insufficient1cient to purchase all Senior Notes tendered pursuant to any Asset
Sale Offer, the Trustee shall select the Senior Notes to be purchased in
accordance with the terms of the Indenture.
4
<PAGE>
(c) Holders may tender all or, subject to paragraph 8 below, any portion of
their Senior Notes in a Change of Control Offer or Asset Sale Offer
(collectively, an "Offer") by completing the form below entitled "OPTION OF
HOLDER TO ELECT PURCHASE."
(d) The Company shall comply with any tender offer rules under the Exchange
Act which may then be applicable, including Rule 14e-l, in connection with an
offer required to be made by the Company to repurchase the Senior Notes as a
result of a Change of Control or an Asset Sale Trigger Date. To the extent that
the provisions of any securities laws or regulations conflict with provisions of
this Indenture, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Indenture by virtue thereof.
8. NOTICE OF REDEMPTION OR PURCHASE. Notice of an optional redemption or an
Offer will be mailed to each Holder at its registered address at least 30 days
but not more than 60 days before the date of redemption or purchase. Senior
Notes may be redeemed or purchased in part, but only in whole multiples of
$1,000 unless all Senior Notes held by a Holder are to be redeemed or purchased.
On or after any date on which Senior Notes are redeemed or purchased, interest
ceases to accrue on the Senior Notes or portions thereof called for redemption
or accepted for purchase on such date.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Senior Notes are in registered form
without coupons in denominations of $1,000 and integral multiples thereof. The
transfer of Senior Notes may be registered and Senior Notes may be exchanged as
provided in the Indenture. Holders seeking to transfer or exchange their Senior
Notes may be required, among other things, to furnish appropriate endorsements
and transfer documents and to pay any taxes and fees required by law or
permitted by the Indenture. The Registrar need not exchange or register the
transfer of any Senior Note or portion of a Senior Note selected for redemption
or tendered pursuant to an Offer. Also, it need not exchange or register the
transfer of any Senior Notes for a period of 15 Business Days before a selection
of Senior Notes to be redeemed or between a record date and the next succeeding
Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Senior Note may be
treated as its owner for all purposes.
11. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the Indenture or
the Senior Notes may be amended or supplemented with the consent of the Holders
of at least a majority in principal amount of the then outstanding Senior Notes,
and any existing Default (except a payment Default) may be waived with the
consent of the Holders of a majority in principal amount of the then outstanding
Senior Notes. Without the consent of any Holder, the Indenture or the Senior
Notes may be amended to: cure any ambiguity, defect or inconsistency; provide
for uncertificated Senior Notes in addition to or in place of certificated
Senior Notes; provide for the assumption by another corporation of the Company's
obligations to Holders in the event of a merger or consolidation of the Company
in which the Company is not the surviving corporation or a sale of substantially
all of the Company's assets to such other corporation; comply with the
Securities and Exchange Commission's requirements to effect or maintain the
qualification of the Indenture under the Trust Indenture Act; provide for
additional Guarantees with respect to the Senior Notes; or, make any change that
does not materially adversely affect any Holder's rights under the Indenture.
12. DEFAULTS AND REMEDIES. Events of Default include: default for 30 days in
payment of interest on, or Liquidated Damages, if any, with respect to, the
Senior Notes; default in payment when
5
<PAGE>
due of principal, or premium, if any, with respect to the Senior Notes; failure
by the Company for 30 days after notice to it to comply with any of its other
agreements or covenants in, or provisions of, the Indenture or the Senior Notes;
certain defaults under and acceleration prior to maturity of, or failure to pay
at maturity, certain other Indebtedness; certain final judgments that remain
undischarged; certain judicial findings of unenforceability or invalidity as to
any guarantee of the Senior Notes or the disaffirmance or denial by any
guarantor of its guarantee of the Senior Notes; and certain events of bankruptcy
or insolvency involving the Company or any Restricted Subsidiary that is a
Significant Subsidiary. If an Event of Default occurs and is continuing, the
Trustee or the Holders of at least 25% in principal amount of the Senior Notes
may declare all the Senior Notes to be immediately due and payable in an amount
equal to the principal of, premium, if any, and any accrued and unpaid interest
on, and Liquidated Damages, if any, with respect to such Senior Notes; provided,
however, that in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, the principal of, premium, if any, and any accrued and
unpaid interest on, and Liquidated Damages, if any, with respect to the Senior
Notes becomes due and payable immediately without further action or notice.
Subject to certain exceptions, Holders of a majority in principal amount of the
then outstanding Senior Notes may direct the Trustee in its exercise of any
trust or power, provided that the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of
Holders unless such Holders have offered to the Trustee security and indemnity
satisfactory to it. Holders may not enforce the Indenture or the Senior Notes
except as provided in the Indenture. The Trustee may withhold from Holders
notice of any continuing default (except a payment Default) if it determines
that withholding notice is in their interests. The Company must furnish an
annual compliance certificate to the Trustee.
13. TRUSTEE DEALINGS WITH THE COMPANY. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or any Affiliate, and may otherwise deal with the Company or any
Affiliate, as if it were not Trustee.
14. NO RECOURSE AGAINST OTHERS. No officer, employee, director, stockholder
or Subsidiary of the Company shall have any liability for any Obligations of the
Company under the Senior Notes or the Indenture, or for any claim based on, in
respect of, or by reason of, such Obligations or the creation of any such
Obligation, except, in the case of a Subsidiary, for an express guarantee or an
express creation of any Lien by such Subsidiary of the Company's Obligations
under the Senior Notes. Each Holder by accepting a Senior Note waives and
releases all such liability, and such waiver and release is part of the
consideration for the issuance of the Senior Notes. The foregoing waiver may not
be effective to waive liabilities under the Federal securities law and the
Commission is of the view that such a waiver is against public policy.
15. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SENIOR NOTES. In
addition to the rights provided to Holders of Senior Notes under the Indenture,
Holders of Transfer Restricted Senior Notes shall have all the rights set forth
in the Registration Rights Agreement, dated as of November 7, 1996, among the
Company, and Donaldson, Lufkin & Jenrette Securities Corporation, BT Securities
Corporation and Jefferies & Company, Inc. (the "Registration Rights Agreement").
16. SUCCESSOR SUBSTITUTED. UPON THE CONSOLIDATION OR MERGER BY THE COMPANY
WITH OR INTO ANOTHER CORPORATION, OR UPON THE SALE, LEASE, CONVEYANCE OR OTHER
DISPOSITION OF ALL OR SUBSTANTIALLY ALL OF ITS ASSETS TO ANOTHER CORPORATION, IN
ACCORDANCE WITH THE INDENTURE, THE CORPORATION SURVIVING ANY SUCH MERGER OR
CONSOLIDATION (IF NOT THE COMPANY) OR THE CORPORATION TO WHICH SUCH ASSETS WERE
SOLD OR TRANSFERRED TO SHALL SUCCEED TO, AND BE SUBSTITUTED FOR, AND MAY
EXERCISE EVERY RIGHT AND POWER OF THE
6
<PAGE>
Company under the Indenture with the same effect as if such surviving or other
corporation had been named as the Company in the Indenture.
17. GOVERNING LAW. This Senior Note shall be governed by and construed in
accordance with the internal laws of the State of New York without regard to the
conflict of laws provisions thereof.
18. AUTHENTICATION. This Senior Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
19. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (=Custodian), and U/G/M/A
(= Uniform Gifts to Minors Act.
20. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee
on Uniform Senior Note Identification Procedures, the Company has caused CUSIP
numbers to be printed on the Senior Notes and have directed the Trustee to use
CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Senior Notes or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers printed on the Senior Notes.
The Company will furnish to any Holder upon written request and without charge
a copy of the Indenture, which has in it the text of this Senior Note in larger
type. Request may be made to:
Motors and Gears, Inc.
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60015
Attention: Chief Financial Officer
7
<PAGE>
Additional provisions of this Senior Note are set forth below.
<PAGE>
ASSIGNMENT FORM
---------------
To assign this Senior Note, fill in the form below:
(I) or (we) assign and transfer this Senior Note to:
--------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
--------------------------------------------
--------------------------------------------
--------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint as agent to transfer this Senior
----------------------
Note on the books of the Company. The agent may substitute another to act for
him.
Date: Your Signature:
------------------------------------
(Sign exactly as your name appears
on the other side of this Senior
Note)
Signature Guarantee:
- ------------------------------
9
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
----------------------------------
If you elect to have this Senior Note purchased by the Company pursuant to
Section 4.13 of the Indenture, check the box: [_]
If you elect to have this Senior Note purchased by the Company pursuant to
Section 4.14 of the Indenture, check the box: [_]
If you elect to have only part of this Senior Note purchased by the Company
pursuant to Section 4.13 or 4.14 of the Indenture, state the amount (multiples
of $1000 only):
$
-------------------
Date: Your Signature:
------------------------------------
(Sign exactly as your name appears
on the other side of this Senior
Note)
Signature Guarantee:
- ------------------------------
10
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE SENIOR NOTES
------------------------------------------------
The following exchanges of a part of this Global Senior Note for
Definitive Senior Notes have been made:
<TABLE>
<CAPTION>
Principal Amount of this Signature of
Amount of decrease in Amount of increase in Global Senior Note authorized officer of
Principal Amount of Principal Amount of following such decrease Trustee or Senior
Date of Exchange this Global Senior Note this Global Senior Note (or increase) Note custodian
- ---------------- ----------------------- ----------------------- ------------------------ ---------------------
<S> <C> <C> <C> <C>
</TABLE>
11
<PAGE>
10 3/4% SERIES B SENIOR NOTE DUE 2006
No. 1 $170,000,000.00
CUSIP No. _________
MOTORS AND GEARS, INC.
promises to pay to CEDE & CO., or registered assigns, the principal sum of
$170,000,000.00 Dollars on November 15, 2006.
Interest Payment Dates: May 15 and November 15.
Record Dates: May 1 and November 1.
Dated: ________________, 1997
MOTORS AND GEARS, INC.
By:_________________________
Name: Jonathan F. Boucher
Title: Vice President
Trustee's Certificate of Authentication
Dated: _____________________, 1997
This is one of the Global Senior
Notes referred to in the
within-mentioned Indenture:
Fleet National Bank,
as Trustee
By:___________________________
(Authorized Signatory)
<PAGE>
(Back of Senior Note)
10 3/4% SERIES B SENIOR NOTE DUE 2006
1. INTEREST. Motors and Gears, Inc. (the "Company") promises to pay
interest on the principal amount of the Senior Notes at the rate and in the
manner specified below. Interest on the Senior Notes will accrue at 10 3/4% per
annum from the date this Senior Note is issued until maturity. Interest will be
payable semiannually in cash in arrears on May 15 and November 15 of each year,
or if any such day is not a Business Day on the next succeeding Business Day
(each, an "Interest Payment Date"). Interest on the Senior Notes will accrue
from the most recent date on which interest has been paid or, if no interest has
been paid, from the date of original issuance; provided that the first Interest
Payment Date shall be May 15, 1997. The Company shall pay interest on overdue
principal and premium, if any, from time to time on demand at the rate of 2% per
annum in excess of the interest rate then in effect and shall pay interest on
overdue installments of interest (without regard to any applicable grace
periods), from time to time on demand at the same rate to the extent lawful.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
2. METHOD OF PAYMENT. The Company will pay interest on the Senior
Notes (except defaulted interest) to the Persons who are registered holders of
Senior Notes at the close of business on the record date for the next Interest
Payment Date even if such Senior Notes are cancelled after such record date and
on or before such Interest Payment Date even if such Senior Notes are cancelled
after such record date and on or before such Interest Payment Date. Holders must
surrender Senior Notes to a Paying Agent to collect principal payments on such
Senior Notes. The Company will pay principal, premium, if any, and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts. The Company will pay principal, premium, if
any, and interest by wire transfer of immediately available funds to the
accounts specified by the Holders or, if no such account is specified, by
mailing a check to each such Holder's registered address; provided that payment
by wire transfer of immediately available funds will be required with respect to
principal, premium, if any, and interest on all Global Senior Notes.
3. PAYING AGENT AND REGISTRAR. Fleet National Bank (the "Trustee")
will initially act as the Paying Agent and Registrar. The Company may appoint
additional paying agents or co-registrars, and change the Paying Agent, any
additional paying agent, the Registrar or any co-registrar without prior notice
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
4. INDENTURE. The Company issued the Senior Notes under an
Indenture, dated as of November 7, 1996 (the "Indenture"), among the Company and
the Trustee. The terms of the Senior Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb) as in effect on the
date of the original issuance of the Senior Notes (the "Trust Indenture Act").
The Senior Notes are subject to, and qualified by, all such terms, certain of
which are summarized herein, and Holders are referred to the Indenture and the
Trust Indenture Act for a statement of such terms (all capitalized terms not
defined herein shall have the meanings assigned them in the Indenture). The
Senior Notes are unsecured senior obligations of the Company limited to
$170,000,000 in aggregate principal amount.
-2-
<PAGE>
5. OPTIONAL REDEMPTION. (a) Except as described in paragraph 5(b)
below, the Senior Notes may not be redeemed at the option of the Company prior
to November 15, 2001. During the twelve (12) month period beginning November 15
of the years indicated below, the Senior Notes will be redeemable at the option
of the Company, in whole or in part, on at least 30 but not more than 60 days'
notice to each Holder of Senior Notes to be redeemed, at the redemption prices
(expressed as percentages of the principal amount) set forth below, plus any
accrued and unpaid interest, to the date of redemption:
Year Percentage
---- ----------
2001..................................................... 105.375%
2002..................................................... 103.583%
2003..................................................... 101.792%
2004 and thereafter...................................... 100.000%
(b) Notwithstanding the foregoing, prior to November 15, 1999, the Company
may (but shall not have the obligation to) redeem up to 35% of the original
aggregate principal amount of the Senior Notes at a redemption price of 109.750%
of the principal amount thereof, plus accrued and unpaid interest to the
redemption date, with the net proceeds of one or more Equity Offerings; provided
that at least 65% of the aggregate principal amount of Senior Notes originally
issued remain outstanding immediately after the occurrence of any such
redemption; and provided, further, that any such redemption shall occur within
60 days of the date of the closing of such Equity Offering.
6. MANDATORY REDEMPTION. Subject to the Company's obligation to make an
offer to purchase Senior Notes under certain circumstances pursuant to Sections
4.13 and 4.14 of the Indenture (as described in paragraph 7 below), the Company
is not required to make any mandatory redemption, purchase or sinking fund
payments with respect to the Senior Notes.
7. MANDATORY OFFERS TO PURCHASE SENIOR NOTES. (a) Upon the occurrence of
a Change of Control (such date being the "Change of Control Trigger Date"), each
Holder of Senior Notes shall have the right to require the Company to purchase
all or any part (equal to $1,000 or an integral multiple thereof) of such
Holder's Senior Notes pursuant to an offer (a "Change of Control Offer") at a
purchase price in cash equal to 101% of the aggregate principal amount thereof,
plus any accrued and unpaid interest, to the date of purchase.
(b) If the Company or any Restricted Subsidiary consummates one or more
Asset Sales and does not use all of the Net Proceeds from such Asset Sales as
provided in the Indenture, the Company will be required, under certain
circumstances, to utilize the Excess Proceeds from such Asset Sales to offer (an
"Asset Sale Offer") to purchase Senior Notes at a purchase price equal to 100%
of the principal amount of the Senior Notes, plus any accrued and unpaid
interest, to the date of purchase. If the Excess Proceeds are insufficient to
purchase all Senior Notes tendered pursuant to any Asset Sale Offer, the Trustee
shall select the Senior Notes to be purchased in accordance with the terms of
the Indenture.
(c) Holders may tender all or, subject to paragraph 8 below, any portion
of their Senior Notes in a Change of Control Offer or Asset Sale Offer
(collectively, an "Offer") by completing the form below entitled "OPTION OF
HOLDER TO ELECT PURCHASE."
-3-
<PAGE>
(d) The Company shall comply with any tender offer rules under the
Exchange Act which may then be applicable, including Rule 14e-1, in connection
with an offer required to be made by the Company to repurchase the Senior Notes
as a result of a Change of Control or an Asset Sale. To the extent that the
provisions of any securities laws or regulations conflict with provisions of
this Indenture, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Indenture by virtue thereof.
8. NOTICE OF REDEMPTION OR PURCHASE. Notice of an optional redemption or
an Offer will be mailed to each Holder at its registered address at least 30
days but not more than 60 days before the date of redemption or purchase.
Senior Notes may be redeemed or purchased in part, but only in whole multiples
of $1,000 unless all Senior Notes held by a Holder are to be redeemed or
purchased. On or after any date on which Senior Notes are redeemed, or
purchased, interest ceases to accrue on the Senior Notes or portions thereof
called for redemption or accepted for purchase on such date.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Senior Notes are in registered
form without coupons in denominations of $1,000 and integral multiples thereof.
The transfer of Senior Notes may be registered and Senior Notes may be exchanged
as provided in the Indenture. Holders seeking to transfer or exchange their
Senior Notes may be required, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not exchange or register
the transfer of any Senior Note or portion of a Senior Note selected for
redemption or tendered pursuant to an Offer. Also, it need not exchange or
register the transfer of any Senior Notes for a period of 15 Business Days
before a selection of Senior Notes to be redeemed or between a record date and
the next succeeding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Senior Note may be
treated as its owner for all purposes.
11. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the Indenture
or the Senior Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the then outstanding
Senior Notes, and any existing Default (except a payment Default) may be waived
with the consent of the Holders of a majority in principal amount of the then
outstanding Senior Notes. Without the consent of any Holder, the Indenture or
the Senior Notes may be amended to: cure any ambiguity, defect or inconsistency;
provide for uncertificated Senior Notes in addition to or in place of
certificated Senior Notes; provide for the assumption by another corporation of
the Company's obligations to Holders in the event of a merger or consolidation
of the Company in which the Company is not the surviving corporation or a sale
of substantially all of the Company's assets to such other corporation; comply
with the Securities and Exchange Commission's requirements to effect or maintain
the qualification of the Indenture under the Trust Indenture Act; provide for
additional Guarantees with respect to the Senior Notes; or, make any change that
does not materially adversely affect any Holder's rights under the Indenture.
12. DEFAULTS AND REMEDIES. Events of Default include: default for 30 days
in payment of interest on the Senior Notes; default in payment when due of
principal, or premium, if any, with respect to the Senior Notes; failure by the
Company for 30 days after notice to it to comply with any of its other
agreements or covenants in, or provisions of, the Indenture or the Senior Notes;
certain defaults under and acceleration prior to maturity of, or failure to pay
at maturity, certain other
-4-
<PAGE>
Indebtedness; certain final judgments that remain undischarged; certain judicial
findings of unenforceability or invalidity as to any guarantee of the Senior
Notes or the disaffirmance or denial by any guarantor of its guarantee of the
Senior Notes; and certain events of bankruptcy or insolvency involving the
Company or any Restricted Subsidiary that is a Significant Subsidiary. If an
Event of Default occurs and is continuing, the Trustee or the Holders of at
least 25% in principal amount of the Senior Notes may declare all the Senior
Notes to be immediately due and payable in an amount equal to the principal of,
premium, if any, and any accrued and unpaid interest on the Senior Notes;
provided, however, that in the case of an Event of Default arising from certain
events of bankruptcy or insolvency, the principal of, premium, if any, and any
accrued and unpaid interest on the Senior Notes becomes due and payable
immediately without further action or notice. Subject to certain exceptions,
Holders of a majority, in principal amount of the then outstanding Senior Notes
may direct the Trustee in its exercise of any trust or power, provided that the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request of Holders unless such Holders have offered
to the Trustee security and indemnity satisfactory to it. Holders may not
enforce the Indenture or the Senior Notes except as provided in the Indenture.
The Trustee may withhold from Holders notice of any continuing default (except a
payment Default) if it determines that withholding notice is in their interests.
The Company must furnish an annual compliance certificate to the Trustee.
13. TRUSTEE DEALINGS WITH THE COMPANY. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or any Affiliate, and may otherwise deal with the
Company or any Affiliate, as if it were not Trustee.
14. NO RECOURSE AGAINST OTHERS. No officer, employee, director,
stockholder or Subsidiary of the Company shall have any liability for any
Obligations of the Company under the Senior Notes or the Indenture, or for any
claim based on, in respect of, or by reason of, such Obligations or the creation
of any such Obligation, except, in the case of a Subsidiary, for an express
guarantee or an express creation of any Lien by such Subsidiary of the Company's
Obligations under the Senior Notes. Each Holder by accepting a Senior Note
waives and releases all such liability, and such waiver and release is part of
the consideration for the issuance of the Senior Notes. The foregoing waiver
may not be effective to waive liabilities under the Federal securities law and
the Commission is of the view that such a waiver is against public policy.
16. SUCCESSOR SUBSTITUTED. Upon the consolidation or merger by the
Company with or into another corporation, or upon the sale, lease, conveyance or
other disposition of all or substantially all of its assets to another
corporation, in accordance with the Indenture, the corporation surviving any
such merger or consolidation (if not the Company) or the corporation to which
such assets were sold or transferred to shall succeed to, and be substituted
for, and may exercise every right and power of the Company under the Indenture
with the same effect as if such surviving or other corporation had been named as
the Company in the Indenture.
17. GOVERNING LAW. This Senior Note shall be governed by and construed in
accordance with the internal laws of the State of New York without regard to the
conflict of laws provisions thereof.
18. AUTHENTICATION. This Senior Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
-5-
<PAGE>
19. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (=Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
20. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Senior Note Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Senior Notes and have directed the
Trustee to use CUSIP numbers in notices of redemption as a convenience to
Holders. No representation is made as to the accuracy of such numbers either as
printed on the Senior Notes or as contained in any notice of redemption and
reliance may be placed only on the other identification numbers printed on the
Senior Notes.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture, which has in it the text of this Senior Note in
larger type. Request may be made to:
Motors and Gears, Inc.
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60015
Attention: Chief Financial Officer
-6-
<PAGE>
Additional provisions of this Senior Note are set forth below.
-7-
<PAGE>
ASSIGNMENT FORM
---------------
To assign this Senior Note, fill in the form below:
(I) or (we) assign and transfer this Senior Note to:
_____________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
_____________________________________________
_____________________________________________
_____________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint _______________________________ as agent to transfer
this Senior Note on the books of the Company. The agent may substitute another
to act for him.
Date: Your Signature:____________________
(Sign exactly as your name appears on
the other side of this Senior Note)
Signature Guarantee:
___________________________
-8-
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
----------------------------------
If you elect to have this Senior Note purchased by the Company pursuant to
Section 4.13 of the Indenture,
check the box: [ ]
If you elect to have this Senior Note purchased by the Company pursuant to
Section 4.14 of the Indenture,
check the box: [ ]
If you elect to have only part of this Senior Note purchased by the Company
pursuant to Section 4.13 or 4.14 of the Indenture, state the amount (multiples
of $1000 only):
$______________________
Date: Your Signature:____________________
(Sign exactly as your name appears on
the other side of this Senior Note)
Signature Guarantee:
________________________
-9-
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE SENIOR NOTES
------------------------------------------------
The following exchanges of a part of this Global Senior Note for Definitive
Senior Notes have been made:
<TABLE>
<CAPTION>
Principal Amount of Signature of
Amount of decrease in Amount of increase in this Global Senior Note authorized officer of
Principal Amount of this Principal Amount of this following such decrease Trustee or Senior
Date of Exchange Global Senior Note Global Senior Note (or increase) Note Custodian
------------------ ------------------ ------------------ ------------- --------------
<S> <C> <C> <C> <C>
</TABLE>
-10-
<PAGE>
EXHIBIT 4.7
SWINGLINE NOTE
--------------
U.S. $2,000,000 New York, New York
November 7, 1996
FOR VALUE RECEIVED, MOTORS AND GEARS INDUSTRIES, INC., a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of BANKERS
TRUST COMPANY (the "Bank"), in lawful money of the United States of America in
immediately available funds, at the Payment Office (as defined in the Agreement)
initially located at 130 Liberty Street, New York, New York 10006 on the
Swingline Expiry Date (as defined in the Agreement) the principal sum of TWO
MILLION DOLLARS or, if less, the unpaid principal amount of all Swingline Loans
(as defined in the Agreement) made by the Bank pursuant to the Agreement,
payable at such times and in such amounts as are specified in the Agreement.
The Borrower promises also to pay interest on the unpaid principal
amount of each Swingline Loan made by the Bank in like money at said office from
the date hereof until paid at the rates and at the times provided in Section
1.08 of the Agreement.
This Note is the Swingline Note referred to in the Credit Agreement,
dated as of November 7, 1996, among the Borrower, the financial institutions
from time to time party thereto (including the Bank) and Bankers Trust Company,
as Agent (as amended, modified or supplemented from time to time, the
"Agreement") and is entitled to the benefits thereof and of the other Credit
Documents (as defined in the Agreement). This Note is secured by the Security
Documents (as defined in the Agreement) and is entitled to the benefits of the
Guaranties (as defined in the Agreement). As provided in the Agreement, this
Note is subject to voluntary prepayment and mandatory repayment prior to the
Swingline Expiry Date, in whole or in part.
In case an Event of Default (as defined in the Agreement) shall occur
and be continuing, the principal of and accrued interest on this Note may be
declared to be due and payable in the manner and with the effect provided in the
Agreement.
<PAGE>
The Borrower hereby waives presentment, demand, protest or notice of
any kind in connection with this Note.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE
LAW OF THE STATE OF NEW YORK.
MOTORS AND GEARS INDUSTRIES, INC.
By /s/ Jonathan F. Boucher
-----------------------------
Title: Vice President
-2-
<PAGE>
EXHIBIT 4.8
SUBSIDIARY GUARANTY
-------------------
GUARANTY, dated as of November 7, 1996 (as amended, modified or
supplemented from time to time, the "Guaranty"), made by each of the undersigned
(each a "Guarantor" and collectively, the "Guarantors"). Except as otherwise
defined herein, terms used herein and defined in the Credit Agreement (as
defined below) shall be used herein as therein defined.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Motors and Gears Industries, Inc. (the "Borrower"), various
financial institutions from time to time party thereto (the "Banks") and Bankers
Trust Company, as Agent (the "Agent"), have entered into a Credit Agreement,
dated as of November 7, 1996 (as amended, modified or supplemented from time to
time, the "Credit Agreement"), providing for the making of Loans to the Borrower
and the issuance of, and participation in, Letters of Credit for the account of
the Borrower, all as contemplated therein (the Banks, the Agent and the
Collateral Agent herein called the "Bank Creditors");
WHEREAS, the Borrower may from time to time enter into one or more (i)
interest rate protection agreements (including, without limitation, interest
rate swaps, caps, floors, collars and similar agreements), (ii) foreign exchange
contracts, currency swap agreements, commodity agreements or other similar
agreements or arrangements designed to protect against the fluctuations in
currency values and/or (iii) other types of hedging agreements from time to time
(each such agreement or arrangement with an Other Creditor (as hereinafter
defined), an "Interest Rate Protection Agreement or Other Hedging Agreement"),
with Bankers Trust Company in its individual capacity ("BTCo"), any Bank or a
syndicate of financial institutions organized by BTCo or any such Bank, or an
affiliate of BTCo or any such Bank (BTCo, any such Bank or Banks or affiliate or
affiliates of BTCo or such Bank or Banks (even if BTCo or any such Bank ceases
to be a Bank under the Credit Agreement for any reason) and any such institution
that participates in such Interest Rate Protection Agreements or Other Hedging
Agreements and their subsequent successors and assigns collectively, the "Other
Creditors", and together with the Bank Creditors, the "Creditors");
WHEREAS, each Guarantor is a direct or indirect Wholly-Owned Subsidiary of
the Borrower;
<PAGE>
WHEREAS, it is a requirement under the Credit Agreement that upon its
establishment, creation or acquisition by the Borrower or any of its
Subsidiaries that each Guarantor shall have executed and delivered this
Guaranty; and
WHEREAS, each Guarantor will obtain benefits from the incurrence of Loans
by the Borrower and the issuance of, and participation in, Letters of Credit for
the account of the Borrower under the Credit Agreement and the entering into of
Interest Rate Protection Agreements or Other Hedging Agreements and,
accordingly, desires to execute this Guaranty in order to satisfy the conditions
described in the preceding paragraph and to induce the Banks to maintain and
make Loans to the Borrower and issue Letters of Credit for the account of the
Borrower and the Other Creditors to maintain and enter into Interest Rate
Protection Agreements or Other Hedging Agreements with the Borrower;
NOW, THEREFORE, in consideration of the foregoing and other benefits
accruing to each Guarantor, the receipt and sufficiency of which are hereby
acknowledged, each Guarantor hereby makes the following representations and
warranties to the Creditors and hereby covenants and agrees with each Creditor
as follows:
1. Each Guarantor, jointly and severally, irrevocably and unconditionally
guarantees: (i) to the Bank Creditors the full and prompt payment when due
(whether at the stated maturity, by acceleration or otherwise) of (x) the
principal of and interest on the Notes issued by, and the Loans made to, the
Borrower under the Credit Agreement and all reimbursement obligations and Unpaid
Drawings with respect to Letters of Credit and (y) all other obligations
(including obligations which, but for any automatic stay under Section 362(a) of
the Bankruptcy Code, would become due) and liabilities owing by the Borrower to
the Bank Creditors (including, without limitation, indemnities, Fees and
interest thereon) now existing or hereafter incurred under, arising out of or in
connection with the Credit Agreement or any other Credit Document and the due
performance and compliance with the terms, conditions and agreements contained
in the Credit Documents by the Borrower (all such principal, interest,
liabilities and obligations being herein collectively called the "Credit
Document Obligations"); and (ii) to each Other Creditor the full and prompt
payment when due (whether at the stated maturity, by acceleration or otherwise)
of all obligations (including obligations which, but for any automatic stay
under Section 362(a) of the Bankruptcy Code, would become due) and liabilities
owing by the Borrower to the Other Creditors (including, without limitation,
indemnities, fees and interest thereon) under any Interest Rate Protection
Agreements or Other Hedging Agreements, whether now in existence or hereafter
arising, and the due performance and compliance by the Borrower with all terms,
conditions and agreements contained therein (all such obligations and
liabilities under this clause (ii) being herein collectively called the "Other
Obligations", and together with the Credit Document Obligations are herein
collectively called the "Guaranteed Obligations"). Each Guarantor understands,
agrees and confirms that the Creditors may enforce this Guaranty up to the full
amount of the Guaranteed Obligations
- 2 -
<PAGE>
against each Guarantor without proceeding against any other Guarantor, the
Borrower, against any security for the Guaranteed Obligations, or against any
other guarantor under any other guaranty covering all or a portion of the
Guaranteed Obligations. This Guaranty shall constitute a guaranty of payment and
not of collection. All payments by each Guarantor under this Guaranty shall be
made on the same basis as payments by the Borrower under Sections 4.03 and 4.04
of the Credit Agreement.
2. Additionally, each Guarantor, jointly and severally, unconditionally
and irrevocably, guarantees the payment of any and all Guaranteed Obligations to
the Creditors whether or not due or payable by the Borrower upon the occurrence
in respect of the Borrower of any of the events specified in Section 10.05 of
the Credit Agreement, and unconditionally and irrevocably, jointly and
severally, promises to pay such Guaranteed Obligations to the Creditors, or
order, on demand, in lawful money of the United States.
3. The liability of each Guarantor hereunder is exclusive and independent
of any security for or other guaranty of the Guaranteed Obligations whether
executed by such Guarantor, any other Guarantor, any other guarantor or by any
other party, and the liability of each Guarantor hereunder shall not be affected
or impaired by (i) any direction as to application of payment by the Borrower or
by any other party, (ii) any other continuing or other guaranty, undertaking or
maximum liability of a guarantor or of any other party as to the Guaranteed
Obligations, (iii) any payment on or in reduction of any such other guaranty or
undertaking, (iv) any dissolution, termination or increase, decrease or change
in personnel by the Borrower, (v) any payment made to any Creditor on the
Guaranteed Obligations which any Creditor repays the Borrower pursuant to court
order in any bankruptcy, reorganization, arrangement, moratorium or other debtor
relief proceeding, and each Guarantor waives any right to the deferral or
modification of its obligations hereunder by reason of any such proceeding, (vi)
any action or inaction by the Creditors as contemplated in Section 6 hereof or
(vii) any invalidity, irregularity or unenforceability of all or part of the
Guaranteed Obligations or of any security therefor.
4. The obligations of each Guarantor hereunder are independent of the
obligations of any other Guarantor, any other guarantor of the Borrower or the
Borrower, and a separate action or actions may be brought and prosecuted against
each Guarantor whether or not action is brought against any other Guarantor, any
other guarantor of the Borrower or the Borrower and whether or not any other
Guarantor, any other guarantor of the Borrower or the Borrower be joined in any
such action or actions. Each Guarantor waives, to the fullest extent permitted
by law, the benefit of any statute of limitations affecting its liability
hereunder or the enforcement thereof. Any payment by the Borrower or other
circumstance which operates to toll any statute of limitations as to the
Borrower shall operate to toll the statute of limitations as to each Guarantor.
5. Each Guarantor hereby waives notice of acceptance of this Guaranty and
notice of any liability to which it may apply, and waives promptness, diligence,
present-
- 3 -
<PAGE>
ment, demand of payment, protest, notice of dishonor or nonpayment of any
such liabilities, suit or taking of other action by the Agent or any other
Creditor against, and any other notice to, any party liable thereon (including
such Guarantor or any other guarantor of the Borrower).
6. Any Creditor may at any time and from time to time without the consent
of, or notice to, any Guarantor, without incurring responsibility to such
Guarantor, without impairing or releasing the obligations of such Guarantor
hereunder, upon or without any terms or conditions and in whole or in part:
(i) change the manner, place or terms of payment of, and/or change
or extend the time of payment of, renew or alter, any of the Guaranteed
Obligations, (including any increase or decrease in the rate of interest
thereon), any security therefor, or any liability incurred directly or
indirectly in respect thereof, and the guaranty herein made shall apply to
the Guaranteed Obligations as so changed, extended, renewed or altered;
(ii) take and hold security for the payment of the Guaranteed
Obligations and/or sell, exchange, release, surrender, realize upon or
otherwise deal with in any manner and in any order any property by
whomsoever at any time pledged or mortgaged to secure, or howsoever
securing, the Guaranteed Obligations or any liabilities (including any of
those hereunder) incurred directly or indirectly in respect thereof or
hereof, and/or any offset thereagainst;
(iii) exercise or refrain from exercising any rights against the
Borrower, any Guarantor, any other guarantor of the Borrower or others or
otherwise act or refrain from acting;
(iv) settle or compromise any of the Guaranteed Obligations, any
security therefor or any liability (including any of those hereunder)
incurred directly or indirectly in respect thereof or hereof, and may
subordinate the payment of all or any part thereof to the payment of any
liability (whether due or not) of the Borrower to creditors of the
Borrower;
(v) apply any sums by whomsoever paid or howsoever realized to any
liability or liabilities of the Borrower to the Creditors regardless of
what liabilities of the Borrower remain unpaid;
(vi) release or substitute any one or more endorsers, guarantors,
Guarantors, the Borrower or other obligors;
(vii) consent to or waive any breach of, or any act, omission or
default under, the Interest Rate Protection Agreements or Other Hedging
Agreements, the
- 4 -
<PAGE>
Credit Documents or any of the instruments or agreements referred to
therein, or otherwise amend, modify or supplement any of the Interest Rate
Protection Agreements or Other Hedging Agreements, the Credit Documents or
any of such other instruments or agreements; and/or
(viii) act or fail to act in any manner referred to in this Guaranty
which may deprive such Guarantor of its right to subrogation against the
Borrower to recover full indemnity for any payments made pursuant to this
Guaranty.
7. No invalidity, irregularity or unenforceability of all or any part
of the Guaranteed Obligations or of any security therefor shall affect, impair
or be a defense to this Guaranty, and this Guaranty shall be primary, absolute
and unconditional notwithstanding the occurrence of any event or the existence
of any other circumstances which might constitute a legal or equitable discharge
of a surety or guarantor except payment in full of the Guaranteed Obligations.
8. This Guaranty is a continuing one and all liabilities to which it
applies or may apply under the terms hereof shall be conclusively presumed to
have been created in reliance hereon. No failure or delay on the part of any
Creditor in exercising any right, power or privilege hereunder shall operate as
a waiver thereof; nor shall any single or partial exercise of any right, power
or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
expressly specified are cumulative and not exclusive of any rights or remedies
which any Creditor would otherwise have. No notice to or demand on any
Guarantor in any case shall entitle such Guarantor to any other further notice
or demand in similar or other circumstances or constitute a waiver of the rights
of any Creditor to any other or further action in any circumstances without
notice or demand. It is not necessary for any Creditor to inquire into the
capacity or powers of the Borrower or any of its Subsidiaries or the officers,
directors, partners or agents acting or purporting to act on its behalf, and any
indebtedness made or created in reliance upon the professed exercise of such
powers shall be guaranteed hereunder.
9. Any indebtedness of the Borrower now or hereafter held by any
Guarantor is hereby subordinated to the indebtedness of the Borrower to the
Creditors; and such indebtedness of the Borrower to any Guarantor, if the Agent,
after an Event of Default has occurred, so requests, shall be collected,
enforced and received by such Guarantor as trustee for the Creditors and be paid
over to the Creditors on account of the indebtedness of the Borrower to the
Creditors, but without affecting or impairing in any manner the liability of
such Guarantor under the other provisions of this Guaranty. Prior to the
transfer by any Guarantor of any note or negotiable instrument evidencing any
indebtedness of the Borrower to such Guarantor, such Guarantor shall mark such
note or negotiable instrument with a legend that the same is subject to this
subordination. Without limiting the generality of the foregoing, each Guarantor
hereby agrees with the Creditors that it will not exercise
- 5 -
<PAGE>
any right of subrogation which it may at any time otherwise have as a result of
this Guaranty (whether contractual, under Section 509 of the Bankruptcy Code or
otherwise) until all Guaranteed Obligations have been irrevocably paid in full
in cash.
10. (a) Each Guarantor waives any right (except as shall be required
by applicable statute and cannot be waived) to require the Creditors to: (i)
proceed against the Borrower, any other Guarantor, any other guarantor of the
Borrower or any other party; (ii) proceed against or exhaust any security held
from the Borrower, any other Guarantor, any other guarantor of the Borrower or
any other party; or (iii) pursue any other remedy in the Creditors' power
whatsoever. Each Guarantor waives any defense based on or arising out of any
defense of the Borrower, any other Guarantor, any other guarantor of the
Borrower or any other party other than payment in full of the Guaranteed
Obligations, including, without limitation, any defense based on or arising out
of the disability of the Borrower, any other Guarantor, any other guarantor of
the Borrower or any other party, or the unenforceability of the Guaranteed
Obligations or any part thereof from any cause, or the cessation from any cause
of the liability of the Borrower other than payment in full of the Guaranteed
Obligations. The Creditors may, at their election, foreclose on any security
held by the Agent, the Collateral Agent or the other Creditors by one or more
judicial or nonjudicial sales, whether or not every aspect of any such sale is
commercially reasonable (to the extent such sale is permitted by applicable
law), or exercise any other right or remedy the Creditors may have against the
Borrower or any other party, or any security, without affecting or impairing in
any way the liability of any Guarantor hereunder except to the extent the
Guaranteed Obligations have been paid in full. Each Guarantor waives any
defense arising out of any such election by the Creditors, even though such
election operates to impair or extinguish any right of reimbursement or
subrogation or other right or remedy of such Guarantor against the Borrower or
any other party or any security.
(b) Each Guarantor waives all presentments, demands for performance,
protests and notices, including, without limitation, notices of nonperformance,
notices of protest, notices of dishonor, notices of acceptance of this Guaranty,
and notices of the existence, creation or incurring of new or additional
indebtedness. Each Guarantor assumes all responsibility for being and keeping
itself informed of the Borrower's financial condition and assets, and of all
other circumstances bearing upon the risk of nonpayment of the Guaranteed
Obligations and the nature, scope and extent of the risks which such Guarantor
assumes and incurs hereunder, and agrees that the Creditors shall have no duty
to advise any Guarantor of information known to them regarding such
circumstances or risks.
11. In order to induce the Banks to make Loans and issue Letters of
Credit pursuant to the Credit Agreement, and in order to induce the Other
Creditors to execute, deliver and perform the Interest Rate Protection
Agreements or Other Hedging Agreements, each Guarantor represents, warrants and
covenants that:
(a) Such Guarantor (i) is a duly organized and validly existing
corporation
- 6 -
<PAGE>
and is in good standing under the laws of the jurisdiction of its
organization, and has the corporate power and authority to own its property
and assets and to transact the business in which it is engaged and
presently proposes to engage and (ii) is duly qualified and is authorized
to do business and is in good standing in all jurisdictions where it is
required to be so qualified except where the failure to be so qualified
could reasonably be expected to have a material adverse effect on the
performance, business, operations, property, assets, nature of assets,
liabilities, condition (financial or otherwise) or prospects of such
Guarantor or such Guarantor and its Subsidiaries taken as a whole.
(b) Such Guarantor has the corporate power and authority to execute,
deliver and carry out the terms and provisions of this Guaranty and each
other Document to which it is a party and has taken all necessary corporate
action to authorize the execution, delivery and performance by it of each
such Document. Such Guarantor has duly executed and delivered this
Guaranty and each other Document to which it is a party, and each such
Document constitutes the legal, valid and binding obligation of such
Guarantor enforceable in accordance with its terms.
(c) Neither the execution, delivery or performance by such Guarantor
of this Guaranty or any other Document to which it is a party, nor
compliance by it with the terms and provisions hereof and thereof: (i)
will contravene any applicable provision of any law, statute, rule or
regulation, or any order, writ, injunction or decree of any court or
governmental instrumentality, (ii) will conflict or be inconsistent with or
result in any breach of, any of the terms, covenants, conditions or
provisions of, or constitute a default under, or (other than pursuant to
the Security Documents) result in the creation or imposition of (or the
obligation to create or impose) any Lien upon any of the property or assets
of such Guarantor or any of its Subsidiaries pursuant to the terms of any
indenture, mortgage, deed of trust, credit agreement, loan agreement or any
other agreement or other instrument to which such Guarantor or any of its
Subsidiaries is a party or by which it or any of its property or assets is
bound or to which it may be subject or (iii) will violate any provision of
the certificate of incorporation or by-laws (or equivalent organizational
documents) of such Guarantor or any of its Subsidiaries.
(d) No order, consent, approval, license, authorization or validation
of, or filing, recording or registration with, or exemption by, any foreign
or domestic governmental or public body or authority, or any subdivision
thereof, is required to authorize, or is required in connection with, (i)
the execution, delivery and performance of this Guaranty or any other
Document to which such Guarantor is a party, or (ii) the legality,
validity, binding effect or enforceability of this Guaranty or any other
Document to which such Guarantor is a party.
- 7 -
<PAGE>
(e) There are no actions, suits or proceedings pending or threatened
(i) with respect to this Guaranty or any other Document to which such
Guarantor is a party, (ii) with respect to any Indebtedness of such
Guarantor or any of its Subsidiaries, (iii) that could reasonably be
expected to have a material adverse effect on the performance, business,
operations, property, assets, nature of assets, liabilities, condition
(financial or otherwise) or prospects of such Guarantor or such Guarantor
and its Subsidiaries taken as a whole or (iv) that could reasonably be
expected to have a material adverse effect on the rights or remedies of the
Creditors or on the ability of such Guarantor to perform its respective
obligations to the Creditors hereunder and under the other Credit Documents
to which it is a party.
12. Each Guarantor covenants and agrees that on and after the date
hereof and until the termination of the Total Commitment and all Interest Rate
Protection Agreements or Other Hedging Agreements and when no Note or Letter of
Credit remains outstanding and all other Guaranteed Obligations have been paid
in full, such Guarantor shall take, or will refrain from taking, as the case may
be, all actions that are necessary to be taken or not taken so that no violation
of any provision, covenant or agreement contained in Section 8 or 9 of the
Credit Agreement, and so that no Event of Default, is caused by the actions of
such Guarantor or any of its Subsidiaries.
13. The Guarantors hereby jointly and severally agree to pay all out-
of-pocket costs and expenses of each Creditor in connection with the enforcement
of this Guaranty and the protection of such Creditor's rights hereunder, and in
connection with any amendment, waiver or consent relating hereto (including,
without limitation, the fees and disbursements of counsel employed by the Agent
or any of the Creditors).
14. This Guaranty shall be binding upon each Guarantor and its
successors and assigns and shall inure to the benefit of the Creditors and their
successors and assigns.
15. Neither this Guaranty nor any provision hereof may be changed,
waived, discharged or terminated in any manner whatsoever unless in writing duly
signed by the Agent (with the consent of (x) the Required Banks or, to the
extent required by Section 13.12 of the Credit Agreement, all of the Banks, at
all times prior to the time at which all Credit Document Obligations have been
paid in full, or (y) the holders of at least a majority of the outstanding Other
Obligations at all times after the time at which all Credit Document Obligations
have been paid in full) and each Guarantor directly affected thereby (it being
understood that the addition or release of any Guarantor hereunder shall not
constitute a change, waiver, discharge or termination affecting any Guarantor
other than the Guarantor so added or released); provided, that any change,
--------
waiver, modification or variance affecting the rights and benefits of a single
class (as defined below) of Creditors (and not all Creditors in a like or
similar manner) shall require the written consent of the Requisite Creditors (as
defined below) of such Class. For the purpose of this Guaranty, the term "Class"
shall mean each class of Creditors, i.e., whether (i) the Bank Creditors
----
- 8 -
<PAGE>
as holders of the Credit Document Obligations or (ii) the Other Creditors as
holders of the Other Obligations. For the purpose of this Guaranty, the term
"Requisite Creditors" of any Class shall mean each of (i) with respect to the
Credit Document Obligations, the Required Banks and (ii) with respect to the
Other Obligations, the holders of at least a majority of all obligations
outstanding from time to time under the Interest Rate Protection Agreements or
Other Hedging Agreements.
16. Each Guarantor acknowledges that an executed (or conformed) copy
of each of the Credit Documents and the Interest Rate Protection Agreements or
Other Hedging Agreements has been made available to its principal executive
officers and such officers are familiar with the contents thereof.
17. In addition to any rights now or hereafter granted under
applicable law (including, without limitation, Section 151 of the New York
Debtor and Creditor Law) and not by way of limitation of any such rights, upon
the occurrence and during the continuance of an Event of Default (such term to
mean and include any "Event of Default" as defined in the Credit Agreement or
any payment default under any Interest Rate Protection Agreement or Other
Hedging Agreement and shall in any event, include, without limitation, any
payment default on any of the Guaranteed Obligations continuing after any
applicable grace period), each Creditor is hereby authorized at any time or from
time to time, without notice to any Guarantor or to any other Person, any such
notice being expressly waived, to set off and to appropriate and apply any and
all deposits (general or special) and any other indebtedness at any time held or
owing by such Creditor to or for the credit or the account of such Guarantor,
against and on account of the obligations and liabilities of such Guarantor to
such Creditor under this Guaranty, irrespective of whether or not such Creditor
shall have made any demand hereunder and although said obligations, liabilities,
deposits or claims, or any of them, shall be contingent or unmatured. Each
Creditor acknowledges and agrees that the provisions of this Section 17 are
subject to the sharing provisions set forth in Section 13.06(b) of the Credit
Agreement.
18. All notices, requests, demands or other communications pursuant
hereto shall be deemed to have been duly given or made when delivered to the
Person to which such notice, request, demand or other communication is required
or permitted to be given or made under this Guaranty, addressed to such party at
(i) in the case of any Bank Creditor, as provided in the Credit Agreement, (ii)
in the case of any Guarantor, at its address set forth opposite its signature
below and (iii) in the case of any Other Creditor, at such address as such Other
Creditor shall have specified in writing to the Guarantor; or in any case at
such other address as any of the Persons listed above may hereafter notify the
others in writing.
19. If claim is ever made upon any Creditor for repayment or recovery
of any amount or amounts received in payment or on account of any of the
Guaranteed Obligations and any of the aforesaid payees repays all or part of
said amount by reason of (i) any
- 9 -
<PAGE>
judgment, decree or order of any court or administrative body having
jurisdiction over such payee or any of its property or (ii) any settlement or
compromise of any such claim effected by such payee with any such claimant
(including the Borrower), then and in such event each Guarantor agrees that any
such judgment, decree, order, settlement or compromise shall be binding upon
such Guarantor, notwithstanding any revocation hereof or the cancellation of any
Note or any Interest Rate Protection Agreement or Other Hedging Agreement or
other instrument evidencing any liability of the Borrower, and such Guarantor
shall be and remain liable to the aforesaid payees hereunder for the amount so
repaid or recovered to the same extent as if such amount had never originally
been received by any such payee.
20. (A) THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE
CREDITORS AND OF THE UNDERSIGNED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
(B) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY OR
ANY OTHER CREDIT DOCUMENT TO WHICH ANY GUARANTOR IS A PARTY MAY BE BROUGHT IN
THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE
SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS GUARANTY,
EACH GUARANTOR HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS. EACH GUARANTOR HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS CT
CORPORATION SYSTEM, WITH OFFICES ON THE DATE HEREOF AT 1633 BROADWAY, NEW YORK,
NEW YORK 10019 AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND
ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF
ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN
ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND
AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, EACH GUARANTOR AGREES TO
DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN NEW YORK CITY ON THE TERMS AND
FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO THE AGENT. EACH GUARANTOR
HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK
JURISDICTION OVER SUCH GUARANTOR, AND AGREES NOT TO PLEAD OR CLAIM, IN ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY OR ANY OTHER CREDIT DOCUMENT
TO WHICH IT IS A PARTY BROUGHT IN ANY OF THE AFORESAID COURTS, THAT ANY SUCH
COURT LACKS JURISDICTION OVER SUCH GUARANTOR. EACH GUARANTOR FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO EACH GUARANTOR AT ITS ADDRESS
SET FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS
AFTER SUCH MAILING. EACH GUARANTOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO
SUCH SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD
OR CLAIM IN ANY ACTION OR PROCEEDING COMMENCED HEREUNDER OR UNDER ANY OTHER
CREDIT DOCUMENT TO WHICH SUCH GUARANTOR IS A PARTY THAT SERVICE OF PROCESS WAS
IN ANY WAY INVALID OR INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY
OF THE CREDITORS TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST EACH GUARANTOR IN ANY
OTHER JURISDICTION.
- 10 -
<PAGE>
(C) EACH GUARANTOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS
OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS GUARANTY OR ANY OTHER
CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (B) ABOVE AND HEREBY
FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT
THAT SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
(D) EACH GUARANTOR HEREBY IRREVOCABLY WAIVES ALL RIGHTS TO A TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS GUARANTY, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY.
21. In the event that all of the capital stock of one or more
Guarantors is sold or otherwise disposed of or liquidated in compliance with the
requirements of Section 9.02 of the Credit Agreement (or such sale or other
disposition has been approved in writing by the Required Banks (or all Banks if
required by Section 13.12 of the Credit Agreement)) and the proceeds of such
sale, disposition or liquidation are applied in accordance with the provisions
of the Credit Agreement, to the extent applicable, such Guarantor shall be
released from this Guaranty and this Guaranty shall, as to each such Guarantor
or Guarantors, terminate, and have no further force or effect (it being
understood and agreed that the sale of one or more Persons that own, directly or
indirectly, all of the capital stock of any Guarantor shall be deemed to be a
sale of such Guarantor for the purposes of this Section 21).
22. All payments made by any Guarantor hereunder will be made without
setoff, counterclaim or other defense.
23. This Guaranty may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument. A set of counterparts executed by all
the parties hereto shall be lodged with the Borrower and the Agent.
24. It is understood and agreed that any Subsidiary of the Borrower
that is required to execute a counterpart of this Guaranty pursuant to the
Credit Agreement shall automatically become a Guarantor hereunder by executing a
counterpart hereof and delivering the same to the Agent.
25. At any time a payment in respect of the Guaranteed Obligations is
made under this Guaranty, the right of contribution of each Guarantor hereunder
against each other such Guarantor shall be determined as provided in the
immediately following sentence, with the right of contribution of each Guarantor
to be revised and restated as of each date on which a payment (a "Relevant
Payment") is made on the Guaranteed Obligations under this Guaranty. At any
time that a Relevant Payment is made by a
- 11 -
<PAGE>
Guarantor that results in the aggregate payments made by such Guarantor
hereunder in respect of the Guaranteed Obligations to and including the date of
the Relevant Payment exceeding such Guarantor's Contribution Percentage (as
defined below) of the aggregate payments made by all Guarantors hereunder in
respect of the Guaranteed Obligations to and including the date of the Relevant
Payment (such excess, the "Aggregate Excess Amount"), each such Guarantor shall
have a right of contribution against each other Guarantor who has made payments
hereunder in respect of the Guaranteed Obligations to and including the date of
the Relevant Payment in an aggregate amount less than such other Guarantor's
Contribution Percentage of the aggregate payments made to and including the date
of the Relevant Payment by all Guarantors hereunder in respect of the Guaranteed
Obligations (the aggregate amount of such deficit, the "Aggregate Deficit
Amount") in an amount equal to (x) a fraction the numerator of which is the
Aggregate Excess Amount of such Guarantor and the denominator of which is the
Aggregate Excess Amount of all Guarantors multiplied by (y) the Aggregate
Deficit Amount of such other Guarantor. A Guarantor's right of contribution
pursuant to the preceding sentences shall arise at the time of each computation,
subject to adjustment to the time of any subsequent computation; provided, that
--------
no Guarantor may take any action to enforce such right until the Guaranteed
Obligations have been paid in full and the Total Commitment has been terminated,
it being expressly recognized and agreed by all parties hereto that any
Guarantor's right of contribution arising pursuant to this Guaranty against any
other Guarantor shall be expressly junior and subordinate to such other
Guarantor's obligations and liabilities in respect of the Guaranteed Obligations
and any other obligations owing under this Guaranty. As used in this Section 25:
(i) each Guarantor's "Contribution Percentage" shall mean the percentage
obtained by dividing (x) the Adjusted Net Worth (as defined below) of such
Guarantor by (y) the aggregate Adjusted Net Worth of all Guarantors; (ii) the
"Adjusted Net Worth" of each Guarantor shall mean the greater of (x) the Net
Worth (as defined below) of such Guarantor and (y) zero; and (iii) the "Net
Worth" of each Guarantor shall mean the amount by which the fair salable value
of such Guarantor's assets on the date of any Relevant Payment exceeds its
existing debts and other liabilities (including contingent liabilities, but
without giving effect to any Guaranteed Obligations arising under this Guaranty)
on such date. All parties hereto recognize and agree that, except for any right
of contribution arising pursuant to this Section 25, each Guarantor who makes
any payment in respect of the Guaranteed Obligations shall have no right of
contribution or subrogation against any other Guarantor in respect of such
payment. Each of the Guarantors recognizes and acknowledges that the rights to
contribution arising hereunder shall constitute an asset in favor of the party
entitled to such contribution. In this connection, each Guarantor has the right
to waive its contribution right against any Guarantor to the extent that after
giving effect to such waiver such Guarantor would remain solvent, in the
determination of the Required Banks.
26. Each Guarantor hereby confirms that it is its intention that this
Guaranty not constitute a fraudulent transfer or conveyance for purposes of any
bankruptcy, insolvency or similar law, the Uniform Fraudulent Conveyance Act or
any similar Federal, state of foreign law. To effectuate the foregoing
intention, each Guarantor hereby irrevocably
- 12 -
<PAGE>
agrees that the Guaranteed Obligations shall be limited to the maximum amount as
will, after giving effect to such maximum amount and all other (contingent or
otherwise) liabilities of such Guarantor that are relevant under such laws,
result in the Guaranteed Obligations of such Guarantor in respect of such
maximum amount not constituting a fraudulent transfer or conveyance.
27. Notwithstanding anything else to the contrary in this Guaranty,
the Creditors agree that this Guaranty may be enforced only by the action of the
Agent or the Collateral Agent, in each case acting upon the instructions of the
Required Banks (or, after the date on which all Credit Document Obligations have
been paid in full, the holders of at least a majority of the outstanding Other
Obligations) and that no other Creditor shall have any right individually to
seek to enforce or to enforce this Guaranty or to realize upon the security to
be granted by the Security Documents, it being understood and agreed that such
rights and remedies may be exercised by the Agent or the Collateral Agent or the
holders of at least a majority of the outstanding Other Obligations, as the case
may be, for the benefit of the Creditors upon the terms of this Guaranty and the
Security Documents. The Creditors further agree that this Guaranty may not be
enforced against any director, officer, employee, or stockholder of any
Guarantor (except to the extent such stockholder is also a Guarantor hereunder).
It is understood that the agreement in this Section 27 is among and solely for
the benefit of the Banks and that if the Required Banks so agree (without
requiring the consent of any Guarantor), this Guaranty may be directly enforced
by any Creditor.
* * *
- 13 -
<PAGE>
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be
executed and delivered as of the date first above written.
Address:
1776 Winthrop Drive MERKLE-KORFF INDUSTRIES, INC.
Des Plaines, IL 60018
By /s/ Jonathan F. Boucher
-------------------------------------
Title: Vice President
1776 Winthrop Drive BCM HOLDINGS, INC.
Des Plaines, IL 60018
By /s/ Jonathan F. Boucher
-------------------------------------
Title: Vice President
84 Ira Avenue THE NEW IMPERIAL ELECTRIC
Akron, OH 44309 COMPANY
By /s/ Jonathan F. Boucher
-------------------------------------
Title: Vice President
1117 LaVelle Road THE NEW SCOTT MOTORS COMPANY
Alamagordo, NM 88310
By /s/ Jonathan F. Boucher
-------------------------------------
Title: Vice President
- 14 -
<PAGE>
4329 Eastern Avenue, S.E. NEW GEAR RESEARCH, INC.,
Grand Rapids, MI 49508
By /s/ Jonathan F. Boucher
-------------------------------------
Title: Vice President
Accepted and Agreed to:
BANKERS TRUST COMPANY,
as Agent for the Banks
By /s/ Patricia Hogan
----------------------------
Title: Vice President
- 15 -
<PAGE>
Exhibit 5
January 3, 1997
Motors and Gears,Inc.
ArborLake Centre
1751 Lake Cook Road, Suite 550
Deerfield, Illinois 60015
Ladies and Gentlemen:
We are acting as special counsel to Motors and Gears, Inc. (the "Company") in
connection with the corporate proceedings ("Corporate Proceedings") taken and to
be taken relating to the registration under the Securities Act of 1933, as
amended, of an exchange offer relating to the 10 3/4% Series B Senior Notes due
2006 of the Company (the "Notes"). We have also participated in the preparation
and filing with the Securities and Exchange Commission of a registration
statement on Form S-4 (the "Registration Statement") relating to the Notes.
In connection therewith, we have examined or are otherwise familiar with
the Company's Certificate of Incorporation, the Company's By-Laws, as amended to
date, the Registration Statement, the Indenture, dated as of November 7, 1996,
between the Company and Fleet National Bank (the "Indenture"), relevant
resolutions of the Board of Directors of the Company, and such other documents
and instruments as we have deemed necessary for the purposes of this opinion.
We have assumed the authenticity and completeness of all records,
certificates and other instruments submitted to us as originals, the conformity
to original documents of all records, certificates and other instruments
submitted to us as copies, the authenticity and completeness of the originals of
those records, certificates and other instruments submitted to us as copies and
the correctness of all statements of fact contained in all records, certificates
and other instruments that we have examined.
Based on and in reliance upon the foregoing, we are of the opinion that upon
completion of the Corporate Proceedings, the Notes will be duly authorized for
issuance and when delivered in accordance with the terms of the exchange offer
described in the Registration Statement, the Indenture and the Corporate
Proceedings, will be validly issued and enforceable in accordance with the
Indenture.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters."
Very truly yours,
Mayer, Brown & Platt
<PAGE>
EXHIBIT 10.1(a)
INDEMNIFICATION AGREEMENT
-------------------------
THIS INDEMNIFICATION AGREEMENT, dated as of November 7, 1996 ("this
Agreement"), is by and among Motors and Gears Holdings, Inc., a Delaware
- ---------
corporation, Motors and Gears, Inc., a Delaware corporation, Motors and Gears
Industries, Inc., a Delaware corporation, The New Imperial Electric Company, a
Delaware corporation, New Gear Research, Inc., a Delaware corporation, and The
New Scott Motors Company, a Delaware corporation (all collectively referred to
as the "Indemnitors") and Thomas H. Quinn ("Indemnitee").
----------- ----------
WITNESSETH
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors, executive officers, or in other
capacities unless they are provided with adequate protection through insurance
and indemnification against inordinate risks of claims and actions against them
arising out of their service to and activities on behalf of the corporation; and
WHEREAS, the current difficulties or virtual impossibility of obtaining
adequate insurance and uncertainties relating to indemnification have increased
the difficulty of attracting and retaining such persons; and
WHEREAS, the Boards of Directors of the Indemnitors have determined that
the inability to attract and retain such persons is detrimental to the best
interests of the Indemnitors's stockholders and that the Indemnitors should act
to assure such persons that there will be increased certainty of such protection
in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Indemnitors
contractually to obligate themselves to indemnify such persons to the fullest
extent permitted by applicable law so that they will serve or continue to serve
the Indemnitors free from undue concern that they will not be so indemnified;
and
WHEREAS, the Certificate of Incorporation (the "Certificate") and the
-----------
Bylaws (the "Bylaws") of each of the Indemnitors provide for the indemnification
------
of the directors, officers, agents and employees of the Indemnitors to the full
extent permitted by the General Corporation Law of the State of Delaware (the
"Act"). The Certificate, the Bylaws and the Act specifically provide that they
- ----
are not exclusive, and thereby contemplate that contracts may be entered into
between the Indemnitors and the members of their Boards of Directors
<PAGE>
and their executive officers with respect to indemnification of such directors
and their executive officers; and
WHEREAS, this Agreement is being entered into as part of Indemnitee's total
compensation for serving as a director and/or an executive officer, as the case
may be;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Indemnitors jointly and severally on the one hand and
Indemnitee on the other do hereby covenant and agree as follows:
SECTION 1. Service by Indemnitee.
---------------------
Indemnitee agrees to serve as director of the Indemnitors and/or executive
officer of the Indemnitors if so designated by the Indemnitors and appointed by
the respective Boards of Directors, and agrees to the indemnification provisions
provided for herein. Indemnitee may at any time and for any reason resign from
such position (subject to any other contractual obligation or other obligation
imposed by operation of law), in which event the Indemnitors shall have no
obligation under this Agreement to continue Indemnitee in any such position.
SECTION 2. Indemnification.
---------------
The Indemnitors shall indemnify Indemnitee to the fullest extent permitted
by applicable law in effect on the date hereof, notwithstanding that such
indemnification is not specifically authorized by this Agreement, the
Certificate, the Bylaws, the Act or otherwise. In the event of any change,
after the date of this Agreement, in any applicable law, statute or rule
regarding the right of a Delaware corporation to indemnify a member of its board
of directors or an officer, such changes, to the extent that they would expand
Indemnitee's rights hereunder, shall be within the scope of Indemnitee's rights
and the Indemnitors's obligations hereunder, and, to the extent that they would
narrow Indemnitee's rights hereunder, shall be excluded from this Agreement;
provided, however, that any change that is required by applicable laws, statutes
- -------- -------
or rules to be applied to this Agreement shall be so applied regardless of
whether the effect of such change is to narrow Indemnitee's rights hereunder.
Without diminishing the scope of the indemnification provided by this Section 2,
the rights of indemnification of Indemnitee provided hereunder shall include
indemnification in respect of Motors and Gears, Inc.'s proposed $170,000,000
Series A Senior Note exchange offer pursuant to that certain Offering
Memorandum, dated November 1, 1996, and shall not be limited to those rights set
forth hereinafter, except to the extent expressly prohibited by applicable law.
-2-
<PAGE>
SECTION 3. Action or Proceeding Other Than an Action by or in the Right of
---------------------------------------------------------------
the Indemnitors.
---------------
Indemnitee shall be entitled to the indemnification rights provided in this
Section 3 if he is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative in nature, other than an action by or
in the right of the Indemnitors, by reason of the fact that he is or was a
director, officer, employee, agent or fiduciary of the Indemnitors or is or was
serving at the request of the Indemnitors as a director, officer, employee,
agent, partner, trustee or fiduciary of any other entity, or by reason of
anything done or not done by him in any such capacity. Pursuant to this Section
3, Indemnitee shall be indemnified against reasonable costs and expenses
(including, but not limited to, counsel fees, costs, judgments, penalties,
fines, ERISA excise taxes, and amounts paid in settlement) (collectively,
"Damages") actually and reasonably incurred by him in connection with such
- --------
action, suit or proceeding (including, but not limited to, the investigation,
defense or appeal thereof), if, in the case of conduct in his official capacity
with the corporation, he acted in good faith and in the Indemnitors's best
interests, and in all other cases, he acted in good faith and was at least not
opposed to the Indemnitors's best interests, and with respect to any criminal
action or proceeding had no reasonable cause to believe his conduct was
unlawful, except that no indemnification shall be made in respect of any claim,
issue or matter as to which Indemnitee shall have been finally adjudged to be
liable for (i) negligence or misconduct in the performance of his duty to any of
the Indemnitors unless and only to the extent that the court in which such
action or suit was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnity for such expenses as such court shall deem proper or (ii)
the indemnification does not relate to any liability arising under Section 16(b)
of the Securities Exchange Act of 1934, as amended, or any of the rules or
regulations promulgated thereunder. Notwithstanding the foregoing, the
Indemnitors shall be required to indemnify an officer or director in connection
with an action, suit or proceeding initiated by such person only if such action,
suit or proceeding was authorized by the Board or a committee thereof. No
indemnity pursuant to this Agreement shall be provided by the Indemnitors for
Damages that have been paid directly to Indemnitee by an insurance carrier under
a policy of directors' and officers' liability insurance maintained by the
Indemnitors.
SECTION 4. Actions by or in the Right of the Indemnitors.
---------------------------------------------
Indemnitee shall be entitled to the indemnification rights provided in this
Section 4 if he is or was made a party or is threatened to be made a party to
any threatened, pending or completed action, suit, or proceeding, whether civil,
criminal, administrative or investigative brought by or in the right of the
Indemnitors to procure a judgment in their favor by reason of the fact that he
is or was a director, officer, employee, agent or fiduciary of the Indemnitors
or is or was serving at the request of the Indemnitors as a director, officer,
employee, agent, partner, trustee or fiduciary of any other entity by reason of
anything done
-3-
<PAGE>
or not done by him in any such capacity. Pursuant to this Section 4, Indemnitee
shall be indemnified against Damages (as defined in Section 3 of Agreement)
actually and reasonably incurred by him in connection with such action or suit
(including, but not limited to the investigation, defense, settlement or appeal
thereof) if, in the case of conduct in his official capacity with the
corporation, he acted in good faith and in the Indemnitors's best interests, and
in all other cases, he acted in good faith and was at least not opposed to the
Indemnitors's best interests, except that no indemnification shall be made in
respect of any claim, issue or matter as to which Indemnitee shall have been
finally adjudged to be liable for (i) negligence or misconduct in the
performance of his duty to any of the Indemnitors unless and only to the extent
that the court in which such action or suit was brought, or any other court of
competent jurisdiction, shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity for such expenses as
such court shall deem proper or (ii) the indemnification does not relate to any
liability arising under Section 16(b) of the Securities Exchange Act of 1934, as
amended, or any of the rules or regulations promulgated thereunder.
Notwithstanding the foregoing, the Indemnitors shall be required to indemnify an
officer or director in connection with an action, suit or proceeding initiated
by such person only if such action, suit or proceeding was authorized by the
Board or a committee thereof. No indemnity pursuant to this Agreement shall be
provided by the Indemnitors for Damages that have been paid directly to
Indemnitee by an insurance carrier under a policy of directors' and officers'
liability insurance maintained by the Indemnitors.
SECTION 5. Indemnification for Costs, Charges and Expenses of Successful
-------------------------------------------------------------
Party.
-----
Notwithstanding the other provisions of this Agreement, to the extent that
Indemnitee has served as a witness on behalf of the Indemnitors or has been
successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any action, suit or
proceeding referred to in Section 3 and Section 4 hereof, or in defense of any
claim, issue or matter therein, shall be indemnified against all reasonable
costs, charges, and expenses (including counsel fees) actually and reasonably
incurred by him or on his behalf in connection therewith.
SECTION 6. Partial Indemnification
-----------------------
-4-
<PAGE>
RIDER A
If Agent is only partially successful in the defense, investigation,
settlement or appeal of any action, suit, investigation or proceeding described
in this Agreement, the Trust shall nevertheless indemnify Agent, as a matter of
right, to the extent Agent has been partially successful.
RIDER B
Agent's entitlement to such expense advance shall include those incurred in
connection with any proceeding by Agent seeking an adjudication pursuant to this
Agreement. In the event that a claim for an exapense advance is made hereunder
and is not paid in full within 20 days after written notice of such claim is
delivered to the Board of Trustees, Agent may, but need not, at any time
thereafter bring suit against the Trust to recover the unpaid amount of the
claim.
RIDER C
12. DURATION. This Agreement shall continue until and terminate upon the
later of (a) 10 years after Agent has ceased to occupy any position or have any
relationship with the Trust or (b) the final termination of all pending or
threatened actions, suits, proceedings or investigations with respect to Agent.
This Agreement shall be binding upon the Trust and its successors and assigns
and shall inure to the benefit of Agent and his spouse, assigns, heirs,
devisees, executors, administrators or other legal representatives.
-5-
<PAGE>
SECTION 7. Determination of Entitlement to Indemnification.
-----------------------------------------------
Upon written request by Indemnitee for indemnification pursuant to Section
3 or Section 4 hereof, the entitlement of Indemnitee to indemnification pursuant
to the terms of this Agreement shall be determined by the following person or
persons who shall be empowered to make such determination: (a) the Boards of
Directors of the Indemnitors by a majority vote of a quorum consisting of
Disinterested Directors (as hereinafter defined); or (b) if such a quorum is not
obtainable or, even if obtainable, if the Board of Directors by the majority
vote of Disinterested Directors so directs, by Independent Counsel (as
hereinafter defined) in a written opinion to the Board of Directors, a copy of
which shall be delivered to Indemnitee; or (c) by the stockholders, but shares
owned by or voted under the control of directors, including the Indemnitee, who
are at the time parties to the proceeding may not be voted on the determination.
Such Independent Counsel shall be selected by the Board of Directors and
approved by Indemnitee. Upon failure of the Board of Directors to so select
such Independent Counsel or upon failure of Indemnitee to so approve, such
Independent Counsel shall be selected by the Chancellor of the State of Delaware
or such other person as the Chancellor shall designate to make such selection.
Such determination of entitlement to indemnification shall be made no later than
sixty (60) days after receipt by the Indemnitors of a written request for
indemnification. Such request shall include documentation or information which
is necessary for such determination and which is reasonably available to
Indemnitee. Any Damages incurred by Indemnitee in connection with his request
for indemnification hereunder shall be borne by the Indemnitors. The
Indemnitors hereby indemnify and agree to hold Indemnitee harmless therefrom
irrespective of the outcome of the determination of Indemnitee's entitlement to
indemnification. If the person making such determination shall determine that
Indemnitee is entitled to indemnification as to part (but not all) of the
application for indemnification, such person shall reasonably prorate such
partial indemnification among such claims, issues or matters.
SECTION 8. Presumptions and Effect of Certain Proceedings.
----------------------------------------------
The Secretary of the Indemnitors shall, promptly upon receipt of
Indemnitee's request for indemnification, advise in writing its Board of
Directors and the Boards of Directors of the other Indemnitors or such other
person or persons empowered to make the determination as provided in Section 7
that Indemnitee has made such request for indemnification. Indemnitee shall be
presumed to be entitled to indemnification hereunder and the Indemnitors shall
have the burden of proof in the making of any determination contrary to such
presumption. If the person or persons so empowered to make such determination
shall have failed to make the requested indemnification within 60 days after
receipt by the Indemnitors of such request, the requisite determination of
entitlement to indemnification shall be deemed
-6-
<PAGE>
to have been made and Indemnitee shall be absolutely entitled to such
indemnification, absent actual and material fraud in the request for
indemnification. The termination of any action, suit, investigation or
proceeding described in Section 3 or Section 4 hereof by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or its equivalent,
---------------
shall not, of itself (a) create a presumption that Indemnitee did not act in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the Indemnitors, and, with respect to any criminal
action or proceeding, that Indemnitee had reasonable cause to believe that his
conduct was unlawful or (b) otherwise adversely affect the rights of Indemnitee
to indemnification except as may be provided herein.
SECTION 9. Advancement of Expenses and Costs.
---------------------------------
All reasonable expenses and costs incurred by Indemnitee who is party to a
proceeding (including counsel fees, retainers and advances of disbursements
required of Indemnitee) (collectively, the "Expense Advance") shall be paid by
---------------
the Indemnitors in advance of the final disposition of such action, suit or
proceeding at the request of Indemnitee within twenty (20) days after the
receipt by the Indemnitors of a statement or statements from Indemnitee
requesting such advance or advances from time to time. Such statement or
statements shall reasonably evidence the expenses and costs incurred by him in
connection therewith. The Indemnitors's obligation to provide an Expense
Advance is subject to the following conditions: (i) if the proceeding arose in
connection with Indemnitee's service as a director and/or executive officer of
the Indemnitors (and not in any other capacity in which Indemnitee rendered
service, including service to any related company), then the Indemnitee or his
representative shall have executed and delivered to the Indemnitors an
undertaking, which need not be secured and shall be accepted without reference
to Indemnitee's financial ability to make repayment, by or on behalf of
Indemnitee to repay all Expense Advance if and to the extent that it shall
ultimately be determined by a final, unappealable decision rendered by a court
having jurisdiction over the parties and the question that Indemnitee is not
entitled to be indemnified for such Expense Advance under this Agreement or
otherwise; (ii) Indemnitee shall give the Indemnitors such information and
cooperation as it may reasonably request and as shall be within Indemnitee's
power; and (iii) Indemnitee shall furnish, upon request by the Indemnitors and
if required under applicable law, a written affirmation of Indemnitee's good
faith belief that any applicable standards of conduct have been met by
Indemnitee. Indemnitee's entitlement to such Expense Advance shall include
those incurred in connection with any proceeding by Indemnitee seeking an
adjudication pursuant to this Agreement. In the event that a claim for an
Expense Advance is made hereunder and is not paid in full within twenty (20)
days after written notice of such claim is delivered to the Indemnitors,
Indemnitee may, but need not, at any time thereafter bring suit against any of
the Indemnitors to recover the unpaid amount of the claim.
-7-
<PAGE>
SECTION 10. Remedies of Indemnitee in Cases of Determination not to
-------------------------------------------------------
Indemnify or to Advance Expenses.
--------------------------------
In the event that a determination is made that Indemnitee is not entitled
to indemnification hereunder or if payment has not been timely made following a
determination of entitlement to indemnification pursuant to Sections 7 and 8, or
if expenses are not advanced pursuant to Section 9, Indemnitee shall be entitled
to a final adjudication in an appropriate court of the State of Delaware or any
other court of competent jurisdiction of his entitlement to such indemnification
or advance. The Indemnitors shall not oppose Indemnitee's right to seek any
such adjudication or any other claim. Such judicial proceeding shall be made de
--
novo and Indemnitee shall not be prejudiced by reason of a determination (if so
- ----
made) that he is not entitled to indemnification. If a determination is made or
deemed to have been made pursuant to the terms of Section 7 or Section 8 hereof
that Indemnitee is entitled to indemnification, the Indemnitors shall be bound
by such determination and is precluded from asserting that such determination
has not been made or that the procedure by which such determination was made is
not valid, binding and enforceable. The Indemnitors further agree to stipulate
in any such court that the Indemnitors are bound by all the provisions of this
Agreement and are precluded from making any assertion to the contrary. If the
court shall determine that Indemnitee is entitled to any indemnification
hereunder, the Indemnitors shall pay all reasonable Damages actually incurred by
Indemnitee in connection with such adjudication (including, but not limited to,
any appellate proceedings).
SECTION 11. Other Rights to Indemnification.
-------------------------------
The indemnification and advancement of expenses (including counsel fees)
and costs provided by this Agreement shall not be deemed exclusive of any other
rights to which Indemnitee may now or in the future be entitled under any
provision of the By-laws, provisions of the Certificate, vote of stockholders or
Disinterested Directors, provision of law or otherwise.
SECTION 12. Counsel Fees and Other Expenses to Enforce Agreement.
----------------------------------------------------
In the event that Indemnitee is subject to or intervenes in any proceeding
in which the validity or enforceability of this Agreement is at issue or seeks
an adjudication or award in arbitration to enforce his rights under, or to
recover damages for breach of, this Agreement, Indemnitee, if he prevails in
whole or in part in such action, shall be entitled to recover from the
Indemnitors, and shall be indemnified by the Indemnitors against, any reasonable
expenses for counsel fees and disbursements actually and reasonably incurred by
him.
SECTION 13. Duration of Agreement.
---------------------
This Agreement shall continue until and terminate upon the later of (a) 10
years after Indemnitee has ceased to occupy any of the positions or have any of
the relationships
-8-
<PAGE>
described in Section 3 or Section 4 of this Agreement or (b) the final
termination of all pending or threatened actions, suits, proceedings or
investigations with respect to Indemnitee. This Agreement shall be binding upon
the Indemnitors and their successors and assigns and shall inure to the benefit
of Indemnitee and his spouse, assigns, heirs, devisees, executors,
administrators or other legal representatives.
SECTION 14. Severability.
------------
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including without limitation, all portions of any paragraphs of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby and (b) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, all portions of any
paragraph of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
SECTION 15. Identical Counterparts.
----------------------
This Agreement may be executed in one or more counterparts, each of which
shall for all purposes be deemed to be an original, but all of which together
shall constitute one and the same Agreement. Only one such counterpart signed
by the party against whom enforceability is sought needs to be produced to
evidence the existence of this Agreement.
SECTION 16. Headings.
--------
The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction thereof.
SECTION 17. Definitions.
-----------
For purposes of this Agreement:
(a) "Disinterested Director" shall mean a director of the Indemnitors who
----------------------
is not or was not a party to the action, suit, investigation or proceeding in
respect of which indemnification is being sought by Indemnitee.
(b) "Independent Counsel" shall mean a law firm or a member of a law firm
-------------------
that neither is presently nor in the past five years has been retained to
represent (i) the Indemnitors or Indemnitee in any matter material to either
such party or (ii) any other party to the action, suit, investigation or
proceeding giving rise to a claim for indemnification
-9-
<PAGE>
hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall
not include any person who, under the applicable standards of professional
conduct then prevailing, would have a conflict of interest in representing
either the Indemnitors or Indemnitee in an action to determine Indemnitee's
right to indemnification under this Agreement.
SECTION 18. Modification and Waiver.
-----------------------
No supplement, modification or amendment of this Agreement shall be binding
unless executed in writing by both of the parties hereto. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
SECTION 19. Mutual Acknowledgment.
---------------------
The Indemnitors and Indemnitee acknowledge that, in certain instances,
federal law or public policy may override applicable state law and prohibit the
Indemnitors from indemnifying Indemnitee under this Agreement or otherwise. For
example, the Indemnitors and Indemnitee acknowledge that the U.S. Securities and
Exchange Commission (the "SEC") has taken the position that indemnification is
not permissible for liabilities arising under certain federal securities laws,
and federal legislation prohibits indemnification for certain ERISA violations.
Furthermore, Indemnitee understands and acknowledges that the Indemnitors have
undertaken or may be required in the future to undertake with the SEC to submit
the question of indemnification to a court in certain circumstances for a
determination of the Indemnitors's right under public policy to indemnify
Indemnitee.
SECTION 20. Notice by Indemnitee.
--------------------
Indemnitee agrees promptly to notify the Indemnitors in writing upon being
served with any summons, citation, subpoena, complaint, indictment, information
or other document relating to any matter which may be subject to indemnification
covered hereunder, either civil, criminal or investigative.
SECTION 21. Notices.
-------
All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given if (i) delivered by hand
and receipted for by the party to whom said notice or other communication shall
have been directed or if (ii) mailed by certified or registered mail with
postage prepaid on the third business day after the date on which it is so
mailed, to the following addresses:
-10-
<PAGE>
(a) if to Indemnitee:
c/o The Jordan Company
9 West 57th Street, Suite 4000
New York, NY 10019
(b) if to any of the Indemnitors:
c/o Motors and Gears, Inc.
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60154
Attention: President
or to such other address as may have been furnished to Indemnitee by the
Indemnitors or to the Indemnitors by Indemnitee, as the case may be.
SECTION 22. Other Agreements.
----------------
This Agreement restates and supersedes, but does not limit or negate, any
indemnification, rights or interests of Indemnitee under any prior agreements
between the Indemnitors and Indemnitee.
SECTION 23. Governing Law.
-------------
The parties agree that this Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
MOTORS AND GEARS HOLDINGS, INC.
By: /s/ Jonathan F. Boucher
-------------------------------
Name: Jonathan F. Boucher
Title: Vice President
MOTORS AND GEARS, INC.
By: /s/ Jonathan F. Boucher
-------------------------------
Name: Jonathan F. Boucher
Title: Vice President
MOTORS AND GEARS INDUSTRIES, INC.
By: /s/ Jonathan F. Boucher
-------------------------------
Name: Jonathan F. Boucher
Title: Vice President
-12-
<PAGE>
THE NEW IMPERIAL ELECTRIC COMPANY
By: /s/ Jonathan F. Boucher
-------------------------------
Name: Jonathan F. Boucher
Title: Vice President
NEW GEAR RESEARCH, INC.
By: /s/ Jonathan F. Boucher
-------------------------------
Name: Jonathan F. Boucher
Title: Vice President
THE NEW SCOTT MOTORS COMPANY
By: /s/ Jonathan F. Boucher
-------------------------------
Name: Jonathan F. Boucher
Title: Vice President
INDEMNITEE:
/s/ Thomas H. Quinn
-------------------------------
Name: Thomas H. Quinn
-13-
<PAGE>
EXHIBIT 10.1(b)
INDEMNIFICATION AGREEMENT
-------------------------
THIS INDEMNIFICATION AGREEMENT, dated as of November 7, 1996 ("this
Agreement"), is by and among Motors and Gears Holdings, Inc., a Delaware
- ---------
corporation, Motors and Gears, Inc., a Delaware corporation, Motors and Gears
Industries, Inc., a Delaware corporation, and The New Imperial Electric Company,
a Delaware corporation (all collectively referred to as the "Indemnitors") and
-----------
Jonathan F. Boucher ("Indemnitee").
----------
WITNESSETH
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors, executive officers, or in other
capacities unless they are provided with adequate protection through insurance
and indemnification against inordinate risks of claims and actions against them
arising out of their service to and activities on behalf of the corporation; and
WHEREAS, the current difficulties or virtual impossibility of obtaining
adequate insurance and uncertainties relating to indemnification have increased
the difficulty of attracting and retaining such persons; and
WHEREAS, the Boards of Directors of the Indemnitors have determined that
the inability to attract and retain such persons is detrimental to the best
interests of the Indemnitors's stockholders and that the Indemnitors should act
to assure such persons that there will be increased certainty of such protection
in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Indemnitors
contractually to obligate themselves to indemnify such persons to the fullest
extent permitted by applicable law so that they will serve or continue to serve
the Indemnitors free from undue concern that they will not be so indemnified;
and
WHEREAS, the Certificate of Incorporation (the "Certificate") and the
-----------
Bylaws (the "Bylaws") of each of the Indemnitors provide for the indemnification
------
of the directors, officers, agents and employees of the Indemnitors to the full
extent permitted by the General Corporation Law of the State of Delaware (the
"Act"). The Certificate, the Bylaws and the Act specifically provide that they
- ----
are not exclusive, and thereby contemplate that contracts may be entered into
between the Indemnitors and the members of their Boards of Directors
<PAGE>
and their executive officers with respect to indemnification of such directors
and their executive officers; and
WHEREAS, this Agreement is being entered into as part of Indemnitee's total
compensation for serving as a director and/or an executive officer, as the case
may be;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Indemnitors jointly and severally on the one hand and
Indemnitee on the other do hereby covenant and agree as follows:
SECTION 1. Service by Indemnitee.
---------------------
Indemnitee agrees to serve as director of the Indemnitors and/or executive
officer of the Indemnitors if so designated by the Indemnitors and appointed by
the respective Boards of Directors, and agrees to the indemnification provisions
provided for herein. Indemnitee may at any time and for any reason resign from
such position (subject to any other contractual obligation or other obligation
imposed by operation of law), in which event the Indemnitors shall have no
obligation under this Agreement to continue Indemnitee in any such position.
SECTION 2. Indemnification.
---------------
The Indemnitors shall indemnify Indemnitee to the fullest extent permitted
by applicable law in effect on the date hereof, notwithstanding that such
indemnification is not specifically authorized by this Agreement, the
Certificate, the Bylaws, the Act or otherwise. In the event of any change,
after the date of this Agreement, in any applicable law, statute or rule
regarding the right of a Delaware corporation to indemnify a member of its board
of directors or an officer, such changes, to the extent that they would expand
Indemnitee's rights hereunder, shall be within the scope of Indemnitee's rights
and the Indemnitors's obligations hereunder, and, to the extent that they would
narrow Indemnitee's rights hereunder, shall be excluded from this Agreement;
provided, however, that any change that is required by applicable laws, statutes
- -------- -------
or rules to be applied to this Agreement shall be so applied regardless of
whether the effect of such change is to narrow Indemnitee's rights hereunder.
Without diminishing the scope of the indemnification provided by this Section 2,
the rights of indemnification of Indemnitee provided hereunder shall include
indemnification in respect of Motors and Gears, Inc.'s proposed $170,000,000
Series A Senior Note exchange offer pursuant to that certain Offering
Memorandum, dated November 1, 1996, and shall not be limited to those rights set
forth hereinafter, except to the extent expressly prohibited by applicable law.
<PAGE>
SECTION 3. Action or Proceeding Other Than an Action by or in the Right of
---------------------------------------------------------------
the Indemnitors.
---------------
Indemnitee shall be entitled to the indemnification rights provided in this
Section 3 if he is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative in nature, other than an action by or
in the right of the Indemnitors, by reason of the fact that he is or was a
director, officer, employee, agent or fiduciary of the Indemnitors or is or was
serving at the request of the Indemnitors as a director, officer, employee,
agent, partner, trustee or fiduciary of any other entity, or by reason of
anything done or not done by him in any such capacity. Pursuant to this Section
3, Indemnitee shall be indemnified against reasonable costs and expenses
(including, but not limited to, counsel fees, costs, judgments, penalties,
fines, ERISA excise taxes, and amounts paid in settlement) (collectively,
"Damages") actually and reasonably incurred by him in connection with such
- --------
action, suit or proceeding (including, but not limited to, the investigation,
defense or appeal thereof), if, in the case of conduct in his official capacity
with the corporation, he acted in good faith and in the Indemnitors's best
interests, and in all other cases, he acted in good faith and was at least not
opposed to the Indemnitors's best interests, and with respect to any criminal
action or proceeding had no reasonable cause to believe his conduct was
unlawful, except that no indemnification shall be made in respect of any claim,
issue or matter as to which Indemnitee shall have been finally adjudged to be
liable for (i) negligence or misconduct in the performance of his duty to any of
the Indemnitors unless and only to the extent that the court in which such
action or suit was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnity for such expenses as such court shall deem proper or (ii)
the indemnification does not relate to any liability arising under Section 16(b)
of the Securities Exchange Act of 1934, as amended, or any of the rules or
regulations promulgated thereunder. Notwithstanding the foregoing, the
Indemnitors shall be required to indemnify an officer or director in connection
with an action, suit or proceeding initiated by such person only if such action,
suit or proceeding was authorized by the Board or a committee thereof. No
indemnity pursuant to this Agreement shall be provided by the Indemnitors for
Damages that have been paid directly to Indemnitee by an insurance carrier under
a policy of directors' and officers' liability insurance maintained by the
Indemnitors.
SECTION 4. Actions by or in the Right of the Indemnitors.
---------------------------------------------
Indemnitee shall be entitled to the indemnification rights provided in this
Section 4 if he is or was made a party or is threatened to be made a party to
any threatened, pending or completed action, suit, or proceeding, whether civil,
criminal, administrative or investigative brought by or in the right of the
Indemnitors to procure a judgment in their favor by reason of the fact that he
is or was a director, officer, employee, agent or fiduciary of the Indemnitors
or is or was serving at the request of the Indemnitors as a director, officer,
employee, agent, partner, trustee or fiduciary of any other entity by reason of
anything done
-3-
<PAGE>
or not done by him in any such capacity. Pursuant to this Section 4, Indemnitee
shall be indemnified against Damages (as defined in Section 3 of Agreement)
actually and reasonably incurred by him in connection with such action or suit
(including, but not limited to the investigation, defense, settlement or appeal
thereof) if, in the case of conduct in his official capacity with the
corporation, he acted in good faith and in the Indemnitors's best interests, and
in all other cases, he acted in good faith and was at least not opposed to the
Indemnitors's best interests, except that no indemnification shall be made in
respect of any claim, issue or matter as to which Indemnitee shall have been
finally adjudged to be liable for (i) negligence or misconduct in the
performance of his duty to any of the Indemnitors unless and only to the extent
that the court in which such action or suit was brought, or any other court of
competent jurisdiction, shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity for such expenses as
such court shall deem proper or (ii) the indemnification does not relate to any
liability arising under Section 16(b) of the Securities Exchange Act of 1934, as
amended, or any of the rules or regulations promulgated thereunder.
Notwithstanding the foregoing, the Indemnitors shall be required to indemnify an
officer or director in connection with an action, suit or proceeding initiated
by such person only if such action, suit or proceeding was authorized by the
Board or a committee thereof. No indemnity pursuant to this Agreement shall be
provided by the Indemnitors for Damages that have been paid directly to
Indemnitee by an insurance carrier under a policy of directors' and officers'
liability insurance maintained by the Indemnitors.
SECTION 5. Indemnification for Costs, Charges and Expenses of Successful
-------------------------------------------------------------
Party.
-----
Notwithstanding the other provisions of this Agreement, to the extent that
Indemnitee has served as a witness on behalf of the Indemnitors or has been
successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any action, suit or
proceeding referred to in Section 3 and Section 4 hereof, or in defense of any
claim, issue or matter therein, shall be indemnified against all reasonable
costs, charges, and expenses (including counsel fees) actually and reasonably
incurred by him or on his behalf in connection therewith.
SECTION 6. Partial Indemnification
-----------------------
If Indemnitee is only partially successful in the defense, investigation,
settlement or appeal of any action, suit, investigation or proceeding described
in Section 3 or Section 4 hereof, and as a result is not entitled under Section
5 hereof to indemnification by the Indemnitors for the total amount of
reasonable Damages actually and reasonably incurred by him, the Indemnitors
shall nevertheless indemnify Indemnitee, as a matter of right pursuant to
Section 5 hereof, to the extent Indemnitee has been partially successful.
-4-
<PAGE>
SECTION 7. Determination of Entitlement to Indemnification.
-----------------------------------------------
Upon written request by Indemnitee for indemnification pursuant to Section
3 or Section 4 hereof, the entitlement of Indemnitee to indemnification pursuant
to the terms of this Agreement shall be determined by the following person or
persons who shall be empowered to make such determination: (a) the Boards of
Directors of the Indemnitors by a majority vote of a quorum consisting of
Disinterested Directors (as hereinafter defined); or (b) if such a quorum is not
obtainable or, even if obtainable, if the Board of Directors by the majority
vote of Disinterested Directors so directs, by Independent Counsel (as
hereinafter defined) in a written opinion to the Board of Directors, a copy of
which shall be delivered to Indemnitee; or (c) by the stockholders, but shares
owned by or voted under the control of directors, including the Indemnitee, who
are at the time parties to the proceeding may not be voted on the determination.
Such Independent Counsel shall be selected by the Board of Directors and
approved by Indemnitee. Upon failure of the Board of Directors to so select
such Independent Counsel or upon failure of Indemnitee to so approve, such
Independent Counsel shall be selected by the Chancellor of the State of Delaware
or such other person as the Chancellor shall designate to make such selection.
Such determination of entitlement to indemnification shall be made no later than
sixty (60) days after receipt by the Indemnitors of a written request for
indemnification. Such request shall include documentation or information which
is necessary for such determination and which is reasonably available to
Indemnitee. Any Damages incurred by Indemnitee in connection with his request
for indemnification hereunder shall be borne by the Indemnitors. The
Indemnitors hereby indemnify and agree to hold Indemnitee harmless therefrom
irrespective of the outcome of the determination of Indemnitee's entitlement to
indemnification. If the person making such determination shall determine that
Indemnitee is entitled to indemnification as to part (but not all) of the
application for indemnification, such person shall reasonably prorate such
partial indemnification among such claims, issues or matters.
SECTION 8. Presumptions and Effect of Certain Proceedings.
----------------------------------------------
The Secretary of the Indemnitors shall, promptly upon receipt of
Indemnitee's request for indemnification, advise in writing its Board of
Directors and the Boards of Directors of the other Indemnitors or such other
person or persons empowered to make the determination as provided in Section 7
that Indemnitee has made such request for indemnification. Indemnitee shall be
presumed to be entitled to indemnification hereunder and the Indemnitors shall
have the burden of proof in the making of any determination contrary to such
presumption. If the person or persons so empowered to make such determination
shall have failed to make the requested indemnification within 60 days after
receipt by the Indemnitors of such request, the requisite determination of
entitlement to indemnification shall be deemed to have been made and Indemnitee
shall be absolutely entitled to such indemnification, absent actual and material
fraud in the request for indemnification. The termination of any action, suit,
investigation or proceeding described in Section 3 or Section 4 hereof by
judgment, order, settlement or conviction, or upon a plea of nolo contendere or
---------------
its equivalent, shall not, of itself (a) create a presumption that Indemnitee
did not act in good faith and in a manner
-5-
<PAGE>
which he reasonably believed to be in or not opposed to the best interests of
the Indemnitors, and, with respect to any criminal action or proceeding, that
Indemnitee had reasonable cause to believe that his conduct was unlawful or (b)
otherwise adversely affect the rights of Indemnitee to indemnification except as
may be provided herein.
SECTION 9. Advancement of Expenses and Costs.
---------------------------------
All reasonable expenses and costs incurred by Indemnitee who is party to a
proceeding (including counsel fees, retainers and advances of disbursements
required of Indemnitee) (collectively, the "Expense Advance") shall be paid by
---------------
the Indemnitors in advance of the final disposition of such action, suit or
proceeding at the request of Indemnitee within twenty (20) days after the
receipt by the Indemnitors of a statement or statements from Indemnitee
requesting such advance or advances from time to time. Such statement or
statements shall reasonably evidence the expenses and costs incurred by him in
connection therewith. The Indemnitors's obligation to provide an Expense
Advance is subject to the following conditions: (i) if the proceeding arose in
connection with Indemnitee's service as a director and/or executive officer of
the Indemnitors (and not in any other capacity in which Indemnitee rendered
service, including service to any related company), then the Indemnitee or his
representative shall have executed and delivered to the Indemnitors an
undertaking, which need not be secured and shall be accepted without reference
to Indemnitee's financial ability to make repayment, by or on behalf of
Indemnitee to repay all Expense Advance if and to the extent that it shall
ultimately be determined by a final, unappealable decision rendered by a court
having jurisdiction over the parties and the question that Indemnitee is not
entitled to be indemnified for such Expense Advance under this Agreement or
otherwise; (ii) Indemnitee shall give the Indemnitors such information and
cooperation as it may reasonably request and as shall be within Indemnitee's
power; and (iii) Indemnitee shall furnish, upon request by the Indemnitors and
if required under applicable law, a written affirmation of Indemnitee's good
faith belief that any applicable standards of conduct have been met by
Indemnitee. Indemnitee's entitlement to such Expense Advance shall include
those incurred in connection with any proceeding by Indemnitee seeking an
adjudication pursuant to this Agreement. In the event that a claim for an
Expense Advance is made hereunder and is not paid in full within twenty (20)
days after written notice of such claim is delivered to the Indemnitors,
Indemnitee may, but need not, at any time thereafter bring suit against any of
the Indemnitors to recover the unpaid amount of the claim.
SECTION 10. Remedies of Indemnitee in Cases of Determination not to
-------------------------------------------------------
Indemnify or to Advance Expenses.
--------------------------------
In the event that a determination is made that Indemnitee is not entitled
to indemnification hereunder or if payment has not been timely made following a
determination of entitlement to indemnification pursuant to Sections 7 and 8, or
if expenses are not advanced pursuant to Section 9, Indemnitee shall be entitled
to a final adjudication in an appropriate court of the State of Delaware or any
other court of competent jurisdiction of his entitlement to such indemnification
or advance. The Indemnitors shall not oppose
-6-
<PAGE>
Indemnitee's right to seek any such adjudication or any other claim. Such
judicial proceeding shall be made de novo and Indemnitee shall not be
-------
prejudiced by reason of a determination (if so made) that he is not
entitled to indemnification. If a determination is made or deemed to have been
made pursuant to the terms of Section 7 or Section 8 hereof that Indemnitee is
entitled to indemnification, the Indemnitors shall be bound by such
determination and is precluded from asserting that such determination has not
been made or that the procedure by which such determination was made is not
valid, binding and enforceable. The Indemnitors further agree to stipulate in
any such court that the Indemnitors are bound by all the provisions of this
Agreement and are precluded from making any assertion to the contrary. If the
court shall determine that Indemnitee is entitled to any indemnification
hereunder, the Indemnitors shall pay all reasonable Damages actually incurred by
Indemnitee in connection with such adjudication (including, but not limited to,
any appellate proceedings).
SECTION 11. Other Rights to Indemnification.
-------------------------------
The indemnification and advancement of expenses (including counsel fees)
and costs provided by this Agreement shall not be deemed exclusive of any other
rights to which Indemnitee may now or in the future be entitled under any
provision of the By-laws, provisions of the Certificate, vote of stockholders or
Disinterested Directors, provision of law or otherwise.
SECTION 12. Counsel Fees and Other Expenses to Enforce Agreement.
----------------------------------------------------
In the event that Indemnitee is subject to or intervenes in any proceeding
in which the validity or enforceability of this Agreement is at issue or seeks
an adjudication or award in arbitration to enforce his rights under, or to
recover damages for breach of, this Agreement, Indemnitee, if he prevails in
whole or in part in such action, shall be entitled to recover from the
Indemnitors, and shall be indemnified by the Indemnitors against, any reasonable
expenses for counsel fees and disbursements actually and reasonably incurred by
him.
SECTION 13. Duration of Agreement.
---------------------
This Agreement shall continue until and terminate upon the later of (a) 10
years after Indemnitee has ceased to occupy any of the positions or have any of
the relationships described in Section 3 or Section 4 of this Agreement or (b)
the final termination of all pending or threatened actions, suits, proceedings
or investigations with respect to Indemnitee. This Agreement shall be binding
upon the Indemnitors and their successors and assigns and shall inure to the
benefit of Indemnitee and his spouse, assigns, heirs, devisees, executors,
administrators or other legal representatives.
-7-
<PAGE>
SECTION 14. Severability.
------------
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including without limitation, all portions of any paragraphs of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby and (b) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, all portions of any
paragraph of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
SECTION 15. Identical Counterparts.
----------------------
This Agreement may be executed in one or more counterparts, each of which
shall for all purposes be deemed to be an original, but all of which together
shall constitute one and the same Agreement. Only one such counterpart signed
by the party against whom enforceability is sought needs to be produced to
evidence the existence of this Agreement.
SECTION 16. Headings.
--------
The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction thereof.
SECTION 17. Definitions.
-----------
For purposes of this Agreement:
(a) "Disinterested Director" shall mean a director of the Indemnitors who
----------------------
is not or was not a party to the action, suit, investigation or proceeding in
respect of which indemnification is being sought by Indemnitee.
(b) "Independent Counsel" shall mean a law firm or a member of a law firm
-------------------
that neither is presently nor in the past five years has been retained to
represent (i) the Indemnitors or Indemnitee in any matter material to either
such party or (ii) any other party to the action, suit, investigation or
proceeding giving rise to a claim for indemnification hereunder. Notwithstanding
the foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Indemnitors or Indemnitee
in an action to determine Indemnitee's right to indemnification under this
Agreement.
-8-
<PAGE>
SECTION 18. Modification and Waiver.
-----------------------
No supplement, modification or amendment of this Agreement shall be binding
unless executed in writing by both of the parties hereto. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
SECTION 19. Mutual Acknowledgment.
---------------------
The Indemnitors and Indemnitee acknowledge that, in certain instances,
federal law or public policy may override applicable state law and prohibit the
Indemnitors from indemnifying Indemnitee under this Agreement or otherwise. For
example, the Indemnitors and Indemnitee acknowledge that the U.S. Securities and
Exchange Commission (the "SEC") has taken the position that indemnification is
not permissible for liabilities arising under certain federal securities laws,
and federal legislation prohibits indemnification for certain ERISA violations.
Furthermore, Indemnitee understands and acknowledges that the Indemnitors have
undertaken or may be required in the future to undertake with the SEC to submit
the question of indemnification to a court in certain circumstances for a
determination of the Indemnitors's right under public policy to indemnify
Indemnitee.
SECTION 20. Notice by Indemnitee.
--------------------
Indemnitee agrees promptly to notify the Indemnitors in writing upon being
served with any summons, citation, subpoena, complaint, indictment, information
or other document relating to any matter which may be subject to indemnification
covered hereunder, either civil, criminal or investigative.
SECTION 21. Notices.
-------
All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given if (i) delivered by hand
and receipted for by the party to whom said notice or other communication shall
have been directed or if (ii) mailed by certified or registered mail with
postage prepaid on the third business day after the date on which it is so
mailed, to the following addresses:
(a) if to Indemnitee:
c/o The Jordan Company
9 West 57th Street, Suite 4000
New York, NY 10019
-9-
<PAGE>
(b) if to any of the Indemnitors:
c/o Motors and Gears, Inc.
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60154
Attention: President
or to such other address as may have been furnished to Indemnitee by the
Indemnitors or to the Indemnitors by Indemnitee, as the case may be.
SECTION 22. Other Agreements.
----------------
This Agreement restates and supersedes, but does not limit or negate, any
indemnification, rights or interests of Indemnitee under any prior agreements
between the Indemnitors and Indemnitee.
SECTION 23. Governing Law.
-------------
The parties agree that this Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
MOTORS AND GEARS HOLDINGS, INC.
By: /s/ Jonathan F. Boucher
------------------------------
Name: Jonathan F. Boucher
Title: Vice President
MOTORS AND GEARS, INC.
By: /s/ Jonathan F. Boucher
------------------------------
Name: Jonathan F. Boucher
Title: Vice President
MOTORS AND GEARS INDUSTRIES, INC.
By: /s/ Jonathan F. Boucher
------------------------------
Name: Jonathan F. Boucher
Title: Vice President
-11-
<PAGE>
THE NEW IMPERIAL ELECTRIC COMPANY
By: /s/ Jonathan F. Boucher
------------------------------
Name: Jonathan F. Boucher
Title: Vice President
INDEMNITEE:
/s/ Jonathan F. Boucher
------------------------------
Name: Jonathan F. Boucher
-12-
<PAGE>
EXHIBIT 10.1(c)
INDEMNIFICATION AGREEMENT
-------------------------
THIS INDEMNIFICATION AGREEMENT, dated as of November 7, 1996 ("this
Agreement"), is by and among Motors and Gears Holdings, Inc., a Delaware
- ---------
corporation, Motors and Gears, Inc., a Delaware corporation, and Motors and
Gears Industries, Inc., a Delaware corporation (all collectively referred to as
the "Indemnitors") and David W. Zalaznick ("Indemnitee").
----------- ----------
WITNESSETH
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors, executive officers, or in other
capacities unless they are provided with adequate protection through insurance
and indemnification against inordinate risks of claims and actions against them
arising out of their service to and activities on behalf of the corporation; and
WHEREAS, the current difficulties or virtual impossibility of obtaining
adequate insurance and uncertainties relating to indemnification have increased
the difficulty of attracting and retaining such persons; and
WHEREAS, the Boards of Directors of the Indemnitors have determined that
the inability to attract and retain such persons is detrimental to the best
interests of the Indemnitors's stockholders and that the Indemnitors should act
to assure such persons that there will be increased certainty of such protection
in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Indemnitors
contractually to obligate themselves to indemnify such persons to the fullest
extent permitted by applicable law so that they will serve or continue to serve
the Indemnitors free from undue concern that they will not be so indemnified;
and
WHEREAS, the Certificate of Incorporation (the "Certificate") and the
-----------
Bylaws (the "Bylaws") of each of the Indemnitors provide for the indemnification
------
of the directors, officers, agents and employees of the Indemnitors to the full
extent permitted by the General Corporation Law of the State of Delaware (the
"Act"). The Certificate, the Bylaws and the Act specifically provide that they
- ----
are not exclusive, and thereby contemplate that contracts may be entered into
between the Indemnitors and the members of their Boards of Directors
<PAGE>
and their executive officers with respect to indemnification of such directors
and their executive officers; and
WHEREAS, this Agreement is being entered into as part of Indemnitee's total
compensation for serving as a director and/or an executive officer, as the case
may be;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Indemnitors jointly and severally on the one hand and
Indemnitee on the other do hereby covenant and agree as follows:
SECTION 1. Service by Indemnitee.
---------------------
Indemnitee agrees to serve as director of the Indemnitors and/or executive
officer of the Indemnitors if so designated by the Indemnitors and appointed by
the respective Boards of Directors, and agrees to the indemnification provisions
provided for herein. Indemnitee may at any time and for any reason resign from
such position (subject to any other contractual obligation or other obligation
imposed by operation of law), in which event the Indemnitors shall have no
obligation under this Agreement to continue Indemnitee in any such position.
SECTION 2. Indemnification.
---------------
The Indemnitors shall indemnify Indemnitee to the fullest extent permitted
by applicable law in effect on the date hereof, notwithstanding that such
indemnification is not specifically authorized by this Agreement, the
Certificate, the Bylaws, the Act or otherwise. In the event of any change,
after the date of this Agreement, in any applicable law, statute or rule
regarding the right of a Delaware corporation to indemnify a member of its board
of directors or an officer, such changes, to the extent that they would expand
Indemnitee's rights hereunder, shall be within the scope of Indemnitee's rights
and the Indemnitors's obligations hereunder, and, to the extent that they would
narrow Indemnitee's rights hereunder, shall be excluded from this Agreement;
provided, however, that any change that is required by applicable laws, statutes
- -------- -------
or rules to be applied to this Agreement shall be so applied regardless of
whether the effect of such change is to narrow Indemnitee's rights hereunder.
Without diminishing the scope of the indemnification provided by this Section 2,
the rights of indemnification of Indemnitee provided hereunder shall include
indemnification in respect of Motors and Gears, Inc.'s proposed $170,000,000
Series A Senior Note exchange offer pursuant to that certain Offering
Memorandum, dated November 1, 1996, and shall not be limited to those rights set
forth hereinafter, except to the extent expressly prohibited by applicable law.
-2-
<PAGE>
SECTION 3. Action or Proceeding Other Than an Action by or in the Right of
---------------------------------------------------------------
the Indemnitors.
---------------
Indemnitee shall be entitled to the indemnification rights provided in this
Section 3 if he is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative in nature, other than an action by or
in the right of the Indemnitors, by reason of the fact that he is or was a
director, officer, employee, agent or fiduciary of the Indemnitors or is or was
serving at the request of the Indemnitors as a director, officer, employee,
agent, partner, trustee or fiduciary of any other entity, or by reason of
anything done or not done by him in any such capacity. Pursuant to this Section
3, Indemnitee shall be indemnified against reasonable costs and expenses
(including, but not limited to, counsel fees, costs, judgments, penalties,
fines, ERISA excise taxes, and amounts paid in settlement) (collectively,
"Damages") actually and reasonably incurred by him in connection with such
- --------
action, suit or proceeding (including, but not limited to, the investigation,
defense or appeal thereof), if, in the case of conduct in his official capacity
with the corporation, he acted in good faith and in the Indemnitors's best
interests, and in all other cases, he acted in good faith and was at least not
opposed to the Indemnitors's best interests, and with respect to any criminal
action or proceeding had no reasonable cause to believe his conduct was
unlawful, except that no indemnification shall be made in respect of any claim,
issue or matter as to which Indemnitee shall have been finally adjudged to be
liable for (i) negligence or misconduct in the performance of his duty to any of
the Indemnitors unless and only to the extent that the court in which such
action or suit was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnity for such expenses as such court shall deem proper or (ii)
the indemnification does not relate to any liability arising under Section 16(b)
of the Securities Exchange Act of 1934, as amended, or any of the rules or
regulations promulgated thereunder. Notwithstanding the foregoing, the
Indemnitors shall be required to indemnify an officer or director in connection
with an action, suit or proceeding initiated by such person only if such action,
suit or proceeding was authorized by the Board or a committee thereof. No
indemnity pursuant to this Agreement shall be provided by the Indemnitors for
Damages that have been paid directly to Indemnitee by an insurance carrier under
a policy of directors' and officers' liability insurance maintained by the
Indemnitors.
SECTION 4. Actions by or in the Right of the Indemnitors.
---------------------------------------------
Indemnitee shall be entitled to the indemnification rights provided in this
Section 4 if he is or was made a party or is threatened to be made a party to
any threatened, pending or completed action, suit, or proceeding, whether civil,
criminal, administrative or investigative brought by or in the right of the
Indemnitors to procure a judgment in their favor by reason of the fact that he
is or was a director, officer, employee, agent or fiduciary of the Indemnitors
or is or was serving at the request of the Indemnitors as a director, officer,
employee, agent, partner, trustee or fiduciary of any other entity by reason of
anything done
-3-
<PAGE>
or not done by him in any such capacity. Pursuant to this Section 4, Indemnitee
shall be indemnified against Damages (as defined in Section 3 of Agreement)
actually and reasonably incurred by him in connection with such action or suit
(including, but not limited to the investigation, defense, settlement or appeal
thereof) if, in the case of conduct in his official capacity with the
corporation, he acted in good faith and in the Indemnitors's best interests, and
in all other cases, he acted in good faith and was at least not opposed to the
Indemnitors's best interests, except that no indemnification shall be made in
respect of any claim, issue or matter as to which Indemnitee shall have been
finally adjudged to be liable for (i) negligence or misconduct in the
performance of his duty to any of the Indemnitors unless and only to the extent
that the court in which such action or suit was brought, or any other court of
competent jurisdiction, shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity for such expenses as
such court shall deem proper or (ii) the indemnification does not relate to any
liability arising under Section 16(b) of the Securities Exchange Act of 1934, as
amended, or any of the rules or regulations promulgated thereunder.
Notwithstanding the foregoing, the Indemnitors shall be required to indemnify an
officer or director in connection with an action, suit or proceeding initiated
by such person only if such action, suit or proceeding was authorized by the
Board or a committee thereof. No indemnity pursuant to this Agreement shall be
provided by the Indemnitors for Damages that have been paid directly to
Indemnitee by an insurance carrier under a policy of directors' and officers'
liability insurance maintained by the Indemnitors.
SECTION 5. Indemnification for Costs, Charges and Expenses of Successful
-------------------------------------------------------------
Party.
-----
Notwithstanding the other provisions of this Agreement, to the extent that
Indemnitee has served as a witness on behalf of the Indemnitors or has been
successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any action, suit or
proceeding referred to in Section 3 and Section 4 hereof, or in defense of any
claim, issue or matter therein, shall be indemnified against all reasonable
costs, charges, and expenses (including counsel fees) actually and reasonably
incurred by him or on his behalf in connection therewith.
SECTION 6. Partial Indemnification
-----------------------
If Indemnitee is only partially successful in the defense, investigation,
settlement or appeal of any action, suit, investigation or proceeding described
in Section 3 or Section 4 hereof, and as a result is not entitled under Section
5 hereof to indemnification by the Indemnitors for the total amount of
reasonable Damages actually and reasonably incurred by him, the Indemnitors
shall nevertheless indemnify Indemnitee, as a matter of right pursuant to
Section 5 hereof, to the extent Indemnitee has been partially successful.
-4-
<PAGE>
SECTION 7. Determination of Entitlement to Indemnification.
-----------------------------------------------
Upon written request by Indemnitee for indemnification pursuant to Section
3 or Section 4 hereof, the entitlement of Indemnitee to indemnification pursuant
to the terms of this Agreement shall be determined by the following person or
persons who shall be empowered to make such determination: (a) the Boards of
Directors of the Indemnitors by a majority vote of a quorum consisting of
Disinterested Directors (as hereinafter defined); or (b) if such a quorum is not
obtainable or, even if obtainable, if the Board of Directors by the majority
vote of Disinterested Directors so directs, by Independent Counsel (as
hereinafter defined) in a written opinion to the Board of Directors, a copy of
which shall be delivered to Indemnitee; or (c) by the stockholders, but shares
owned by or voted under the control of directors, including the Indemnitee, who
are at the time parties to the proceeding may not be voted on the determination.
Such Independent Counsel shall be selected by the Board of Directors and
approved by Indemnitee. Upon failure of the Board of Directors to so select
such Independent Counsel or upon failure of Indemnitee to so approve, such
Independent Counsel shall be selected by the Chancellor of the State of Delaware
or such other person as the Chancellor shall designate to make such selection.
Such determination of entitlement to indemnification shall be made no later than
sixty (60) days after receipt by the Indemnitors of a written request for
indemnification. Such request shall include documentation or information which
is necessary for such determination and which is reasonably available to
Indemnitee. Any Damages incurred by Indemnitee in connection with his request
for indemnification hereunder shall be borne by the Indemnitors. The
Indemnitors hereby indemnify and agree to hold Indemnitee harmless therefrom
irrespective of the outcome of the determination of Indemnitee's entitlement to
indemnification. If the person making such determination shall determine that
Indemnitee is entitled to indemnification as to part (but not all) of the
application for indemnification, such person shall reasonably prorate such
partial indemnification among such claims, issues or matters.
SECTION 8. Presumptions and Effect of Certain Proceedings.
----------------------------------------------
The Secretary of the Indemnitors shall, promptly upon receipt of
Indemnitee's request for indemnification, advise in writing its Board of
Directors and the Boards of Directors of the other Indemnitors or such other
person or persons empowered to make the determination as provided in Section 7
that Indemnitee has made such request for indemnification. Indemnitee shall be
presumed to be entitled to indemnification hereunder and the Indemnitors shall
have the burden of proof in the making of any determination contrary to such
presumption. If the person or persons so empowered to make such determination
shall have failed to make the requested indemnification within 60 days after
receipt by the Indemnitors of such request, the requisite determination of
entitlement to indemnification shall be deemed to have been made and Indemnitee
shall be absolutely entitled to such indemnification, absent actual and material
fraud in the request for indemnification. The termination of any action, suit,
investigation or proceeding described in Section 3 or Section 4 hereof by
judgment, order, settlement or conviction, or upon a plea of nolo contendere or
---------------
its equivalent, shall not, of itself (a) create a presumption that Indemnitee
did not act in good faith and in a manner
-5-
<PAGE>
which he reasonably believed to be in or not opposed to the best interests of
the Indemnitors, and, with respect to any criminal action or proceeding, that
Indemnitee had reasonable cause to believe that his conduct was unlawful or (b)
otherwise adversely affect the rights of Indemnitee to indemnification except as
may be provided herein.
SECTION 9. Advancement of Expenses and Costs.
---------------------------------
All reasonable expenses and costs incurred by Indemnitee who is party to a
proceeding (including counsel fees, retainers and advances of disbursements
required of Indemnitee) (collectively, the "Expense Advance") shall be paid by
---------------
the Indemnitors in advance of the final disposition of such action, suit or
proceeding at the request of Indemnitee within twenty (20) days after the
receipt by the Indemnitors of a statement or statements from Indemnitee
requesting such advance or advances from time to time. Such statement or
statements shall reasonably evidence the expenses and costs incurred by him in
connection therewith. The Indemnitors's obligation to provide an Expense
Advance is subject to the following conditions: (i) if the proceeding arose in
connection with Indemnitee's service as a director and/or executive officer of
the Indemnitors (and not in any other capacity in which Indemnitee rendered
service, including service to any related company), then the Indemnitee or his
representative shall have executed and delivered to the Indemnitors an
undertaking, which need not be secured and shall be accepted without reference
to Indemnitee's financial ability to make repayment, by or on behalf of
Indemnitee to repay all Expense Advance if and to the extent that it shall
ultimately be determined by a final, unappealable decision rendered by a court
having jurisdiction over the parties and the question that Indemnitee is not
entitled to be indemnified for such Expense Advance under this Agreement or
otherwise; (ii) Indemnitee shall give the Indemnitors such information and
cooperation as it may reasonably request and as shall be within Indemnitee's
power; and (iii) Indemnitee shall furnish, upon request by the Indemnitors and
if required under applicable law, a written affirmation of Indemnitee's good
faith belief that any applicable standards of conduct have been met by
Indemnitee. Indemnitee's entitlement to such Expense Advance shall include
those incurred in connection with any proceeding by Indemnitee seeking an
adjudication pursuant to this Agreement. In the event that a claim for an
Expense Advance is made hereunder and is not paid in full within twenty (20)
days after written notice of such claim is delivered to the Indemnitors,
Indemnitee may, but need not, at any time thereafter bring suit against any of
the Indemnitors to recover the unpaid amount of the claim.
SECTION 10. Remedies of Indemnitee in Cases of Determination not to
-------------------------------------------------------
Indemnify or to Advance Expenses.
--------------------------------
In the event that a determination is made that Indemnitee is not entitled
to indemnification hereunder or if payment has not been timely made following a
determination of entitlement to indemnification pursuant to Sections 7 and 8, or
if expenses are not advanced pursuant to Section 9, Indemnitee shall be entitled
to a final adjudication in an appropriate court of the State of Delaware or any
other court of competent jurisdiction of his entitlement to such indemnification
or advance. The Indemnitors shall not oppose
-6-
<PAGE>
Indemnitee's right to seek any such adjudication or any other claim. Such
judicial proceeding shall be made de novo and Indemnitee shall not be prejudiced
-------
by reason of a determination (if so made) that he is not entitled to
indemnification. If a determination is made or deemed to have been made pursuant
to the terms of Section 7 or Section 8 hereof that Indemnitee is entitled to
indemnification, the Indemnitors shall be bound by such determination and is
precluded from asserting that such determination has not been made or that the
procedure by which such determination was made is not valid, binding and
enforceable. The Indemnitors further agree to stipulate in any such court that
the Indemnitors are bound by all the provisions of this Agreement and are
precluded from making any assertion to the contrary. If the court shall
determine that Indemnitee is entitled to any indemnification hereunder, the
Indemnitors shall pay all reasonable Damages actually incurred by Indemnitee in
connection with such adjudication (including, but not limited to, any appellate
proceedings).
SECTION 11. Other Rights to Indemnification.
-------------------------------
The indemnification and advancement of expenses (including counsel fees)
and costs provided by this Agreement shall not be deemed exclusive of any other
rights to which Indemnitee may now or in the future be entitled under any
provision of the By-laws, provisions of the Certificate, vote of stockholders or
Disinterested Directors, provision of law or otherwise.
SECTION 12. Counsel Fees and Other Expenses to Enforce Agreement.
----------------------------------------------------
In the event that Indemnitee is subject to or intervenes in any proceeding
in which the validity or enforceability of this Agreement is at issue or seeks
an adjudication or award in arbitration to enforce his rights under, or to
recover damages for breach of, this Agreement, Indemnitee, if he prevails in
whole or in part in such action, shall be entitled to recover from the
Indemnitors, and shall be indemnified by the Indemnitors against, any reasonable
expenses for counsel fees and disbursements actually and reasonably incurred by
him.
SECTION 13. Duration of Agreement.
---------------------
This Agreement shall continue until and terminate upon the later of (a) 10
years after Indemnitee has ceased to occupy any of the positions or have any of
the relationships described in Section 3 or Section 4 of this Agreement or (b)
the final termination of all pending or threatened actions, suits, proceedings
or investigations with respect to Indemnitee. This Agreement shall be binding
upon the Indemnitors and their successors and assigns and shall inure to the
benefit of Indemnitee and his spouse, assigns, heirs, devisees, executors,
administrators or other legal representatives.
-7-
<PAGE>
SECTION 14. Severability.
------------
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including without limitation, all portions of any paragraphs of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby and (b) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, all portions of any
paragraph of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
SECTION 15. Identical Counterparts.
----------------------
This Agreement may be executed in one or more counterparts, each of which
shall for all purposes be deemed to be an original, but all of which together
shall constitute one and the same Agreement. Only one such counterpart signed
by the party against whom enforceability is sought needs to be produced to
evidence the existence of this Agreement.
SECTION 16. Headings.
--------
The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction thereof.
SECTION 17. Definitions.
-----------
For purposes of this Agreement:
(a) "Disinterested Director" shall mean a director of the Indemnitors who
----------------------
is not or was not a party to the action, suit, investigation or proceeding in
respect of which indemnification is being sought by Indemnitee.
(b) "Independent Counsel" shall mean a law firm or a member of a law firm
-------------------
that neither is presently nor in the past five years has been retained to
represent (i) the Indemnitors or Indemnitee in any matter material to either
such party or (ii) any other party to the action, suit, investigation or
proceeding giving rise to a claim for indemnification hereunder. Notwithstanding
the foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Indemnitors or Indemnitee
in an action to determine Indemnitee's right to indemnification under this
Agreement.
-8-
<PAGE>
SECTION 18. Modification and Waiver.
-----------------------
No supplement, modification or amendment of this Agreement shall be binding
unless executed in writing by both of the parties hereto. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
SECTION 19. Mutual Acknowledgment.
---------------------
The Indemnitors and Indemnitee acknowledge that, in certain instances,
federal law or public policy may override applicable state law and prohibit the
Indemnitors from indemnifying Indemnitee under this Agreement or otherwise. For
example, the Indemnitors and Indemnitee acknowledge that the U.S. Securities and
Exchange Commission (the "SEC") has taken the position that indemnification is
not permissible for liabilities arising under certain federal securities laws,
and federal legislation prohibits indemnification for certain ERISA violations.
Furthermore, Indemnitee understands and acknowledges that the Indemnitors have
undertaken or may be required in the future to undertake with the SEC to submit
the question of indemnification to a court in certain circumstances for a
determination of the Indemnitors's right under public policy to indemnify
Indemnitee.
SECTION 20. Notice by Indemnitee.
--------------------
Indemnitee agrees promptly to notify the Indemnitors in writing upon being
served with any summons, citation, subpoena, complaint, indictment, information
or other document relating to any matter which may be subject to indemnification
covered hereunder, either civil, criminal or investigative.
SECTION 21. Notices.
-------
All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given if (i) delivered by hand
and receipted for by the party to whom said notice or other communication shall
have been directed or if (ii) mailed by certified or registered mail with
postage prepaid on the third business day after the date on which it is so
mailed, to the following addresses:
(a) if to Indemnitee:
c/o The Jordan Company
9 West 57th Street, Suite 4000
New York, NY 10019
-9-
<PAGE>
(b) if to any of the Indemnitors:
c/o Motors and Gears, Inc.
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60154
Attention: President
or to such other address as may have been furnished to Indemnitee by the
Indemnitors or to the Indemnitors by Indemnitee, as the case may be.
SECTION 22. Other Agreements.
----------------
This Agreement restates and supersedes, but does not limit or negate, any
indemnification, rights or interests of Indemnitee under any prior agreements
between the Indemnitors and Indemnitee.
SECTION 23. Governing Law.
-------------
The parties agree that this Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
MOTORS AND GEARS HOLDINGS, INC.
By: /s/ Jonathan F. Boucher
---------------------------------
Name: Jonathan F. Boucher
Title: Vice President
MOTORS AND GEARS, INC.
By: /s/ Jonathan F. Boucher
---------------------------------
Name: Jonathan F. Boucher
Title: Vice President
MOTORS AND GEARS INDUSTRIES, INC.
By: /s/ Jonathan F. Boucher
---------------------------------
Name: Jonathan F. Boucher
Title: Vice President
INDEMNITEE:
/s/ David W. Zalaznick
---------------------------------
Name: David W. Zalaznick
-11-
<PAGE>
EXHIBIT 10.1(d)
INDEMNIFICATION AGREEMENT
-------------------------
THIS INDEMNIFICATION AGREEMENT, dated as of November 7, 1996 ("this
Agreement"), is by and among Motors and Gears Holdings, Inc., a Delaware
- ---------
corporation, Motors and Gears, Inc., a Delaware corporation, Motors and Gears
Industries, Inc., a Delaware corporation, and The New Imperial Electric Company,
a Delaware corporation (all collectively referred to as the "Indemnitors") and
-----------
John W. Jordan II ("Indemnitee").
----------
WITNESSETH
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors, executive officers, or in other
capacities unless they are provided with adequate protection through insurance
and indemnification against inordinate risks of claims and actions against them
arising out of their service to and activities on behalf of the corporation; and
WHEREAS, the current difficulties or virtual impossibility of obtaining
adequate insurance and uncertainties relating to indemnification have increased
the difficulty of attracting and retaining such persons; and
WHEREAS, the Boards of Directors of the Indemnitors have determined that
the inability to attract and retain such persons is detrimental to the best
interests of the Indemnitors's stockholders and that the Indemnitors should act
to assure such persons that there will be increased certainty of such protection
in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Indemnitors
contractually to obligate themselves to indemnify such persons to the fullest
extent permitted by applicable law so that they will serve or continue to serve
the Indemnitors free from undue concern that they will not be so indemnified;
and
WHEREAS, the Certificate of Incorporation (the "Certificate") and the
-----------
Bylaws (the "Bylaws") of each of the Indemnitors provide for the indemnification
------
of the directors, officers, agents and employees of the Indemnitors to the full
extent permitted by the General Corporation Law of the State of Delaware (the
"Act"). The Certificate, the Bylaws and the Act specifically provide that they
- ----
are not exclusive, and thereby contemplate that contracts may be entered into
between the Indemnitors and the members of their Boards of Directors
<PAGE>
and their executive officers with respect to indemnification of such directors
and their executive officers; and
WHEREAS, this Agreement is being entered into as part of Indemnitee's total
compensation for serving as a director and/or an executive officer, as the case
may be;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Indemnitors jointly and severally on the one hand and
Indemnitee on the other do hereby covenant and agree as follows:
SECTION 1. Service by Indemnitee.
---------------------
Indemnitee agrees to serve as director of the Indemnitors and/or executive
officer of the Indemnitors if so designated by the Indemnitors and appointed by
the respective Boards of Directors, and agrees to the indemnification provisions
provided for herein. Indemnitee may at any time and for any reason resign from
such position (subject to any other contractual obligation or other obligation
imposed by operation of law), in which event the Indemnitors shall have no
obligation under this Agreement to continue Indemnitee in any such position.
SECTION 2. Indemnification.
---------------
The Indemnitors shall indemnify Indemnitee to the fullest extent permitted
by applicable law in effect on the date hereof, notwithstanding that such
indemnification is not specifically authorized by this Agreement, the
Certificate, the Bylaws, the Act or otherwise. In the event of any change,
after the date of this Agreement, in any applicable law, statute or rule
regarding the right of a Delaware corporation to indemnify a member of its board
of directors or an officer, such changes, to the extent that they would expand
Indemnitee's rights hereunder, shall be within the scope of Indemnitee's rights
and the Indemnitors's obligations hereunder, and, to the extent that they would
narrow Indemnitee's rights hereunder, shall be excluded from this Agreement;
provided, however, that any change that is required by applicable laws, statutes
- -------- -------
or rules to be applied to this Agreement shall be so applied regardless of
whether the effect of such change is to narrow Indemnitee's rights hereunder.
Without diminishing the scope of the indemnification provided by this Section 2,
the rights of indemnification of Indemnitee provided hereunder shall include
indemnification in respect of Motors and Gears, Inc.'s proposed $170,000,000
Series A Senior Note exchange offer pursuant to that certain Offering
Memorandum, dated November 1, 1996, and shall not be limited to those rights set
forth hereinafter, except to the extent expressly prohibited by applicable law.
<PAGE>
SECTION 3. Action or Proceeding Other Than an Action by or in the Right of
---------------------------------------------------------------
the Indemnitors.
---------------
Indemnitee shall be entitled to the indemnification rights provided in this
Section 3 if he is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative in nature, other than an action by or
in the right of the Indemnitors, by reason of the fact that he is or was a
director, officer, employee, agent or fiduciary of the Indemnitors or is or was
serving at the request of the Indemnitors as a director, officer, employee,
agent, partner, trustee or fiduciary of any other entity, or by reason of
anything done or not done by him in any such capacity. Pursuant to this Section
3, Indemnitee shall be indemnified against reasonable costs and expenses
(including, but not limited to, counsel fees, costs, judgments, penalties,
fines, ERISA excise taxes, and amounts paid in settlement) (collectively,
"Damages") actually and reasonably incurred by him in connection with such
- --------
action, suit or proceeding (including, but not limited to, the investigation,
defense or appeal thereof), if, in the case of conduct in his official capacity
with the corporation, he acted in good faith and in the Indemnitors's best
interests, and in all other cases, he acted in good faith and was at least not
opposed to the Indemnitors's best interests, and with respect to any criminal
action or proceeding had no reasonable cause to believe his conduct was
unlawful, except that no indemnification shall be made in respect of any claim,
issue or matter as to which Indemnitee shall have been finally adjudged to be
liable for (i) negligence or misconduct in the performance of his duty to any of
the Indemnitors unless and only to the extent that the court in which such
action or suit was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnity for such expenses as such court shall deem proper or (ii)
the indemnification does not relate to any liability arising under Section 16(b)
of the Securities Exchange Act of 1934, as amended, or any of the rules or
regulations promulgated thereunder. Notwithstanding the foregoing, the
Indemnitors shall be required to indemnify an officer or director in connection
with an action, suit or proceeding initiated by such person only if such action,
suit or proceeding was authorized by the Board or a committee thereof. No
indemnity pursuant to this Agreement shall be provided by the Indemnitors for
Damages that have been paid directly to Indemnitee by an insurance carrier under
a policy of directors' and officers' liability insurance maintained by the
Indemnitors.
SECTION 4. Actions by or in the Right of the Indemnitors.
---------------------------------------------
Indemnitee shall be entitled to the indemnification rights provided in this
Section 4 if he is or was made a party or is threatened to be made a party to
any threatened, pending or completed action, suit, or proceeding, whether civil,
criminal, administrative or investigative brought by or in the right of the
Indemnitors to procure a judgment in their favor by reason of the fact that he
is or was a director, officer, employee, agent or fiduciary of the Indemnitors
or is or was serving at the request of the Indemnitors as a director, officer,
employee, agent, partner, trustee or fiduciary of any other entity by reason of
anything done
-3-
<PAGE>
or not done by him in any such capacity. Pursuant to this Section 4, Indemnitee
shall be indemnified against Damages (as defined in Section 3 of Agreement)
actually and reasonably incurred by him in connection with such action or suit
(including, but not limited to the investigation, defense, settlement or appeal
thereof) if, in the case of conduct in his official capacity with the
corporation, he acted in good faith and in the Indemnitors's best interests, and
in all other cases, he acted in good faith and was at least not opposed to the
Indemnitors's best interests, except that no indemnification shall be made in
respect of any claim, issue or matter as to which Indemnitee shall have been
finally adjudged to be liable for (i) negligence or misconduct in the
performance of his duty to any of the Indemnitors unless and only to the extent
that the court in which such action or suit was brought, or any other court of
competent jurisdiction, shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity for such expenses as
such court shall deem proper or (ii) the indemnification does not relate to any
liability arising under Section 16(b) of the Securities Exchange Act of 1934, as
amended, or any of the rules or regulations promulgated thereunder.
Notwithstanding the foregoing, the Indemnitors shall be required to indemnify an
officer or director in connection with an action, suit or proceeding initiated
by such person only if such action, suit or proceeding was authorized by the
Board or a committee thereof. No indemnity pursuant to this Agreement shall be
provided by the Indemnitors for Damages that have been paid directly to
Indemnitee by an insurance carrier under a policy of directors' and officers'
liability insurance maintained by the Indemnitors.
SECTION 5. Indemnification for Costs, Charges and Expenses of Successful
-------------------------------------------------------------
Party.
-----
Notwithstanding the other provisions of this Agreement, to the extent that
Indemnitee has served as a witness on behalf of the Indemnitors or has been
successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any action, suit or
proceeding referred to in Section 3 and Section 4 hereof, or in defense of any
claim, issue or matter therein, shall be indemnified against all reasonable
costs, charges, and expenses (including counsel fees) actually and reasonably
incurred by him or on his behalf in connection therewith.
SECTION 6. Partial Indemnification
-----------------------
If Indemnitee is only partially successful in the defense, investigation,
settlement or appeal of any action, suit, investigation or proceeding described
in Section 3 or Section 4 hereof, and as a result is not entitled under Section
5 hereof to indemnification by the Indemnitors for the total amount of
reasonable Damages actually and reasonably incurred by him, the Indemnitors
shall nevertheless indemnify Indemnitee, as a matter of right pursuant to
Section 5 hereof, to the extent Indemnitee has been partially successful.
-4-
<PAGE>
SECTION 7. Determination of Entitlement to Indemnification.
-----------------------------------------------
Upon written request by Indemnitee for indemnification pursuant to Section
3 or Section 4 hereof, the entitlement of Indemnitee to indemnification pursuant
to the terms of this Agreement shall be determined by the following person or
persons who shall be empowered to make such determination: (a) the Boards of
Directors of the Indemnitors by a majority vote of a quorum consisting of
Disinterested Directors (as hereinafter defined); or (b) if such a quorum is not
obtainable or, even if obtainable, if the Board of Directors by the majority
vote of Disinterested Directors so directs, by Independent Counsel (as
hereinafter defined) in a written opinion to the Board of Directors, a copy of
which shall be delivered to Indemnitee; or (c) by the stockholders, but shares
owned by or voted under the control of directors, including the Indemnitee, who
are at the time parties to the proceeding may not be voted on the determination.
Such Independent Counsel shall be selected by the Board of Directors and
approved by Indemnitee. Upon failure of the Board of Directors to so select
such Independent Counsel or upon failure of Indemnitee to so approve, such
Independent Counsel shall be selected by the Chancellor of the State of Delaware
or such other person as the Chancellor shall designate to make such selection.
Such determination of entitlement to indemnification shall be made no later than
sixty (60) days after receipt by the Indemnitors of a written request for
indemnification. Such request shall include documentation or information which
is necessary for such determination and which is reasonably available to
Indemnitee. Any Damages incurred by Indemnitee in connection with his request
for indemnification hereunder shall be borne by the Indemnitors. The
Indemnitors hereby indemnify and agree to hold Indemnitee harmless therefrom
irrespective of the outcome of the determination of Indemnitee's entitlement to
indemnification. If the person making such determination shall determine that
Indemnitee is entitled to indemnification as to part (but not all) of the
application for indemnification, such person shall reasonably prorate such
partial indemnification among such claims, issues or matters.
SECTION 8. Presumptions and Effect of Certain Proceedings.
----------------------------------------------
The Secretary of the Indemnitors shall, promptly upon receipt of
Indemnitee's request for indemnification, advise in writing its Board of
Directors and the Boards of Directors of the other Indemnitors or such other
person or persons empowered to make the determination as provided in Section 7
that Indemnitee has made such request for indemnification. Indemnitee shall be
presumed to be entitled to indemnification hereunder and the Indemnitors shall
have the burden of proof in the making of any determination contrary to such
presumption. If the person or persons so empowered to make such determination
shall have failed to make the requested indemnification within 60 days after
receipt by the Indemnitors of such request, the requisite determination of
entitlement to indemnification shall be deemed to have been made and Indemnitee
shall be absolutely entitled to such indemnification, absent actual and material
fraud in the request for indemnification. The termination of any action, suit,
investigation or proceeding described in Section 3 or Section 4 hereof by
judgment, order, settlement or conviction, or upon a plea of nolo contendere or
---------------
its equivalent, shall not, of itself (a) create a presumption that Indemnitee
did not act in good faith and in a manner
-5-
<PAGE>
which he reasonably believed to be in or not opposed to the best interests of
the Indemnitors, and, with respect to any criminal action or proceeding, that
Indemnitee had reasonable cause to believe that his conduct was unlawful or (b)
otherwise adversely affect the rights of Indemnitee to indemnification except as
may be provided herein.
SECTION 9. Advancement of Expenses and Costs.
---------------------------------
All reasonable expenses and costs incurred by Indemnitee who is party to a
proceeding (including counsel fees, retainers and advances of disbursements
required of Indemnitee) (collectively, the "Expense Advance") shall be paid by
---------------
the Indemnitors in advance of the final disposition of such action, suit or
proceeding at the request of Indemnitee within twenty (20) days after the
receipt by the Indemnitors of a statement or statements from Indemnitee
requesting such advance or advances from time to time. Such statement or
statements shall reasonably evidence the expenses and costs incurred by him in
connection therewith. The Indemnitors's obligation to provide an Expense
Advance is subject to the following conditions: (i) if the proceeding arose in
connection with Indemnitee's service as a director and/or executive officer of
the Indemnitors (and not in any other capacity in which Indemnitee rendered
service, including service to any related company), then the Indemnitee or his
representative shall have executed and delivered to the Indemnitors an
undertaking, which need not be secured and shall be accepted without reference
to Indemnitee's financial ability to make repayment, by or on behalf of
Indemnitee to repay all Expense Advance if and to the extent that it shall
ultimately be determined by a final, unappealable decision rendered by a court
having jurisdiction over the parties and the question that Indemnitee is not
entitled to be indemnified for such Expense Advance under this Agreement or
otherwise; (ii) Indemnitee shall give the Indemnitors such information and
cooperation as it may reasonably request and as shall be within Indemnitee's
power; and (iii) Indemnitee shall furnish, upon request by the Indemnitors and
if required under applicable law, a written affirmation of Indemnitee's good
faith belief that any applicable standards of conduct have been met by
Indemnitee. Indemnitee's entitlement to such Expense Advance shall include
those incurred in connection with any proceeding by Indemnitee seeking an
adjudication pursuant to this Agreement. In the event that a claim for an
Expense Advance is made hereunder and is not paid in full within twenty (20)
days after written notice of such claim is delivered to the Indemnitors,
Indemnitee may, but need not, at any time thereafter bring suit against any of
the Indemnitors to recover the unpaid amount of the claim.
SECTION 10. Remedies of Indemnitee in Cases of Determination not to
-------------------------------------------------------
Indemnify or to Advance Expenses.
--------------------------------
In the event that a determination is made that Indemnitee is not entitled
to indemnification hereunder or if payment has not been timely made following a
determination of entitlement to indemnification pursuant to Sections 7 and 8, or
if expenses are not advanced pursuant to Section 9, Indemnitee shall be entitled
to a final adjudication in an appropriate court of the State of Delaware or any
other court of competent jurisdiction of his entitlement to such indemnification
or advance. The Indemnitors shall not oppose
-6-
<PAGE>
Indemnitee's right to seek any such adjudication or any other claim. Such
judicial proceeding shall be made de novo and Indemnitee shall not be prejudiced
-------
by reason of a determination (if so made) that he is not entitled to
indemnification. If a determination is made or deemed to have been made pursuant
to the terms of Section 7 or Section 8 hereof that Indemnitee is entitled to
indemnification, the Indemnitors shall be bound by such determination and is
precluded from asserting that such determination has not been made or that the
procedure by which such determination was made is not valid, binding and
enforceable. The Indemnitors further agree to stipulate in any such court that
the Indemnitors are bound by all the provisions of this Agreement and are
precluded from making any assertion to the contrary. If the court shall
determine that Indemnitee is entitled to any indemnification hereunder, the
Indemnitors shall pay all reasonable Damages actually incurred by Indemnitee in
connection with such adjudication (including, but not limited to, any appellate
proceedings).
SECTION 11. Other Rights to Indemnification.
-------------------------------
The indemnification and advancement of expenses (including counsel fees)
and costs provided by this Agreement shall not be deemed exclusive of any other
rights to which Indemnitee may now or in the future be entitled under any
provision of the By-laws, provisions of the Certificate, vote of stockholders or
Disinterested Directors, provision of law or otherwise.
SECTION 12. Counsel Fees and Other Expenses to Enforce Agreement.
----------------------------------------------------
In the event that Indemnitee is subject to or intervenes in any proceeding
in which the validity or enforceability of this Agreement is at issue or seeks
an adjudication or award in arbitration to enforce his rights under, or to
recover damages for breach of, this Agreement, Indemnitee, if he prevails in
whole or in part in such action, shall be entitled to recover from the
Indemnitors, and shall be indemnified by the Indemnitors against, any reasonable
expenses for counsel fees and disbursements actually and reasonably incurred by
him.
SECTION 13. Duration of Agreement.
---------------------
This Agreement shall continue until and terminate upon the later of (a) 10
years after Indemnitee has ceased to occupy any of the positions or have any of
the relationships described in Section 3 or Section 4 of this Agreement or (b)
the final termination of all pending or threatened actions, suits, proceedings
or investigations with respect to Indemnitee. This Agreement shall be binding
upon the Indemnitors and their successors and assigns and shall inure to the
benefit of Indemnitee and his spouse, assigns, heirs, devisees, executors,
administrators or other legal representatives.
-7-
<PAGE>
SECTION 14. Severability.
------------
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including without limitation, all portions of any paragraphs of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby and (b) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, all portions of any
paragraph of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
SECTION 15. Identical Counterparts.
----------------------
This Agreement may be executed in one or more counterparts, each of which
shall for all purposes be deemed to be an original, but all of which together
shall constitute one and the same Agreement. Only one such counterpart signed
by the party against whom enforceability is sought needs to be produced to
evidence the existence of this Agreement.
SECTION 16. Headings.
--------
The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction thereof.
SECTION 17. Definitions.
-----------
For purposes of this Agreement:
(a) "Disinterested Director" shall mean a director of the Indemnitors who
----------------------
is not or was not a party to the action, suit, investigation or proceeding in
respect of which indemnification is being sought by Indemnitee.
(b) "Independent Counsel" shall mean a law firm or a member of a law firm
-------------------
that neither is presently nor in the past five years has been retained to
represent (i) the Indemnitors or Indemnitee in any matter material to either
such party or (ii) any other party to the action, suit, investigation or
proceeding giving rise to a claim for indemnification hereunder. Notwithstanding
the foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Indemnitors or Indemnitee
in an action to determine Indemnitee's right to indemnification under this
Agreement.
-8-
<PAGE>
SECTION 18. Modification and Waiver.
-----------------------
No supplement, modification or amendment of this Agreement shall be binding
unless executed in writing by both of the parties hereto. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
SECTION 19. Mutual Acknowledgment.
---------------------
The Indemnitors and Indemnitee acknowledge that, in certain instances,
federal law or public policy may override applicable state law and prohibit the
Indemnitors from indemnifying Indemnitee under this Agreement or otherwise. For
example, the Indemnitors and Indemnitee acknowledge that the U.S. Securities and
Exchange Commission (the "SEC") has taken the position that indemnification is
not permissible for liabilities arising under certain federal securities laws,
and federal legislation prohibits indemnification for certain ERISA violations.
Furthermore, Indemnitee understands and acknowledges that the Indemnitors have
undertaken or may be required in the future to undertake with the SEC to submit
the question of indemnification to a court in certain circumstances for a
determination of the Indemnitors's right under public policy to indemnify
Indemnitee.
SECTION 20. Notice by Indemnitee.
--------------------
Indemnitee agrees promptly to notify the Indemnitors in writing upon being
served with any summons, citation, subpoena, complaint, indictment, information
or other document relating to any matter which may be subject to indemnification
covered hereunder, either civil, criminal or investigative.
SECTION 21. Notices.
-------
All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given if (i) delivered by hand
and receipted for by the party to whom said notice or other communication shall
have been directed or if (ii) mailed by certified or registered mail with
postage prepaid on the third business day after the date on which it is so
mailed, to the following addresses:
(a) if to Indemnitee:
c/o The Jordan Company
9 West 57th Street, Suite 4000
New York, NY 10019
-9-
<PAGE>
(b) if to any of the Indemnitors:
c/o Motors and Gears, Inc.
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60154
Attention: President
or to such other address as may have been furnished to Indemnitee by the
Indemnitors or to the Indemnitors by Indemnitee, as the case may be.
SECTION 22. Other Agreements.
----------------
This Agreement restates and supersedes, but does not limit or negate, any
indemnification, rights or interests of Indemnitee under any prior agreements
between the Indemnitors and Indemnitee.
SECTION 23. Governing Law.
-------------
The parties agree that this Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
MOTORS AND GEARS HOLDINGS, INC.
By: /s/ Jonathan F. Boucher
----------------------------------
Name: Jonathan F. Boucher
Title: Vice President
MOTORS AND GEARS, INC.
By: /s/ Jonathan F. Boucher
----------------------------------
Name: Jonathan F. Boucher
Title: Vice President
MOTORS AND GEARS INDUSTRIES, INC.
By: /s/ Jonathan F. Boucher
----------------------------------
Name: Jonathan F. Boucher
Title: Vice President
-11-
<PAGE>
THE NEW IMPERIAL ELECTRIC COMPANY
By: /s/ Jonathan F. Boucher
----------------------------------
Name: Jonathan F. Boucher
Title: Vice President
INDEMNITEE:
/s/ John W. Jordan II
----------------------------------
Name: John W. Jordan II
-12-
<PAGE>
EXHIBIT 10.1(e)
INDEMNIFICATION AGREEMENT
-------------------------
THIS INDEMNIFICATION AGREEMENT, dated as of November 7, 1996 ("this
Agreement"), is by and among Motors and Gears Holdings, Inc., a Delaware
- ---------
corporation, Motors and Gears, Inc., a Delaware corporation, Motors and Gears
Industries, Inc., a Delaware corporation, The New Imperial Electric Company, a
Delaware corporation, New Gear Reseach, Inc., a Delaware corporation, and The
New Scott Motors Company, a Delaware corporation (all collectively referred to
as the "Indemnitors") and Ron A. Sansom ("Indemnitee").
----------- ----------
WITNESSETH
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors, executive officers, or in other
capacities unless they are provided with adequate protection through insurance
and indemnification against inordinate risks of claims and actions against them
arising out of their service to and activities on behalf of the corporation; and
WHEREAS, the current difficulties or virtual impossibility of obtaining
adequate insurance and uncertainties relating to indemnification have increased
the difficulty of attracting and retaining such persons; and
WHEREAS, the Boards of Directors of the Indemnitors have determined that
the inability to attract and retain such persons is detrimental to the best
interests of the Indemnitors's stockholders and that the Indemnitors should act
to assure such persons that there will be increased certainty of such protection
in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Indemnitors
contractually to obligate themselves to indemnify such persons to the fullest
extent permitted by applicable law so that they will serve or continue to serve
the Indemnitors free from undue concern that they will not be so indemnified;
and
WHEREAS, the Certificate of Incorporation (the "Certificate") and the
-----------
Bylaws (the "Bylaws") of each of the Indemnitors provide for the indemnification
------
of the directors, officers, agents and employees of the Indemnitors to the full
extent permitted by the General Corporation Law of the State of Delaware (the
"Act"). The Certificate, the Bylaws and the Act specifically provide that they
---
are not exclusive, and thereby contemplate that contracts
<PAGE>
may be entered into between the Indemnitors and the members of their Boards of
Directors and their executive officers with respect to indemnification of such
directors and their executive officers; and
WHEREAS, this Agreement is being entered into as part of Indemnitee's total
compensation for serving as a director and/or an executive officer, as the case
may be;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Indemnitors jointly and severally on the one hand and
Indemnitee on the other do hereby covenant and agree as follows:
SECTION 1. Service by Indemnitee.
---------------------
Indemnitee agrees to serve as director of the Indemnitors and/or executive
officer of the Indemnitors if so designated by the Indemnitors and appointed by
the respective Boards of Directors, and agrees to the indemnification provisions
provided for herein. Indemnitee may at any time and for any reason resign from
such position (subject to any other contractual obligation or other obligation
imposed by operation of law), in which event the Indemnitors shall have no
obligation under this Agreement to continue Indemnitee in any such position.
SECTION 2. Indemnification.
---------------
The Indemnitors shall indemnify Indemnitee to the fullest extent permitted
by applicable law in effect on the date hereof, notwithstanding that such
indemnification is not specifically authorized by this Agreement, the
Certificate, the Bylaws, the Act or otherwise. In the event of any change,
after the date of this Agreement, in any applicable law, statute or rule
regarding the right of a Delaware corporation to indemnify a member of its board
of directors or an officer, such changes, to the extent that they would expand
Indemnitee's rights hereunder, shall be within the scope of Indemnitee's rights
and the Indemnitors's obligations hereunder, and, to the extent that they would
narrow Indemnitee's rights hereunder, shall be excluded from this Agreement;
provided, however, that any change that is required by applicable laws, statutes
- -------- -------
or rules to be applied to this Agreement shall be so applied regardless of
whether the effect of such change is to narrow Indemnitee's rights hereunder.
Without diminishing the scope of the indemnification provided by this Section 2,
the rights of indemnification of Indemnitee provided hereunder shall include
indemnification in respect of Motors and Gears, Inc.'s proposed $170,000,000
Series A Senior Note exchange offer pursuant to that certain Offering
Memorandum, dated November 1, 1996, and shall not be limited to those rights set
forth hereinafter, except to the extent expressly prohibited by applicable law.
-2-
<PAGE>
SECTION 3. Action or Proceeding Other Than an Action by or in the Right of
---------------------------------------------------------------
the Indemnitors.
---------------
Indemnitee shall be entitled to the indemnification rights provided in this
Section 3 if he is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative in nature, other than an action by or
in the right of the Indemnitors, by reason of the fact that he is or was a
director, officer, employee, agent or fiduciary of the Indemnitors or is or was
serving at the request of the Indemnitors as a director, officer, employee,
agent, partner, trustee or fiduciary of any other entity, or by reason of
anything done or not done by him in any such capacity. Pursuant to this Section
3, Indemnitee shall be indemnified against reasonable costs and expenses
(including, but not limited to, counsel fees, costs, judgments, penalties,
fines, ERISA excise taxes, and amounts paid in settlement) (collectively,
"Damages") actually and reasonably incurred by him in connection with such
- --------
action, suit or proceeding (including, but not limited to, the investigation,
defense or appeal thereof), if, in the case of conduct in his official capacity
with the corporation, he acted in good faith and in the Indemnitors's best
interests, and in all other cases, he acted in good faith and was at least not
opposed to the Indemnitors's best interests, and with respect to any criminal
action or proceeding had no reasonable cause to believe his conduct was
unlawful, except that no indemnification shall be made in respect of any claim,
issue or matter as to which Indemnitee shall have been finally adjudged to be
liable for (i) negligence or misconduct in the performance of his duty to any of
the Indemnitors unless and only to the extent that the court in which such
action or suit was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnity for such expenses as such court shall deem proper or (ii)
the indemnification does not relate to any liability arising under Section 16(b)
of the Securities Exchange Act of 1934, as amended, or any of the rules or
regulations promulgated thereunder. Notwithstanding the foregoing, the
Indemnitors shall be required to indemnify an officer or director in connection
with an action, suit or proceeding initiated by such person only if such action,
suit or proceeding was authorized by the Board or a committee thereof. No
indemnity pursuant to this Agreement shall be provided by the Indemnitors for
Damages that have been paid directly to Indemnitee by an insurance carrier under
a policy of directors' and officers' liability insurance maintained by the
Indemnitors.
SECTION 4. Actions by or in the Right of the Indemnitors.
---------------------------------------------
Indemnitee shall be entitled to the indemnification rights provided in this
Section 4 if he is or was made a party or is threatened to be made a party to
any threatened, pending or completed action, suit, or proceeding, whether civil,
criminal, administrative or investigative brought by or in the right of the
Indemnitors to procure a judgment in their favor by reason of the fact that he
is or was a director, officer, employee, agent or fiduciary of the Indemnitors
or is or was serving at the request of the Indemnitors as a director, officer,
employee, agent, partner, trustee or fiduciary of any other entity by reason of
anything done
-3-
<PAGE>
or not done by him in any such capacity. Pursuant to this Section 4, Indemnitee
shall be indemnified against Damages (as defined in Section 3 of Agreement)
actually and reasonably incurred by him in connection with such action or suit
(including, but not limited to the investigation, defense, settlement or appeal
thereof) if, in the case of conduct in his official capacity with the
corporation, he acted in good faith and in the Indemnitors's best interests, and
in all other cases, he acted in good faith and was at least not opposed to the
Indemnitors's best interests, except that no indemnification shall be made in
respect of any claim, issue or matter as to which Indemnitee shall have been
finally adjudged to be liable for (i) negligence or misconduct in the
performance of his duty to any of the Indemnitors unless and only to the extent
that the court in which such action or suit was brought, or any other court of
competent jurisdiction, shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity for such expenses as
such court shall deem proper or (ii) the indemnification does not relate to any
liability arising under Section 16(b) of the Securities Exchange Act of 1934, as
amended, or any of the rules or regulations promulgated thereunder.
Notwithstanding the foregoing, the Indemnitors shall be required to indemnify an
officer or director in connection with an action, suit or proceeding initiated
by such person only if such action, suit or proceeding was authorized by the
Board or a committee thereof. No indemnity pursuant to this Agreement shall be
provided by the Indemnitors for Damages that have been paid directly to
Indemnitee by an insurance carrier under a policy of directors' and officers'
liability insurance maintained by the Indemnitors.
SECTION 5. Indemnification for Costs, Charges and Expenses of Successful
-------------------------------------------------------------
Party.
-----
Notwithstanding the other provisions of this Agreement, to the extent that
Indemnitee has served as a witness on behalf of the Indemnitors or has been
successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any action, suit or
proceeding referred to in Section 3 and Section 4 hereof, or in defense of any
claim, issue or matter therein, shall be indemnified against all reasonable
costs, charges, and expenses (including counsel fees) actually and reasonably
incurred by him or on his behalf in connection therewith.
SECTION 6. Partial Indemnification
-----------------------
If Indemnitee is only partially successful in the defense, investigation,
settlement or appeal of any action, suit, investigation or proceeding described
in Section 3 or Section 4 hereof, and as a result is not entitled under Section
5 hereof to indemnification by the Indemnitors for the total amount of
reasonable Damages actually and reasonably incurred by him, the Indemnitors
shall nevertheless indemnify Indemnitee, as a matter of right pursuant to
Section 5 hereof, to the extent Indemnitee has been partially successful.
-4-
<PAGE>
SECTION 7. Determination of Entitlement to Indemnification.
-----------------------------------------------
Upon written request by Indemnitee for indemnification pursuant to Section
3 or Section 4 hereof, the entitlement of Indemnitee to indemnification pursuant
to the terms of this Agreement shall be determined by the following person or
persons who shall be empowered to make such determination: (a) the Boards of
Directors of the Indemnitors by a majority vote of a quorum consisting of
Disinterested Directors (as hereinafter defined); or (b) if such a quorum is not
obtainable or, even if obtainable, if the Board of Directors by the majority
vote of Disinterested Directors so directs, by Independent Counsel (as
hereinafter defined) in a written opinion to the Board of Directors, a copy of
which shall be delivered to Indemnitee; or (c) by the stockholders, but shares
owned by or voted under the control of directors, including the Indemnitee, who
are at the time parties to the proceeding may not be voted on the determination.
Such Independent Counsel shall be selected by the Board of Directors and
approved by Indemnitee. Upon failure of the Board of Directors to so select
such Independent Counsel or upon failure of Indemnitee to so approve, such
Independent Counsel shall be selected by the Chancellor of the State of Delaware
or such other person as the Chancellor shall designate to make such selection.
Such determination of entitlement to indemnification shall be made no later than
sixty (60) days after receipt by the Indemnitors of a written request for
indemnification. Such request shall include documentation or information which
is necessary for such determination and which is reasonably available to
Indemnitee. Any Damages incurred by Indemnitee in connection with his request
for indemnification hereunder shall be borne by the Indemnitors. The
Indemnitors hereby indemnify and agree to hold Indemnitee harmless therefrom
irrespective of the outcome of the determination of Indemnitee's entitlement to
indemnification. If the person making such determination shall determine that
Indemnitee is entitled to indemnification as to part (but not all) of the
application for indemnification, such person shall reasonably prorate such
partial indemnification among such claims, issues or matters.
SECTION 8. Presumptions and Effect of Certain Proceedings.
----------------------------------------------
The Secretary of the Indemnitors shall, promptly upon receipt of
Indemnitee's request for indemnification, advise in writing its Board of
Directors and the Boards of Directors of the other Indemnitors or such other
person or persons empowered to make the determination as provided in Section 7
that Indemnitee has made such request for indemnification. Indemnitee shall be
presumed to be entitled to indemnification hereunder and the Indemnitors shall
have the burden of proof in the making of any determination contrary to such
presumption. If the person or persons so empowered to make such determination
shall have failed to make the requested indemnification within 60 days after
receipt by the Indemnitors of such request, the requisite determination of
entitlement to indemnification shall be deemed to have been made and Indemnitee
shall be absolutely entitled to such indemnification, absent actual and material
fraud in the request for indemnification. The termination of any action, suit,
investigation or proceeding described in Section 3 or Section 4 hereof by
judgment, order, settlement or conviction, or upon a plea of nolo contendere or
---------------
its equivalent, shall not, of itself (a) create a presumption that Indemnitee
did not act in good faith and in a manner
-5-
<PAGE>
which he reasonably believed to be in or not opposed to the best interests of
the Indemnitors, and, with respect to any criminal action or proceeding, that
Indemnitee had reasonable cause to believe that his conduct was unlawful or (b)
otherwise adversely affect the rights of Indemnitee to indemnification except as
may be provided herein.
SECTION 9. Advancement of Expenses and Costs.
---------------------------------
All reasonable expenses and costs incurred by Indemnitee who is party to a
proceeding (including counsel fees, retainers and advances of disbursements
required of Indemnitee) (collectively, the "Expense Advance") shall be paid by
---------------
the Indemnitors in advance of the final disposition of such action, suit or
proceeding at the request of Indemnitee within twenty (20) days after the
receipt by the Indemnitors of a statement or statements from Indemnitee
requesting such advance or advances from time to time. Such statement or
statements shall reasonably evidence the expenses and costs incurred by him in
connection therewith. The Indemnitors's obligation to provide an Expense
Advance is subject to the following conditions: (i) if the proceeding arose in
connection with Indemnitee's service as a director and/or executive officer of
the Indemnitors (and not in any other capacity in which Indemnitee rendered
service, including service to any related company), then the Indemnitee or his
representative shall have executed and delivered to the Indemnitors an
undertaking, which need not be secured and shall be accepted without reference
to Indemnitee's financial ability to make repayment, by or on behalf of
Indemnitee to repay all Expense Advance if and to the extent that it shall
ultimately be determined by a final, unappealable decision rendered by a court
having jurisdiction over the parties and the question that Indemnitee is not
entitled to be indemnified for such Expense Advance under this Agreement or
otherwise; (ii) Indemnitee shall give the Indemnitors such information and
cooperation as it may reasonably request and as shall be within Indemnitee's
power; and (iii) Indemnitee shall furnish, upon request by the Indemnitors and
if required under applicable law, a written affirmation of Indemnitee's good
faith belief that any applicable standards of conduct have been met by
Indemnitee. Indemnitee's entitlement to such Expense Advance shall include
those incurred in connection with any proceeding by Indemnitee seeking an
adjudication pursuant to this Agreement. In the event that a claim for an
Expense Advance is made hereunder and is not paid in full within twenty (20)
days after written notice of such claim is delivered to the Indemnitors,
Indemnitee may, but need not, at any time thereafter bring suit against any of
the Indemnitors to recover the unpaid amount of the claim.
SECTION 10. Remedies of Indemnitee in Cases of Determination not to
-------------------------------------------------------
Indemnify or to Advance Expenses.
--------------------------------
In the event that a determination is made that Indemnitee is not entitled
to indemnification hereunder or if payment has not been timely made following a
determination of entitlement to indemnification pursuant to Sections 7 and 8, or
if expenses are not advanced pursuant to Section 9, Indemnitee shall be entitled
to a final adjudication in an appropriate court of the State of Delaware or any
other court of competent jurisdiction of his entitlement to such indemnification
or advance. The Indemnitors shall not oppose
-6-
<PAGE>
Indemnitee's right to seek any such adjudication or any other claim. Such
judicial proceeding shall be made de novo and Indemnitee shall not be prejudiced
-------
by reason of a determination (if so made) that he is not entitled to
indemnification. If a determination is made or deemed to have been made pursuant
to the terms of Section 7 or Section 8 hereof that Indemnitee is entitled to
indemnification, the Indemnitors shall be bound by such determination and is
precluded from asserting that such determination has not been made or that the
procedure by which such determination was made is not valid, binding and
enforceable. The Indemnitors further agree to stipulate in any such court that
the Indemnitors are bound by all the provisions of this Agreement and are
precluded from making any assertion to the contrary. If the court shall
determine that Indemnitee is entitled to any indemnification hereunder, the
Indemnitors shall pay all reasonable Damages actually incurred by Indemnitee in
connection with such adjudication (including, but not limited to, any appellate
proceedings).
SECTION 11. Other Rights to Indemnification.
-------------------------------
The indemnification and advancement of expenses (including counsel fees)
and costs provided by this Agreement shall not be deemed exclusive of any other
rights to which Indemnitee may now or in the future be entitled under any
provision of the By-laws, provisions of the Certificate, vote of stockholders or
Disinterested Directors, provision of law or otherwise.
SECTION 12. Counsel Fees and Other Expenses to Enforce Agreement.
----------------------------------------------------
In the event that Indemnitee is subject to or intervenes in any proceeding
in which the validity or enforceability of this Agreement is at issue or seeks
an adjudication or award in arbitration to enforce his rights under, or to
recover damages for breach of, this Agreement, Indemnitee, if he prevails in
whole or in part in such action, shall be entitled to recover from the
Indemnitors, and shall be indemnified by the Indemnitors against, any reasonable
expenses for counsel fees and disbursements actually and reasonably incurred by
him.
SECTION 13. Duration of Agreement.
---------------------
This Agreement shall continue until and terminate upon the later of (a) 10
years after Indemnitee has ceased to occupy any of the positions or have any of
the relationships described in Section 3 or Section 4 of this Agreement or (b)
the final termination of all pending or threatened actions, suits, proceedings
or investigations with respect to Indemnitee. This Agreement shall be binding
upon the Indemnitors and their successors and assigns and shall inure to the
benefit of Indemnitee and his spouse, assigns, heirs, devisees, executors,
administrators or other legal representatives.
-7-
<PAGE>
SECTION 14. Severability.
------------
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including without limitation, all portions of any paragraphs of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby and (b) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, all portions of any
paragraph of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
SECTION 15. Identical Counterparts.
----------------------
This Agreement may be executed in one or more counterparts, each of which
shall for all purposes be deemed to be an original, but all of which together
shall constitute one and the same Agreement. Only one such counterpart signed
by the party against whom enforceability is sought needs to be produced to
evidence the existence of this Agreement.
SECTION 16. Headings.
--------
The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction thereof.
SECTION 17. Definitions.
-----------
For purposes of this Agreement:
(a) "Disinterested Director" shall mean a director of the Indemnitors who
----------------------
is not or was not a party to the action, suit, investigation or proceeding in
respect of which indemnification is being sought by Indemnitee.
(b) "Independent Counsel" shall mean a law firm or a member of a law firm
-------------------
that neither is presently nor in the past five years has been retained to
represent (i) the Indemnitors or Indemnitee in any matter material to either
such party or (ii) any other party to the action, suit, investigation or
proceeding giving rise to a claim for indemnification hereunder. Notwithstanding
the foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Indemnitors or Indemnitee
in an action to determine Indemnitee's right to indemnification under this
Agreement.
-8-
<PAGE>
SECTION 18. Modification and Waiver.
-----------------------
No supplement, modification or amendment of this Agreement shall be binding
unless executed in writing by both of the parties hereto. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
SECTION 19. Mutual Acknowledgment.
---------------------
The Indemnitors and Indemnitee acknowledge that, in certain instances,
federal law or public policy may override applicable state law and prohibit the
Indemnitors from indemnifying Indemnitee under this Agreement or otherwise. For
example, the Indemnitors and Indemnitee acknowledge that the U.S. Securities and
Exchange Commission (the "SEC") has taken the position that indemnification is
not permissible for liabilities arising under certain federal securities laws,
and federal legislation prohibits indemnification for certain ERISA violations.
Furthermore, Indemnitee understands and acknowledges that the Indemnitors have
undertaken or may be required in the future to undertake with the SEC to submit
the question of indemnification to a court in certain circumstances for a
determination of the Indemnitors's right under public policy to indemnify
Indemnitee.
SECTION 20. Notice by Indemnitee.
--------------------
Indemnitee agrees promptly to notify the Indemnitors in writing upon being
served with any summons, citation, subpoena, complaint, indictment, information
or other document relating to any matter which may be subject to indemnification
covered hereunder, either civil, criminal or investigative.
SECTION 21. Notices.
-------
All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given if (i) delivered by hand
and receipted for by the party to whom said notice or other communication shall
have been directed or if (ii) mailed by certified or registered mail with
postage prepaid on the third business day after the date on which it is so
mailed, to the following addresses:
(a) if to Indemnitee:
c/o Motors and Gears, Inc.
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60154
-9-
<PAGE>
(b) if to any of the Indemnitors:
c/o Motors and Gears, Inc.
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60154
Attention: President
or to such other address as may have been furnished to Indemnitee by the
Indemnitors or to the Indemnitors by Indemnitee, as the case may be.
SECTION 22. Other Agreements.
----------------
This Agreement restates and supersedes, but does not limit or negate, any
indemnification, rights or interests of Indemnitee under any prior agreements
between the Indemnitors and Indemnitee.
SECTION 23. Governing Law.
-------------
The parties agree that this Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
MOTORS AND GEARS HOLDINGS, INC.
By: /s/ Jonathan F. Boucher
-----------------------------
Name: Jonathan F. Boucher
Title: Vice President
MOTORS AND GEARS, INC.
By: /s/ Jonathan F. Boucher
-----------------------------
Name: Jonathan F. Boucher
Title: Vice President
MOTORS AND GEARS INDUSTRIES, INC.
By: /s/ Jonathan F. Boucher
-----------------------------
Name: Jonathan F. Boucher
Title: Vice President
-11-
<PAGE>
THE NEW IMPERIAL ELECTRIC COMPANY
By: /s/ Jonathan F. Boucher
-----------------------------
Name: Jonathan F. Boucher
Title: Vice President
NEW GEAR RESEARCH, INC.
By: /s/ Jonathan F. Boucher
-----------------------------
Name: Jonathan F. Boucher
Title: Vice President
THE NEW SCOTT MOTORS COMPANY
By: /s/ Jonathan F. Boucher
-----------------------------
Name: Jonathan F. Boucher
INDEMNITEE:
/s/ Ron A. Sansom
-----------------------------
Name: Ron A. Sansom
-12-
<PAGE>
EXHIBIT 10.1(f)
INDEMNIFICATION AGREEMENT
-------------------------
THIS INDEMNIFICATION AGREEMENT, dated as of November 7, 1996 ("this
Agreement"), is by and among Motors and Gears Holdings, Inc., a Delaware
- ---------
corporation, Motors and Gears, Inc., a Delaware corporation, Motors and Gears
Industries, Inc., a Delaware corporation, The New Imperial Electric Company, a
Delaware corporation, New Gear Reseach, Inc., a Delaware corporation, and The
New Scott Motors Company, a Delaware corporation (all collectively referred to
as the "Indemnitors") and Thomas C. Spielberger ("Indemnitee").
----------- ----------
WITNESSETH
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors, executive officers, or in other
capacities unless they are provided with adequate protection through insurance
and indemnification against inordinate risks of claims and actions against them
arising out of their service to and activities on behalf of the corporation; and
WHEREAS, the current difficulties or virtual impossibility of obtaining
adequate insurance and uncertainties relating to indemnification have increased
the difficulty of attracting and retaining such persons; and
WHEREAS, the Boards of Directors of the Indemnitors have determined that
the inability to attract and retain such persons is detrimental to the best
interests of the Indemnitors's stockholders and that the Indemnitors should act
to assure such persons that there will be increased certainty of such protection
in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Indemnitors
contractually to obligate themselves to indemnify such persons to the fullest
extent permitted by applicable law so that they will serve or continue to serve
the Indemnitors free from undue concern that they will not be so indemnified;
and
WHEREAS, the Certificate of Incorporation (the "Certificate") and the
-----------
Bylaws (the "Bylaws") of each of the Indemnitors provide for the indemnification
------
of the directors, officers, agents and employees of the Indemnitors to the full
extent permitted by the General Corporation Law of the State of Delaware (the
"Act"). The Certificate, the Bylaws and the Act specifically provide that they
---
are not exclusive, and thereby contemplate that contracts
<PAGE>
may be entered into between the Indemnitors and the members of their Boards of
Directors and their executive officers with respect to indemnification of such
directors and their executive officers; and
WHEREAS, this Agreement is being entered into as part of Indemnitee's total
compensation for serving as a director and/or an executive officer, as the case
may be;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Indemnitors jointly and severally on the one hand and
Indemnitee on the other do hereby covenant and agree as follows:
SECTION 1. Service by Indemnitee.
---------------------
Indemnitee agrees to serve as director of the Indemnitors and/or executive
officer of the Indemnitors if so designated by the Indemnitors and appointed by
the respective Boards of Directors, and agrees to the indemnification provisions
provided for herein. Indemnitee may at any time and for any reason resign from
such position (subject to any other contractual obligation or other obligation
imposed by operation of law), in which event the Indemnitors shall have no
obligation under this Agreement to continue Indemnitee in any such position.
SECTION 2. Indemnification.
---------------
The Indemnitors shall indemnify Indemnitee to the fullest extent permitted
by applicable law in effect on the date hereof, notwithstanding that such
indemnification is not specifically authorized by this Agreement, the
Certificate, the Bylaws, the Act or otherwise. In the event of any change,
after the date of this Agreement, in any applicable law, statute or rule
regarding the right of a Delaware corporation to indemnify a member of its board
of directors or an officer, such changes, to the extent that they would expand
Indemnitee's rights hereunder, shall be within the scope of Indemnitee's rights
and the Indemnitors's obligations hereunder, and, to the extent that they would
narrow Indemnitee's rights hereunder, shall be excluded from this Agreement;
provided, however, that any change that is required by applicable laws, statutes
- -------- -------
or rules to be applied to this Agreement shall be so applied regardless of
whether the effect of such change is to narrow Indemnitee's rights hereunder.
Without diminishing the scope of the indemnification provided by this Section 2,
the rights of indemnification of Indemnitee provided hereunder shall include
indemnification in respect of Motors and Gears, Inc.'s proposed $170,000,000
Series A Senior Note exchange offer pursuant to that certain Offering
Memorandum, dated November 1, 1996, and shall not be limited to those rights set
forth hereinafter, except to the extent expressly prohibited by applicable law.
<PAGE>
SECTION 3. Action or Proceeding Other Than an Action by or in the Right of
---------------------------------------------------------------
the Indemnitors.
---------------
Indemnitee shall be entitled to the indemnification rights provided in this
Section 3 if he is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative in nature, other than an action by or
in the right of the Indemnitors, by reason of the fact that he is or was a
director, officer, employee, agent or fiduciary of the Indemnitors or is or was
serving at the request of the Indemnitors as a director, officer, employee,
agent, partner, trustee or fiduciary of any other entity, or by reason of
anything done or not done by him in any such capacity. Pursuant to this Section
3, Indemnitee shall be indemnified against reasonable costs and expenses
(including, but not limited to, counsel fees, costs, judgments, penalties,
fines, ERISA excise taxes, and amounts paid in settlement) (collectively,
"Damages") actually and reasonably incurred by him in connection with such
- --------
action, suit or proceeding (including, but not limited to, the investigation,
defense or appeal thereof), if, in the case of conduct in his official capacity
with the corporation, he acted in good faith and in the Indemnitors's best
interests, and in all other cases, he acted in good faith and was at least not
opposed to the Indemnitors's best interests, and with respect to any criminal
action or proceeding had no reasonable cause to believe his conduct was
unlawful, except that no indemnification shall be made in respect of any claim,
issue or matter as to which Indemnitee shall have been finally adjudged to be
liable for (i) negligence or misconduct in the performance of his duty to any of
the Indemnitors unless and only to the extent that the court in which such
action or suit was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnity for such expenses as such court shall deem proper or (ii)
the indemnification does not relate to any liability arising under Section 16(b)
of the Securities Exchange Act of 1934, as amended, or any of the rules or
regulations promulgated thereunder. Notwithstanding the foregoing, the
Indemnitors shall be required to indemnify an officer or director in connection
with an action, suit or proceeding initiated by such person only if such action,
suit or proceeding was authorized by the Board or a committee thereof. No
indemnity pursuant to this Agreement shall be provided by the Indemnitors for
Damages that have been paid directly to Indemnitee by an insurance carrier under
a policy of directors' and officers' liability insurance maintained by the
Indemnitors.
SECTION 4. Actions by or in the Right of the Indemnitors.
---------------------------------------------
Indemnitee shall be entitled to the indemnification rights provided in this
Section 4 if he is or was made a party or is threatened to be made a party to
any threatened, pending or completed action, suit, or proceeding, whether civil,
criminal, administrative or investigative brought by or in the right of the
Indemnitors to procure a judgment in their favor by reason of the fact that he
is or was a director, officer, employee, agent or fiduciary of the Indemnitors
or is or was serving at the request of the Indemnitors as a director, officer,
employee, agent, partner, trustee or fiduciary of any other entity by reason of
anything done
-3-
<PAGE>
or not done by him in any such capacity. Pursuant to this Section 4, Indemnitee
shall be indemnified against Damages (as defined in Section 3 of Agreement)
actually and reasonably incurred by him in connection with such action or suit
(including, but not limited to the investigation, defense, settlement or appeal
thereof) if, in the case of conduct in his official capacity with the
corporation, he acted in good faith and in the Indemnitors's best interests, and
in all other cases, he acted in good faith and was at least not opposed to the
Indemnitors's best interests, except that no indemnification shall be made in
respect of any claim, issue or matter as to which Indemnitee shall have been
finally adjudged to be liable for (i) negligence or misconduct in the
performance of his duty to any of the Indemnitors unless and only to the extent
that the court in which such action or suit was brought, or any other court of
competent jurisdiction, shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity for such expenses as
such court shall deem proper or (ii) the indemnification does not relate to any
liability arising under Section 16(b) of the Securities Exchange Act of 1934, as
amended, or any of the rules or regulations promulgated thereunder.
Notwithstanding the foregoing, the Indemnitors shall be required to indemnify an
officer or director in connection with an action, suit or proceeding initiated
by such person only if such action, suit or proceeding was authorized by the
Board or a committee thereof. No indemnity pursuant to this Agreement shall be
provided by the Indemnitors for Damages that have been paid directly to
Indemnitee by an insurance carrier under a policy of directors' and officers'
liability insurance maintained by the Indemnitors.
SECTION 5. Indemnification for Costs, Charges and Expenses of Successful
-------------------------------------------------------------
Party.
-----
Notwithstanding the other provisions of this Agreement, to the extent that
Indemnitee has served as a witness on behalf of the Indemnitors or has been
successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any action, suit or
proceeding referred to in Section 3 and Section 4 hereof, or in defense of any
claim, issue or matter therein, shall be indemnified against all reasonable
costs, charges, and expenses (including counsel fees) actually and reasonably
incurred by him or on his behalf in connection therewith.
SECTION 6. Partial Indemnification
-----------------------
If Indemnitee is only partially successful in the defense, investigation,
settlement or appeal of any action, suit, investigation or proceeding described
in Section 3 or Section 4 hereof, and as a result is not entitled under Section
5 hereof to indemnification by the Indemnitors for the total amount of
reasonable Damages actually and reasonably incurred by him, the Indemnitors
shall nevertheless indemnify Indemnitee, as a matter of right pursuant to
Section 5 hereof, to the extent Indemnitee has been partially successful.
-4-
<PAGE>
SECTION 7. Determination of Entitlement to Indemnification.
-----------------------------------------------
Upon written request by Indemnitee for indemnification pursuant to Section
3 or Section 4 hereof, the entitlement of Indemnitee to indemnification pursuant
to the terms of this Agreement shall be determined by the following person or
persons who shall be empowered to make such determination: (a) the Boards of
Directors of the Indemnitors by a majority vote of a quorum consisting of
Disinterested Directors (as hereinafter defined); or (b) if such a quorum is not
obtainable or, even if obtainable, if the Board of Directors by the majority
vote of Disinterested Directors so directs, by Independent Counsel (as
hereinafter defined) in a written opinion to the Board of Directors, a copy of
which shall be delivered to Indemnitee; or (c) by the stockholders, but shares
owned by or voted under the control of directors, including the Indemnitee, who
are at the time parties to the proceeding may not be voted on the determination.
Such Independent Counsel shall be selected by the Board of Directors and
approved by Indemnitee. Upon failure of the Board of Directors to so select
such Independent Counsel or upon failure of Indemnitee to so approve, such
Independent Counsel shall be selected by the Chancellor of the State of Delaware
or such other person as the Chancellor shall designate to make such selection.
Such determination of entitlement to indemnification shall be made no later than
sixty (60) days after receipt by the Indemnitors of a written request for
indemnification. Such request shall include documentation or information which
is necessary for such determination and which is reasonably available to
Indemnitee. Any Damages incurred by Indemnitee in connection with his request
for indemnification hereunder shall be borne by the Indemnitors. The
Indemnitors hereby indemnify and agree to hold Indemnitee harmless therefrom
irrespective of the outcome of the determination of Indemnitee's entitlement to
indemnification. If the person making such determination shall determine that
Indemnitee is entitled to indemnification as to part (but not all) of the
application for indemnification, such person shall reasonably prorate such
partial indemnification among such claims, issues or matters.
SECTION 8. Presumptions and Effect of Certain Proceedings.
----------------------------------------------
The Secretary of the Indemnitors shall, promptly upon receipt of
Indemnitee's request for indemnification, advise in writing its Board of
Directors and the Boards of Directors of the other Indemnitors or such other
person or persons empowered to make the determination as provided in Section 7
that Indemnitee has made such request for indemnification. Indemnitee shall be
presumed to be entitled to indemnification hereunder and the Indemnitors shall
have the burden of proof in the making of any determination contrary to such
presumption. If the person or persons so empowered to make such determination
shall have failed to make the requested indemnification within 60 days after
receipt by the Indemnitors of such request, the requisite determination of
entitlement to indemnification shall be deemed to have been made and Indemnitee
shall be absolutely entitled to such indemnification, absent actual and material
fraud in the request for indemnification. The termination of any action, suit,
investigation or proceeding described in Section 3 or Section 4 hereof by
judgment, order, settlement or conviction, or upon a plea of nolo contendere or
---------------
its equivalent, shall not, of itself (a) create a presumption that Indemnitee
did not act in good faith and in a manner
-5-
<PAGE>
which he reasonably believed to be in or not opposed to the best interests of
the Indemnitors, and, with respect to any criminal action or proceeding, that
Indemnitee had reasonable cause to believe that his conduct was unlawful or (b)
otherwise adversely affect the rights of Indemnitee to indemnification except as
may be provided herein.
SECTION 9. Advancement of Expenses and Costs.
---------------------------------
All reasonable expenses and costs incurred by Indemnitee who is party to a
proceeding (including counsel fees, retainers and advances of disbursements
required of Indemnitee) (collectively, the "Expense Advance") shall be paid by
---------------
the Indemnitors in advance of the final disposition of such action, suit or
proceeding at the request of Indemnitee within twenty (20) days after the
receipt by the Indemnitors of a statement or statements from Indemnitee
requesting such advance or advances from time to time. Such statement or
statements shall reasonably evidence the expenses and costs incurred by him in
connection therewith. The Indemnitors's obligation to provide an Expense
Advance is subject to the following conditions: (i) if the proceeding arose in
connection with Indemnitee's service as a director and/or executive officer of
the Indemnitors (and not in any other capacity in which Indemnitee rendered
service, including service to any related company), then the Indemnitee or his
representative shall have executed and delivered to the Indemnitors an
undertaking, which need not be secured and shall be accepted without reference
to Indemnitee's financial ability to make repayment, by or on behalf of
Indemnitee to repay all Expense Advance if and to the extent that it shall
ultimately be determined by a final, unappealable decision rendered by a court
having jurisdiction over the parties and the question that Indemnitee is not
entitled to be indemnified for such Expense Advance under this Agreement or
otherwise; (ii) Indemnitee shall give the Indemnitors such information and
cooperation as it may reasonably request and as shall be within Indemnitee's
power; and (iii) Indemnitee shall furnish, upon request by the Indemnitors and
if required under applicable law, a written affirmation of Indemnitee's good
faith belief that any applicable standards of conduct have been met by
Indemnitee. Indemnitee's entitlement to such Expense Advance shall include
those incurred in connection with any proceeding by Indemnitee seeking an
adjudication pursuant to this Agreement. In the event that a claim for an
Expense Advance is made hereunder and is not paid in full within twenty (20)
days after written notice of such claim is delivered to the Indemnitors,
Indemnitee may, but need not, at any time thereafter bring suit against any of
the Indemnitors to recover the unpaid amount of the claim.
SECTION 10. Remedies of Indemnitee in Cases of Determination not to
-------------------------------------------------------
Indemnify or to Advance Expenses.
--------------------------------
In the event that a determination is made that Indemnitee is not entitled
to indemnification hereunder or if payment has not been timely made following a
determination of entitlement to indemnification pursuant to Sections 7 and 8, or
if expenses are not advanced pursuant to Section 9, Indemnitee shall be entitled
to a final adjudication in an appropriate court of the State of Delaware or any
other court of competent jurisdiction of his entitlement to such indemnification
or advance. The Indemnitors shall not oppose
-6-
<PAGE>
Indemnitee's right to seek any such adjudication or any other claim. Such
judicial proceeding shall be made de novo and Indemnitee shall not be prejudiced
-------
by reason of a determination (if so made) that he is not entitled to
indemnification. If a determination is made or deemed to have been made pursuant
to the terms of Section 7 or Section 8 hereof that Indemnitee is entitled to
indemnification, the Indemnitors shall be bound by such determination and is
precluded from asserting that such determination has not been made or that the
procedure by which such determination was made is not valid, binding and
enforceable. The Indemnitors further agree to stipulate in any such court that
the Indemnitors are bound by all the provisions of this Agreement and are
precluded from making any assertion to the contrary. If the court shall
determine that Indemnitee is entitled to any indemnification hereunder, the
Indemnitors shall pay all reasonable Damages actually incurred by Indemnitee in
connection with such adjudication (including, but not limited to, any appellate
proceedings).
SECTION 11. Other Rights to Indemnification.
-------------------------------
The indemnification and advancement of expenses (including counsel fees)
and costs provided by this Agreement shall not be deemed exclusive of any other
rights to which Indemnitee may now or in the future be entitled under any
provision of the By-laws, provisions of the Certificate, vote of stockholders or
Disinterested Directors, provision of law or otherwise.
SECTION 12. Counsel Fees and Other Expenses to Enforce Agreement.
----------------------------------------------------
In the event that Indemnitee is subject to or intervenes in any proceeding
in which the validity or enforceability of this Agreement is at issue or seeks
an adjudication or award in arbitration to enforce his rights under, or to
recover damages for breach of, this Agreement, Indemnitee, if he prevails in
whole or in part in such action, shall be entitled to recover from the
Indemnitors, and shall be indemnified by the Indemnitors against, any reasonable
expenses for counsel fees and disbursements actually and reasonably incurred by
him.
SECTION 13. Duration of Agreement.
---------------------
This Agreement shall continue until and terminate upon the later of (a) 10
years after Indemnitee has ceased to occupy any of the positions or have any of
the relationships described in Section 3 or Section 4 of this Agreement or (b)
the final termination of all pending or threatened actions, suits, proceedings
or investigations with respect to Indemnitee. This Agreement shall be binding
upon the Indemnitors and their successors and assigns and shall inure to the
benefit of Indemnitee and his spouse, assigns, heirs, devisees, executors,
administrators or other legal representatives.
-7-
<PAGE>
SECTION 14. Severability.
------------
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including without limitation, all portions of any paragraphs of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby and (b) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, all portions of any
paragraph of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
SECTION 15. Identical Counterparts.
----------------------
This Agreement may be executed in one or more counterparts, each of which
shall for all purposes be deemed to be an original, but all of which together
shall constitute one and the same Agreement. Only one such counterpart signed
by the party against whom enforceability is sought needs to be produced to
evidence the existence of this Agreement.
SECTION 16. Headings.
--------
The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction thereof.
SECTION 17. Definitions.
-----------
For purposes of this Agreement:
(a) "Disinterested Director" shall mean a director of the Indemnitors who
----------------------
is not or was not a party to the action, suit, investigation or proceeding in
respect of which indemnification is being sought by Indemnitee.
(b) "Independent Counsel" shall mean a law firm or a member of a law firm
-------------------
that neither is presently nor in the past five years has been retained to
represent (i) the Indemnitors or Indemnitee in any matter material to either
such party or (ii) any other party to the action, suit, investigation or
proceeding giving rise to a claim for indemnification hereunder. Notwithstanding
the foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Indemnitors or Indemnitee
in an action to determine Indemnitee's right to indemnification under this
Agreement.
-8-
<PAGE>
SECTION 18. Modification and Waiver.
-----------------------
No supplement, modification or amendment of this Agreement shall be binding
unless executed in writing by both of the parties hereto. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
SECTION 19. Mutual Acknowledgment.
---------------------
The Indemnitors and Indemnitee acknowledge that, in certain instances,
federal law or public policy may override applicable state law and prohibit the
Indemnitors from indemnifying Indemnitee under this Agreement or otherwise. For
example, the Indemnitors and Indemnitee acknowledge that the U.S. Securities and
Exchange Commission (the "SEC") has taken the position that indemnification is
not permissible for liabilities arising under certain federal securities laws,
and federal legislation prohibits indemnification for certain ERISA violations.
Furthermore, Indemnitee understands and acknowledges that the Indemnitors have
undertaken or may be required in the future to undertake with the SEC to submit
the question of indemnification to a court in certain circumstances for a
determination of the Indemnitors's right under public policy to indemnify
Indemnitee.
SECTION 20. Notice by Indemnitee.
--------------------
Indemnitee agrees promptly to notify the Indemnitors in writing upon being
served with any summons, citation, subpoena, complaint, indictment, information
or other document relating to any matter which may be subject to indemnification
covered hereunder, either civil, criminal or investigative.
SECTION 21. Notices.
-------
All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given if (i) delivered by hand
and receipted for by the party to whom said notice or other communication shall
have been directed or if (ii) mailed by certified or registered mail with
postage prepaid on the third business day after the date on which it is so
mailed, to the following addresses:
(a) if to Indemnitee:
c/o Motors and Gears, Inc.
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60154
-9-
<PAGE>
(b) if to any of the Indemnitors:
c/o Motors and Gears, Inc.
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60154
Attention: President
or to such other address as may have been furnished to Indemnitee by the
Indemnitors or to the Indemnitors by Indemnitee, as the case may be.
SECTION 22. Other Agreements.
----------------
This Agreement restates and supersedes, but does not limit or negate, any
indemnification, rights or interests of Indemnitee under any prior agreements
between the Indemnitors and Indemnitee.
SECTION 23. Governing Law.
-------------
The parties agree that this Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
MOTORS AND GEARS HOLDINGS, INC.
By: /s/ Jonathan F. Boucher
--------------------------------
Name: Jonathan F. Boucher
Title: Vice President
MOTORS AND GEARS, INC.
By: /s/ Jonathan F. Boucher
--------------------------------
Name: Jonathan F. Boucher
Title: Vice President
MOTORS AND GEARS INDUSTRIES, INC.
By: /s/ Jonathan F. Boucher
--------------------------------
Name: Jonathan F. Boucher
Title: Vice President
-11-
<PAGE>
THE NEW IMPERIAL ELECTRIC COMPANY
By: /s/ Jonathan F. Boucher
--------------------------------
Name: Jonathan F. Boucher
Title: Vice President
NEW GEAR RESEARCH, INC.
By: /s/ Jonathan F. Boucher
--------------------------------
Name: Jonathan F. Boucher
Title: Vice President
THE NEW SCOTT MOTORS COMPANY
By: /s/ Jonathan F. Boucher
--------------------------------
Name: Jonathan F. Boucher
Title: Vice President
INDEMNITEE:
/s/ Thomas C. Spielberger
--------------------------------
Name: Thomas C. Spielberger
-12-
<PAGE>
TAX SHARING AGREEMENT
THIS Agreement is made and entered into this 29th day of June, 1994, by and
---- ----
among Jordan Industries, Inc., an Illinois corporation (the "Company"), and each
corporation, other than the Company, which is a signatory to this Agreement
(hereinafter such other corporations shall collectively be referred to as the
"Subsidiaries" and individually referred to as a "Subsidiary").
WITNESSETH:
----------
WHEREAS, the Company owns directly or indirectly capital stock of each of the
Subsidiaries which represents at least 80 percent of the vote and value of each
of the Subsidiaries and may, therefore, include the income and expense of each
of the Subsidiaries in the Company's consolidated federal income tax returns;
and
WHEREAS, the parties hereto desire to consolidate such returns upon the terms
and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
agreements herein set forth, the parties hereto do hereby agree as follows:
1. Filing and Preparation of Future Returns. Each of the Subsidiaries agrees
----------------------------------------
to consent to joining with the Company and its consolidated subsidiaries (the
Company and each of the Subsidiaries being herein referred to as the "Group") in
the filing of the consolidated federal income tax returns for any taxable year
for which a consolidated return can be filed and each taxable year thereafter,
in accordance with applicable income tax laws and regulations. The Company
agrees that it will prepare and file in
<PAGE>
a timely manner all federal income tax returns required to be filed on behalf of
the Company and its consolidated subsidiaries and will pay the taxes shown to be
due thereon.
2. Estimated Tax Payments; Tax Benefit Reimbursements.
(a) On or before the 10th day prior to the due date of any estimated tax
payment on account of the consolidated tax liability of the Group for a taxable
year, each of the Subsidiaries shall pay to the Company an amount equal to such
Subsidiary's separate return tax liability as defined in Treasury Regulations S
1.1552-1(a)(2)(ii) (the "Separate Return Tax Liability") multiplied by a
fraction the numerator of which equals one and the denominator of which equals
the total number of estimated tax payments to be made on account of the
consolidated tax liability of the Group for such taxable year. If the estimated
tax payment of the Group is based upon the prior taxable year's consolidated tax
liability, such Subsidiary's payment under this Paragraph 2(a) shall be
determined by using its Separate Return Tax Liability for such prior year, and
if such estimated tax payment is based upon the current year's tax liability,
such Subsidiary's payment under this Paragraph 2(a) shall be determined by using
its estimated separate return tax liability for such current year.
(b) In the event that the sum of any estimated payments made by any Subsidiary
in a taxable year under Paragraph 2(a) exceeds such Subsidiary's final Separate
Return Tax Liability for such taxable year, the Company shall pay to such
Subsidiary the amount of such excess on a periodic basis as determined by the
Company. In the event that the final Separate Return Tax Liability
-2-
<PAGE>
of such Subsidiary for a taxable year exceeds the sum of any payments based on
estimated amounts made by such Subsidiary under Paragraph 2(a) for such taxable
year, such Subsidiary shall pay such excess to the Company on or before the date
15 days prior to the due date for the filing of the consolidated federal income
tax return to which such excess relates.
(c) In addition to any amounts which may be payable by the Company to any
Subsidiary under Paragraph 2(b), the Company shall also reimburse such
Subsidiary for the amount by which the Group's income taxes are reduced as a
result of the consolidation of such Subsidiary in the Group's income tax return,
such reimbursement to be made on a periodic basis as determined by the Company.
Any loss or credit utilized by the Group pursuant to this Paragraph 2(c) shall
not be available for purposes of calculating the Separate Return Tax Liability
of a member.
In the event the computation of such Subsidiary's income tax liability under
Paragraph 2(a) above shall reflect that such Subsidiary incurred a loss for any
year that is not utilized by the Group, and that such Subsidiary would have been
due a Federal income tax refund as a result of certain loss carryback provisions
of the Internal Revenue Code or any other provisions of the Internal Revenue
Code, then the Company shall pay to such Subsidiary an amount equal to the
actual income tax refund attributable to the Subsidiary when received by the
Company.
(d) Notwithstanding anything in this agreement, the Internal Revenue Code of
1986, as amended (the "Code"), or regulations promulgated thereunder to the
contrary, the Company
-3-
<PAGE>
shall determine the order in which losses incurred by each of the Subsidiaries
reduce the Group's income taxes for purposes of Paragraph 2(c) hereof. The
losses of each of the Subsidiaries that do not reduce the taxable income of the
Group shall be carried forward and each of the Subsidiaries shall be reimbursed
for such losses as determined by the Company. Each of the Subsidiaries agrees
that the decision of the Company with respect to the amount and the date of
payment for such reimbursement shall be conclusive.
(e) Any payments or reimbursements hereunder shall be computed by the
independent public accountants of the Company, in accordance with generally
accepted accounting principles and applicable tax laws, rules and regulations.
3. Adjustments to Liability. The Company and each Subsidiary agree that in the
------------------------
event there should be any factual circumstance, or any application, either
retroactively or prospectively, of any federal income tax laws or revision of
the federal income tax laws, which results in a redetermination of the Separate
Return Tax Liability of any Subsidiary, the payment under Paragraph 2 shall be
adjusted to account for such redeterminations. It is intended that the
adjustment referred to in this paragraph shall relate to those items which are
given recognition in the Group's consolidated tax returns or are approved or
adjusted by the Internal Revenue Service in their audit of said returns, and
which therefore have been recognized or given effect by the computation of the
consolidated income tax of the Group and the income tax computed on the separate
return basis of each Subsidiary.
-4-
<PAGE>
4. Other Taxes. In the event there shall be imposed on any of the Company or
-----------
any of the Subsidiaries any foreign, federal, state or local tax to which
principles of consolidated taxation may be applied and practical, each of the
Company and each of the Subsidiaries agree that this agreement shall also be
applicable with respect to such taxes. For purposes of this agreement, the term
taxes shall include, but is not limited to, all net income, capital gains, gross
income, gross receipts, sales, use, transfer, franchise, profits, license,
capital, payroll, excise, value added or other taxes and any related interest or
governmental charge.
5. Additional Subsidiaries. If at any time after the date upon which this
-----------------------
agreement is executed, any party to this agreement acquires or creates one or
more subsidiary corporations that are includible corporations of the Group,
either the Company or a Subsidiary shall cause such subsidiary corporation to be
subject to this agreement and all references to either Group or a Subsidiary
herein shall thereafter be interpreted to refer to the Company, the Subsidiaries
and such subsidiary or subsidiaries, or to a Subsidiary and such subsidiary or
subsidiaries, respectfully. The parties hereto agree that this agreement shall
only govern the allocation of income taxes among the Company and each Subsidiary
for each taxable year, or portions thereof, in which each respective Subsidiary
is included in a consolidated income tax return filed by the Company and that no
party to this agreement shall have any rights or obligations under this
agreement to any other party to this agreement subsequent to such party's
disaffiliation from the Group, as defined in the Code.
-5-
<PAGE>
6. Successors and Assigns. This agreement shall be binding on and inure to the
----------------------
benefit of any successor, by merger, acquisition of assets or otherwise, to any
of the parties hereto (including but not limited to any successor of the Company
or a Subsidiary succeeding to the tax attributes of each under Section 381 of
the Code), to the same extent as if such successor had been an original party to
this agreement.
7. Termination. This agreement shall continue in effect until terminated by
-----------
written agreement between all the parties hereto.
8. Entire Agreement. This agreement constitutes the entire agreement between
----------------
the parties hereto pertaining to the subject matter hereof and supercedes and
cancels any and all such previous written or oral agreements between the parties
hereto.
9. Governing Law. This agreement shall be governed by the internal laws of the
-------------
state of Illinois.
IN WITNESS WHEREOF, the parties hereto have executed this agreement on the day
and year first above written.
JORDAN INDUSTRIES, INC. DACCO, INCORPORATED
By /s/ Thomas C. Spielberger By /s/ Thomas C. Spielberger
------------------------------ ------------------------------
DETROIT TRANSMISSION PRODUCTS BORG MANUFACTURING
CO .
By /s/ Thomas C. Spielberger By /s/ Thomas C. Spielberger
------------------------------ ------------------------------
-6-
<PAGE>
TRANSMISSION PARTS WAREHOUSE, ABC TRANSMISSION PARTS WAREHOUSE, INC.
INC.
By /s/ Thomas C. Spielberger By /s/ Thomas C. Spielberger
------------------------------ ------------------------------
NASHVILLE TRANSMISSION PARTS, DACCO/DETROIT OF FLORIDA, INC.
INC.
By /s/ Thomas C. Spielberger By /s/ Thomas C. Spielberger
------------------------------ ------------------------------
DACCO/DETROIT OF MINNESOTA, INC. DACCO/DETROIT OF COLORADO, INC.
By /s/ Thomas C. Spielberger By /s/ Thomas C. Spielberger
------------------------------ ------------------------------
DACCO/DETROIT OF INDIANA, INC. DACCO/DETROIT OF MISSOURI, INC.
By /s/ Thomas C. Spielberger By /s/ Thomas C. Spielberger
------------------------------ ------------------------------
DACCO/DETROIT OF NORTH CAROLINA, DACCO/DETROIT OF MEMPHIS, INC.
INC.
By /s/ Thomas C. Spielberger By /s/ Thomas C. Spielberger
------------------------------ ------------------------------
DACCO/DETROIT OF NEBRASKA, INC. DACCO/DETROIT OF ALABAMA, INC.
By /s/ Thomas C. Spielberger By /s/ Thomas C. Spielberger
------------------------------ ------------------------------
DACCO/DETROIT OF NEW JERSEY, DACCO/DETROIT OF MICHIGAN, INC.
INC.
By /s/ Thomas C. Spielberger By /s/ Thomas C. Spielberger
------------------------------ ------------------------------
DACCO/DETROIT OF ARIZONA, INC. DACCO/DETROIT OF OKLAHOMA, INC.
By /s/ Thomas C. Spielberger By /s/ Thomas C. Spielberger
------------------------------ ------------------------------
-7-
<PAGE>
DACCO/DETROIT OF TEXAS, INC. DACCO/DETROIT OF SOUTH CAROLINA, INC.
By /s/ Thomas C. Spielberger By /s/ Thomas C. Spielberger
------------------------------ ------------------------------
RIVERSIDE BOOK AND BIBLE HOUSE, PARSONS PRECISION PRODUCTS, INC.
INCORPORATED
By /s/ Thomas C. Spielberger By /s/ Thomas C. Spielberger
------------------------------ ------------------------------
WORLD BIBLE PUBLISHERS, INC. JII, INC.
By /s/ Thomas C. Spielberger By /s/ Thomas C. Spielberger
------------------------------ ------------------------------
THE IMPERIAL ELECTRIC COMPANY THE SCOTT MOTORS COMPANY
By /s/ Thomas C. Spielberger By /s/ Thomas C. Spielberger
------------------------------ ------------------------------
GEAR RESEARCH, INC. HUDSON LOCK, INC.
By /s/ Thomas C. Spielberger By /s/ Thomas C. Spielberger
------------------------------ ------------------------------
HUDSON LOCK DE PUERTO RICO AIM ELECTRONICS CORPORATION
INCORPORATED
By /s/ Thomas C. Spielberger By /s/ Thomas C. Spielberger
------------------------------ ------------------------------
SATE-LITE MANUFACTURING COMPANY DURA-LINE CORPORATION
By /s/ Thomas C. Spielberger By /s/ Thomas C. Spielberger
------------------------------ ------------------------------
JI AVIATION, INC. WELCOME HOME, INC.
By /s/ Thomas C. Spielberger By /s/ Thomas C. Spielberger
------------------------------ ------------------------------
-8-
<PAGE>
JHRC, INC. J2, INC.
By /s/ Thomas C. Spielberger By /s/ Thomas C. Spielberger
------------------------------ ------------------------------
VALMARK INDUSTRIES, INC. PAMCO PRINTED TAPE & LABEL CO., INC.
By /s/ Thomas C. Spielberger By /s/ Thomas C. Spielberger
------------------------------ ------------------------------
JI FINANCE COMPANY BEEMAK PLASTICS, INC.
By /s/ Thomas C. Spielberger By /s/ Thomas C. Spielberger
------------------------------ ------------------------------
CAMBRIDGE PRODUCTS CORPORATION JII/SALES PROMOTION ASSOCIATES, INC.
By /s/ Thomas C. Spielberger By /s/ Thomas C. Spielberger
------------------------------ ------------------------------
-9-
<PAGE>
EXHIBIT 10.4
JOINDER AGREEMENT
-----------------
This Joinder Agreement (the "Joinder") is made, executed and delivered
by the undersigned as of November 7, 1996.
WITNESSETH:
WHEREAS, a Tax Sharing Agreement has been executed and delivered as of
the 28th day of June, 1994 by and among Jordan Industries, Inc., an Illinois
corporation (the "Company"), and each other corporation which is a signatory
thereto (the "Agreement"); and
WHEREAS, it is the intention of the undersigned to become a party to the
Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the undersigned hereby agrees as follows:
1. By execution and delivery of this Joinder, the undersigned hereby
joins the Agreement and hereby agrees to be bound by and perform all of the
covenants, promises, agreements and undertakings under the Agreement to the same
extent as if the undersigned had been an original signatory to the Agreement.
2. This Joinder shall be governed in all respects, whether as to
validity, construction, capacity, performance or otherwise, under the laws of
the State of Illinois.
[signature page follows]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Joinder as of the
day and year first above written.
MOTORS AND GEARS HOLDINGS INC. MOTORS AND GEARS, INC.
By: /s/ Jonathan F. Boucher By: /s/ Jonathan F. Boucher
-------------------------- --------------------------
Name: Jonathan F. Boucher Name: Jonathan F. Boucher
Title: Vice President Title: Vice President
MOTORS AND GEARS INDUSTRIES, INC. THE NEW IMPERIAL ELECTRIC COMPANY
By: /s/ Jonathan F. Boucher By: /s/ Jonathan F. Boucher
-------------------------- --------------------------
Name: Jonathan F. Boucher Name: Jonathan F. Boucher
Title: Vice President Title: Vice President
THE NEW SCOTT MOTORS COMPANY NEW GEAR RESEARCH, INC.
By: /s/ Jonathan F. Boucher By: /s/ Jonathan F. Boucher
-------------------------- --------------------------
Name: Jonathan F. Boucher Name: Jonathan F. Boucher
Title: Vice President Title: Vice President
-2-
<PAGE>
EXHIBIT 10.6
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF l933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND ACCORDINGLY MAY
NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR LAWS OR PURSUANT
TO AN EXEMPTION THEREFROM.
MK HOLDINGS, INC.
SECURED NOTE
DUE DECEMBER 26, 1996
$9O,000,000 Deerfield, Illinois
September 22, 1995
FOR VALUE RECEIVED, the undersigned, MK HOLDINGS, INC, an Illinois
corporation (the "Corporation"), hereby promises to pay to the John D. Simms
Revocable Trust Under Agreement dated November 5, 1988 c/o JOHN D. SIMMS, as
agent for the Sellers (as defined in The Purchase Agreement) (together with his
successors and permitted assigns, the "Note Holders' Agent"), in immediately
available funds by wire transfer in accordance with written instructions
provided to the Corporation by the Note Holders' Agent, or in the absence of
such instructions by cashier's check at the office of the Note Holders' Agent at
611 Edgemont Lane, Park Ridge, Illinois 60068, the aggregate principal amount of
NINETY MILLION DOLLARS U.S. $90,000,000 on December 26, 1996 (subject to Section
1.2 hereof). Certain capitalized terms are used in this Note as defined in
Section 4.
Section l. Payment.
-------
l.l Interest. The outstanding principal amount of this Note which is due in
--------
accordance with the provisions hereof shall bear interest (computed on the basis
of a three hundred sixty-five (365) or three hundred sixty-six (366) day year,
as the case may be) at a rate equal to the Secured Note Interest Rate from
September 23, 1995 to (but excluding) the date on which the principal amount of
this Note is paid in full. Such interest shall be due and payable on or before
the close of business in the Note Holders' Agent's account at Bankers Trust
Company on each Acceleration Date provided below and any unpaid balance of such
interest shall be due and payable on or before the close of business in Note
Holders' Agent's account at Bankers Trust Company on the Maturity Date.
1.2 Principal. The Corporation shall pay the entire unpaid balance of
---------
principal on this Note on December 26, 1996, except that
- 1 -
<PAGE>
such payment of such principal amount and all accrued interest may be
accelerated by
(i) the Note Holders' Agent in writing by five (5) Business Days prior notice
to the Corporation to any of the four Acceleration Dates provided below:
provided, however, such notice shall not be given by the Note Holders' Agent
unless and until the earliest to occur of December 28, l995, March 28, 1996,
June 27, 1996, or September 26, 1996 (said four dates referred to as the
"Acceleration Dates"), after the enactment and effective date of an amendment to
the Internal Revenue Code of 1986 as amended (the "Code") with the direct or
indirect result that the maximum effect rate of tax that will be payable on any
payments made under this Note that constitute, in part, Net Capital Gains (as
defined in Section 1222 of the Code) realized from payments hereunder accounted
for under the "installment method" (as defined in Section 453 (c) of the Code)
and received after such change in law becomes effective is lower than twenty-
eight percent (28%); or
(ii) the occurrence of an Event of Default under this Note; or
(iii) receipt of written notice from Bankers Trust by the Note Holders' Agent
of pending termination of the Letter of Credit.
1.3 Business Day. Whenever payment of principal of, or interest on, this Note
------------
shall be due on a date that is not a Business Day, the date for payment thereof
shall be the next succeeding Business Day and interest due at the rate then in
effect on the unpaid principal and any other amounts payable hereunder shall
accrue during such extension and shall be payable on such succeeding Business
Day.
1.4 Note Holder Agreement. All payments of principal and interest hereunder
---------------------
and all notices, information, approvals, or disclosures required hereunder shall
be made to the Note Holders' Agent, who is the payee of this Note for all
purposes of this Note. The Note Holders' Agent shall accept said payments
subject to the terms and provisions of that certain Note Holder Agreement ("Note
Holder Agreement") dated September 22, l995, by and among the Note Holders'
Agent and the Sellers (said parties to such Note Holder Agreement are herein
collectively referred to as the "Holders"). No change in the Note Holders' Agent
shall be effective until given to the Corporation in writing.
1.5 Cost of Collection. In the event this Note, or any part hereof, is not
------------------
paid when due, the Corporation agrees to pay on demand all costs of collection,
including reasonable attorneys' fees. Any amount of principal, interest or other
amounts due hereunder which are not paid when due, whether by acceleration or
otherwise, shall bear interest at the rate of seven and a quarter percent
(7.25%) per annum until such amounts are paid.
- 2 -
<PAGE>
1.6 No Set-off. All obligations of the corporation hereunder are independent
----------
covenants from the obligations of the Holders under the Purchase Agreement. The
Corporation shall not be entitled to set-off or reduce any amounts of interest
payable hereunder for any obligations or liabilities of the Holders to the
Corporation or any claims by the Corporation against the Holders except for
liabilities or obligations under Section 1.07 of the Purchase Agreement.
1.7 No Prepayment. The Corporation shall not prepay this Note in whole or in
-------------
part.
Section 2. Supporting Letter of Credit.
---------------------------
2.1 Letter of Credit. This Note is supported by a Letter of Credit dated this
----------------
date issued by Bankers Trust Company in favor of Note Holders' Agent. The terms
of the Letter of Credit are incorporated into this Note by reference to the same
effect as if set forth in this Note in their entirety. In the event of a default
under this Note, the Note Holders' Agent may exercise any of the remedies
granted hereunder or by the Letter of Credit.
Section 3. Defaults
--------
3.1 Events of Default. It one or more of the following events ("Event of
-----------------
Default") shall have occurred and be continuing:
(a) the Corporation shall fail to pay on the due date thereof any
principal of this Note or shall fail to pay on the due date thereof any
interest and the same shall not have been cured within 3 days after written
notice thereof has been given by the Note Holders' Agent to the corporation;
(b) the Corporation or Bankers Trust Company shall commence a voluntary
case or other proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official, or shall
consent to any such relief or to the appointment of or taking possession by
any such official in an involuntary case or other proceeding commenced against
it, or shall make a general assignment for the benefit of creditors; or
(c) an involuntary case or other proceeding shall be commenced against the
Corporation or Bankers Trust Company seeking liquidation, reorganization or
other relief with respect to it or its debts under any bankruptcy, insolvency
or other similar law now or hereafter in effect or seeking the
- 3 -
<PAGE>
appointment of a trustee, receiver, liquidator, custodian or other similar
official, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of 9O days; or an order for relief shall
be entered against the Corporation or Bankers Trust Company under the Federal
bankruptcy laws as now or hereafter in effect;
then, and in every such event, the Note Holders' Agent shall have the right to
elect without notice, to (i) declare the principal balance remaining unpaid
under this Note, and all unpaid interest accrued hereon immediately due and
payable in full, (ii) draw on the Letter of Credit, and/or (iii) exercise any
and all other rights and remedies available at law or in equity.
3.2 Waiver. The Corporation hereby waives presentment, demand, protest, notice
------
of dishonor and/or protest, notice of nonpayment and all other notices and
demands, and assents to the extension of the time of payment, forbearance or
other indulgence, without notice.
Section 4. Definitions. For purposes of this Note, the following terms have
-----------
the meanings set forth below:
"Business Day" means any day except a Saturday, Sunday or other days on which
-------------
commercial banks in New York City are required or authorized by law to close.
"Letter of Credit" means the $95,600,000 Letter of Credit issued of even date
----------------
herewith in favor of the Note Holders' Agent by Bankers Trust Company at the
request of the Corporation.
"Maturity Date" means December 26, 1996, or such earlier date when this Note
-------------
is due and payable in full pursuant to the terms hereof.
"Note" means this Secured Promissory Note dated September 22, 1995.
----
"Purchase Agreement" means the Agreement for Purchase and Sale of Stock of
------------------
Merkle-Korff Industries, Inc., Mercury Industries, Inc. and Elmco Industries,
Inc. dated as of May 26, 1995, among the Corporation and the Sellers, as
amended.
- 4 -
<PAGE>
"Secured Note Interest Rate" means, (i) from and including September 23, 1995
--------------------------
through September 27, 1995, 5.16% per annum; (ii) from September 28, l995
through December 27, 1995, an amount exactly equal to the rate per annum paid
on ninety day Treasury Bills issued on September 28, 1995; (iii) from December
28, l995 through March 27, 1996, an amount exactly equal to the rate per annum
paid on ninety day U.S. Treasury Bills issued on December 28, 1995; (iv) from
March 28, 1996 through June 26, 1996, an amount exactly equal to the rate per
annum paid on ninety day U.S. Treasury Bills issued on March 28, 1996; (v)
from June 27, 1996 through September 25, 1996, an amount exactly equal to the
rate per annum paid on ninety day U.S. Treasury Bills issued on June 27, 1996;
and (vi) from September 26, 1996 through December 25, 1996, an amount exactly
equal to the rate per annum paid on ninety day Treasury Bills issued on
September 26, 1996.
Section 5. Miscellaneous.
--------------
5.1 Notices. All notices, requests and other communications to any party
-------
hereunder shall be in writing and shall be delivered personally, sent by
facsimile transmission or sent by certified, registered or express mail, postage
prepaid, and shall be deemed given when so delivered personally, or sent by
facsimile transmissions or if mailed or sent by overnight courier, upon receipt
thereof, as follows:
If to the Corporation to:
Thomas H. Quinn, President
Jordan Industries, Inc.
ArborLake Centre
Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60015
Telephone: 708-945-5591
Telecopier: 708-945-5698
with a copy to:
G. Robert Fisher, Esq.
Michael J. Van Dyke, Esq.
Bryan Cave LLP
1200 Main Street
Suite 3500
Kansas City, Missouri 64105
Telephone: 816-474-7400
Telecopier: 816-391-7600
- 5 -
<PAGE>
If to the Note Holders' Agent, to:
c/o John D. Simms
611 Edgemont Lane
Park Ridge, Illinois 60068
Telephone: 708-825-1569
with a copy to:
John L. Eisel, Esq.
Mark W. Hianik, Esq,
Wildman, Harrold, Allen & Dixon
225 West Wacker Drive
Chicago, Illinois 60606-1229
Telephone: 312-201-2000
Telecopier: 312-201-2555
Each party may, by notice given in accordance with this Section to the other
party, designate another address or person for receipt of notices hereunder.
5.2 No Waivers. No failure or delay by the Note Holders' Agent in exercising
----------
any right, power or privilege hereunder or under this Note shall operate as
a waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided shall be cumulative and
not exclusive of any rights or remedies provided by law . The acceptance by the
Note Holders' Agent of any partial payment made hereunder after the time when
any of the Corporation's liabilities hereunder become due and payable will not
waive, affect or diminish any right of the Note Holders' Agent to require
strict compliance and performance herewith. No notice to or demand on the
Corporation in any case shall entitle the Corporation to any other or further
notice or demand in or related to similar circumstances requiring such
notice.
5.3 Amendments and waivers. Any provision of this Note may be amended or
----------------------
waived if, but only if, such amendment or waiver is in writing, signed by the
Corporation and the Note Holders' Agent.
5.4 Successors and Assigns. The provisions of this Note shall be binding upon
----------------------
and inure to the benefit of the Note Holders' Agent and his successors and
permitted assigns under Section 1.4. Without the prior written consent of the
Corporation the Note Holders' Agent agrees not to, (a) sell, assign, pledge or
otherwise transfer, in whole or in part, directly or indirectly, this Note or
any interest therein or (b) create, incur or suffer to exist any security
interest, lien, charge or other encumbrance whatsoever upon this Note.
- 6 -
<PAGE>
5.5 Company Obligations. The Holders agree and acknowledge that this Note and
-------------------
the Corporation's obligations hereunder are solely obligations and liabilities
of the Corporation. None of the Corporation's directors, officers, employees,
stockholders, advisors, consultants and affiliates or any other persons shall be
obligated or liable in respect of this Note, and the Note Holders' Aqent hereby
releases them from any such obligation of liability.
5.6 LITIGATION. THIS NOTE SHALL BE GOVERNED BY, CONSTRUED, APPLIED AND
----------
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS, AND NO
CHOICE OF LAW PROVISION SHALL BE USED TO APPLY ANY LAW OTHER THAN THAT OF
ILLINOIS, AND NO DEFENSE, COUNTERCLAIM OR RIGHT OF SET-OFF GIVEN OR ALLOWED BY
THE LAWS OF ANY STATE 0R JURISDICTION, OR ARISING OUT 0F THE ENACTMENT,
MODIFICATION OR REPEAL OF ANY LAW, REGULATION, ORDINANCE OR DECREE OF ANY
FOREIGN JURISDICTION, SHALL BE INTERPOSED IN ANY ACTION HEREON. SUBJECT TO
SECTION 5.7, THE PARTIES AGREE THAT ANY ACTION OR PROCEEDING TO ENFORCE OR
ARISING OUT OF THIS NOTE SHALL BE COMMENCED IN THE STATE COURTS, OR IN THE
UNITED STATES DISTRICT COURTS IN CHICAGO, ILLINOIS. THE PARTIES CONSENT TO SUCH
JURISDICTION, AGREE THAT VENUE WILL BE PROPER IN SUCH COURTS AND WAIVE ANY
OBJECTIONS BASED UPON FORUM NON CONVENIENS. THE CHOICE OF FORUM SET FORTH IN
----- --- ----------
THIS SECTION 5.6 SHALL BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY ACTION
UNDER THIS AGREEMENT IN ANY JURISDICTION.
5.7 JURY WAIVER. THE CORPORATION IRREVOCABLY WAIVES ANY RIGHT T0 TRIAL BY JURY
-----------
IN ANY ACTION OR PROCEEDING (I) TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR IN
CONNECTION WITH THIS NOTE OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR (II)
ARISING FROM ANY DISPUTE OR CONTROVERSY IN CONNECTION WITH OR RELATED TO
THIS NOTE OR ANY SUCH AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT, AND AGREES
THAT ANY SUCH ACTION OR PROCEEDING& SHALL BE TRIED BEFORE A COURT AND NOT BEFORE
A JURY.
MK HOLDINGS, INC.
By: /s/ Jonathan F. Boucher
--------------------------------
Name: Jonathan F. Boucher
------------------------------
Title: Vice-President
-----------------------------
- 7 -
<PAGE>
==================================================================
[LOGO]
MERKLE-KORFF INDUSTRIES INC.
LETTER OF CREDIT AGREEMENT
among
MK GROUP, INC.,
MK HOLDINGS, INC.
(which shall be renamed
"MERKLE-KORFF INDUSTRIES, INC.")
and
BANKERS TRUST COMPANY
----------------------------------
Dated as of September 22, 1995
----------------------------------
$95,600,000
==================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1. Standby Letter of Credit...................................... 1
1.01 Standby Letter of Credit.................................... 1
1.02 Letter of Credit Request.................................... 1
1.03 Agreement to Repay Letter of Credit Drawings............... 2
1.04 Increased Costs............................................ 2
SECTION 2. Other Credit Terms........................................... 3
2.01 Fees....................................................... 3
2.02 Method and Place of Payment................................ 4
2.03 Net Payments; Taxes........................................ 4
SECTION 3. Conditions Precedent......................................... 5
3.01 Effective Date............................................. 5
3.02 No Default; Representations and Warranties................. 5
3.03 Opinion of Counsel......................................... 5
3.04 Corporate Proceedings...................................... 5
3.05 Adverse Change, etc........................................ 6
3.06 Litigation................................................. 6
3.07 Approvals, etc............................................. 6
3.08 Cash Collateral Agreement; Deposit into Cash Collateral
Account................................................... 6
3.09 Credit Agreement Conditions................................ 7
3.10 Payment of Fees............................................ 7
3.11 Letter of Credit Request................................... 7
3.12 Consent Letter............................................. 7
SECTION 4. Representations, Warranties and Agreements................... 7
4.01 Corporate Status........................................... 7
4.02 Corporate Power and Authority.............................. 8
4.03 No Violation............................................... 8
4.04 Litigation................................................. 8
4.05 Approvals.................................................. 8
4.06 Representations and Warranties in the Credit Agreement..... 9
4.07 Use of Credit.............................................. 9
4.08 Investment Company Aa 9
4.09 Public Utility Holding Company Act 9
SECTION 5. Covenants.................................................... 9
5.01 Incorporation by Reference................................. 9
(i)
<PAGE>
Page
----
5.02 Consummation of the Merger................................. 10
SECTION 6. Events of Default............................................ 10
6.01 Payments................................................... 10
6.02 Covenants.................................................. 10
6.03 Default under Credit Agreement............................. 10
6.05 Cash Collateral Agreement.................................. 11
SECTION 7. Definitions.................................................. 11
SECTION 8. Miscellaneous................................................ 17
8.01 Payment of Expenses, etc................................... 17
8.02 Right of Setoff ........................................... 18
8.03 Notices.................................................... 19
8.04 Benefit of Agreement....................................... 19
8.05 No Waiver; Remedies Cumulative............................. 19
8.06 Computations............................................... 19
8.07 Governing Law; Submission to Jurisdiction; Venue........... 19
8.08 Counterparts............................................... 20
8.09 Effectiveness.............................................. 20
8.10 Headings Descriptive....................................... 20
8.11 Amendment or Waiver; etc................................... 21
8.12 Survival................................................... 21
8.13 Confidentiality............................................ 21
8.14 Waiver of Jury Trial....................................... 21
SECTION 9. Guaranty..................................................... 22
9.01 The Guaranty............................................... 22
9.02 Bankruptcy................................................. 22
9.03 Nature of Liability........................................ 22
9.04 Independent Obligation..................................... 23
9.05 Authorization.............................................. 23
9.06 Reliance................................................... 24
9.07 Subordination.............................................. 24
9.08 Waiver..................................................... 24
9.09 Maximum Liability.......................................... 25
(ii)
<PAGE>
EXHIBIT A - Form of Letter of Credit
EXHIBIT B - Form of Letter of Credit Request
EXHIBIT C - Form of Opinion of Mayer, Brown & Platt
EXHIBIT D - Form of Officers' Certificate
EXHIBIT E - Form of Letter of Credit Cash Collateral Agreement
EXHIBIT F - Form of Consent Letter
EXHIBIT G-1 - Form of First Installment Note
EXHIBIT G-2 - Form of Second Installment Note
(iii)
<PAGE>
LETTER OF CREDIT AGREEMENT, dated as of September 22, 1995, among MK GROUP,
INC., an Illinois corporation (the "Guarantor"), MK HOLDINGS, INC., an Illinois
corporation and a wholly-owned Subsidiary of the Guarantor ("Acquisition Corp.")
and BANKERS TRUST COMPANY (the "Bank"). Unless otherwise defined herein, all
capitalized terms used herein and defined in Section 7 are used herein as so
defined.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company desires that certain of its payment obligations under the
Installment Note be supported by a letter of credit; and
WHEREAS, subject to and upon the terms and conditions herein set forth
(including, without limitation, the guaranty by the Guarantor of all obligations
of the Company under this Agreement), the Bank is willing to issue at the
request and for the account of the Company its letter of credit;
NOW, THEREFORE, IT IS AGREED:
SECTION 1. Standby Letter of Credit.
------------------------
1.01 Standby Letter of Credit. Subject to and upon the terms and conditions
------------------------
herein set forth, on any single date occurring at any time on or after the
Effective Date and on the Initial Borrowing Date under the Credit Agreement, the
Company may request the Bank to issue, for the account of the Company and in
support of the payment obligations of the Company in respect of the principal
portion of the Installment Notes issued by the Company, and subject to and upon
the terms and conditions herein set forth the Bank agrees to issue, an
irrevocable standby letter of credit in the form of Exhibit A hereto (the
"Letter of Credit").
1.02 Letter of Credit Request. When the Company desires that the Letter of
------------------------
Credit bc issued, the Company shall give the Bank written notice (or telephonic
notice confirmed in writing) thereof prior to 12:00 Noon (New York time) on
September 22, 1995, which written notice shall be in the form of Exhibit B
hereto (the "Letter of Credit Request"). The Letter of Credit Request shall
include any other documents as the Bank customarily requires in connection
therewith.
<PAGE>
1.03 Agreement to Repay Letter of Credit Drawings. (a) The Company hereby
--------------------------------------------
agrees to reimburse the Bank, by making payment to the Bank in immediately
available funds at the Payment Office, for any payment or disbursement made by
the Bank under the Letter of Credit (any such amount so paid or disbursed
until reimbursed, an "Unpaid Drawing") on the date of such payment or
disbursement, with interest on the amount so paid or disbursed by the Bank, to
the extent not reimbursed prior to 12:00 Noon (New York time) on the date of
such payment or disbursement, from and including the date paid or disbursed to
but not including the date the Bank is reimbursed therefor at a rate per annum
which shall be 1.5% plus the Base Rate as in effect from time to time (plus an
additional 2% per annum if not reimbursed by the third Business Day after the
date of such payment or disbursement), such interest also to be payable on
demand. The Bank shall provide the Company prompt notice of any payment or
disbursement made by it under the Letter of Credit, although the failure of, or
delay in, giving any such notice shall not release or diminish the obligations
of the Company under this Section 1.03(a) or under any other Section of this
Agreement.
(b) The Company's obligation under this Section 1.03 to reimburse the Bank
with respect to Unpaid Drawings (including, in each case, interest thereon)
shall be absolute and unconditional under any and all circumstances and
irrespective of any setoff, counterclaim or defense to payment which the Company
may have or have had against the Bank, the Guarantor, the Sellers or any other
Person, including, without limitation, any defense based upon the failure of a
drawing under the Letter of Credit to conform to the terms of the Letter of
Credit or any non-application or misapplication by the beneficiary of the
proceeds of such drawing; the Bank's only obligation to the Company being to
confirm that any documents required to be delivered under the Letter of Credit
appear to have been delivered and that they appear to substantially comply on
their face with the requirements of the Letter of Credit; provided, however,
------------------
that the Company shall not be obligated to reimburse the Bank for any wrongful
payment made by the Bank under the Letter of Credit as a result of acts or
omissions constituting willful misconduct or gross negligence on the part of the
Bank. Any action taken or omitted to be taken by the Bank under or in connection
with the Letter of Credit if taken or omitted in the absence of gross negligence
or willful misconduct, shall not create for the Bank any resulting liability to
the Company.
1.04 Increased Costs. If at any time after the date of this Agreement the Bank
----------------
or any participant in the Letter of Credit determines that the introduction of
or any change in any applicable law, rule, regulation, order, guideline or
request or in the interpretation or administration thereof by any governmental
authority charged with the interpretation or administration thereof, or
compliance by the Bank or any such participant with any request or directive by
any such authority (whether or not having the force of law) shall either (i)
impose, modify or make applicable any reserve, deposit, capital adequacy or
similar requirement against the Letter of Credit issued by the Bank or
participated in by any such participant, or (ii) impose on the Bank or any such
participant any other conditions relating, directly or indirectly, to this
Agreement or the Letter of Credit, and the
-2-
<PAGE>
result of any of the foregoing is to increase the cost to the Bank or any such
participant of issuing, maintaining or participating in the Letter of Credit, or
reduce the amount of any sum received or receivable by the Bank or any such
participant hereunder or reduce the rate of return on its capital with respect
to the Letter of Credit, then, upon demand to the Company by the Bank or any
such participant (a copy of which demand shall be sent by such participant to
the Bank), the Company shall pay to the Bank or such participant such additional
amount or amounts as will compensate the Bank or such participant for such,
increased cost or reduction in the amount receivable or reduction on the rate of
return on its capital. The Bank or any participant in the Letter of Credit,
upon determining that any additional amounts will be payable pursuant to this
Section 1.04, will give prompt written notice thereof to the Company, which
notice shall include a certificate submitted to the Company by the Bank or such
participant (a copy of which certificate shall be sent by such participant to
the Bank), setting forth the basis for the calculation of such additional amount
or amounts necessary to compensate the Bank or such participant, although
failure to give any such notice shall not release or diminish the Company's
obligations to pay additional amounts pursuant to this Section 1.04. The
certificate required to be delivered pursuant to this Section 1.04 shall, absent
manifest error, be final, conclusive and binding on the Company.
SECTION 2. Other Credit Terms.
------------------
2.01 Fees (a) The Company shall pay to the Bank a fee in respect of the Letter
----
of Credit (the "Letter of Credit Fee"), for the period from and including the
date of issuance of the Letter of Credit to and including the termination of the
Letter of Credit, computed at a rate per annum equal to 1/8 of 1% on the daily
Stated Amount of the Letter of Credit. Accrued Letter of Credit Fees shall be
due and payable quarterly in arrears on each September 30, December 31, March
31 and June 30, commencing December 31, 1995 and on the earlier of (x) the
expiration date of the Letter of Credit and (y) the date of drawing under the
Letter of Credit.
(b) The Company shall pay to the Bank an upfront fee in respect of the Letter
of Credit (the "Upfront Fee"), equal to .05% of the Stated Amount of the Letter
of Credit (i.e. of $95,600,000). The Upfront Fee shall be due and payable on
the Effective Date.
(c) The Company hereby agrees to pay to the Bank upon each issuance of,
drawing under, and/or amendment of, the Letter of Credit such amount as shall
at the time of such issuance, drawing or amendment be the administrative
charge which the Bank is generally imposing in connection with issuances of,
drawings under or amendments of, letters of credit issued by it.
-3-
<PAGE>
(d) The Company shall pay to the Bank such other fees (if any) as may be
agreed to from time to time between the Company and the Bank, when and as due.
(e) All computations of Fees shall be made in accordance with Section 8.06.
2.02 Method and Place of Payment. Except as otherwise specifically provided
---------------------------
herein, all payments under this Agreement shall bc made to the Bank not later
than 12:00 Noon (New York time) on the date when due and shall be made in
immediately available funds and in U.S. Dollars at the Payment Office. Any
payments under this Agreement which are made later than 12:00 Noon (New York
time) shall be deemed to have been made on the next succeeding Business Day.
Whenever any payment to be made hereunder shall be stated to be due on a day
which is not a Business Day, the due date thereof shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
shall be payable during such extension at the applicable rate in effect
immediately prior to such extension. All payments made by any Credit Party
hereunder will be made without setoff, counterclaim or other defense.
2.03 Net Payments; Taxes. (a) All payments made by any Credit Party hereunder
-------------------
will be made without setoff, counterclaim or other defense. All such payments
will be made free and clear of, and without deduction or withholding for, any
present or future taxes, levies, imposts, duties, fees, assessments or other
charges of whatever nature now or hereafter imposed by any jurisdiction or by
any political subdivision or taxing authority thereof or therein with respect to
such payments (but excluding, except as provided in the second succeeding
sentence, any tax imposed on or measured by the net income or net profits of the
Bank, pursuant to the laws of the jurisdiction in which it is organized or the
jurisdiction in which the principal office or applicable lending office of the
Bank is located or any subdivision thereof or therein) and all interest,
penalties or similar liabilities with respect to such non-excluded taxes,
levies, imposts, duties, fees or other charges (all such non-excluded taxes,
levies, imposts, duties, fees, assessments or other charges being referred to
collectively as "Taxes"). If any Taxes are so levied or imposed, the Company
agrees to pay the full amount of such Taxes, and such additional amounts as may
be necessary so that every payment of all amounts due under this Agreement,
after withholding or deduction for or on account of any Taxes, will not be less
than the amount provided for herein. If any amounts are payable in respect of
Taxes pursuant to the preceding sentence, the Company agrees to reimburse the
Bank, upon the written request of the Bank, for taxes imposed on or measured by
the net income or net profits of the Bank pursuant to the laws of the
jurisdiction in which the Bank is organized or in which the principal office or
applicable lending office of the Bank is located or under the laws of any
political subdivision or taxing authority of any such jurisdiction in which the
Bank is organized or in which the principal office or applicable lending office
of the Bank is located and for any withholding of income or similar taxes
as the Bank shall determine are payable by, or withheld from, the Bank in
respect of such amounts so paid to or on behalf of the Bank pursuant to the
preceding sentence and in respect of any amounts paid to or on behalf
-4-
<PAGE>
of the Bank pursuant to this sentence. The Company will furnish to the Bank
within 45 days after the date the payment of any Taxes is due pursuant to
applicable law certified copies of tax receipts evidencing such payment by the
Company. The Company agrees to indemnify and hold harmless the Bank, and
reimburse the Bank upon its written request, for the amount of any Taxes so
levied or imposed and paid by the Bank.
(b) If the Company pays any additional amount under this Section 2.03 to the
Bank and the Bank determines in its sole discretion that it has actually
received or realized in connection therewith any refund or any reduction of, or
credit against, its Tax liabilities in or with respect to the taxable year in
which the additional amount is paid, the Bank shall pay to the Company an
amount that the Bank shall, in its sole discretion, determine is equal to the
net benefit, after tax, which was obtained by the Bank in such year as a
consequence of such refund, reduction or credit.
SECTION 3. Conditions Precedent. The obligation of the Bank to issue the
--------------------
Letter of Credit hereunder is subject, at the time of such issuance, to the
satisfaction of the following conditions:
3.01 Effective Date. The Effective Date shall have occurred.
--------------
3.02 No Default; Representations and Warranties. At the time of such issuance,
------------------------------------------
and also after giving effect thereto (i) there shall exist no Default or Event
of Default and (ii) all representations and warranties contained herein and in
the other L/C Documents shall be true and correct in all material respects with
the same effect as though such representations and warranties had been made on
and as of the date of such issuance, unless stated to relate to a specific
earlier date, in which case such representations and warranties shall be true
and correct in all material respects as of such earlier date.
3.03 Opinion of Counsel. The Bank shall have received an opinion, addressed
------------------
to the Bank and dated the date of such issuance, signed Mayer, Brown & Platt,
counsel to the Credit Parties, which opinion shall cover the matters contained
in Exhibit C and such other matters incident to the transactions contemplated
herein as the Bank may reasonably request.
3.04 Corporate Proceedings. (a) The Bank shall have received from each Credit
---------------------
Party a certificate, dated the date of such issuance, signed by the President or
any Vice-President of such Credit Party, and attested to by the Secretary or any
Assistant Secretary of such Credit Party, in the form of Exhibit D with
appropriate insertions, together with copies of the certificate of incorporation
and by-laws of such Credit Party and the resolutions of such Credit Party
referred to in such certificate, and all of the foregoing (including such
certificate of incorporation and by-laws) shall be satisfactory to the Bank.
-5-
<PAGE>
(b) All corporate and legal proceedings and all instruments and agreements in
connection with the transactions contemplated by this Agreement and the other
L/C Documents shall be satisfactory in form and substance to the Bank, and the
Bank shall have received all information and copies of all certificates,
documents and papers, including good standing certificates, bring-down telegrams
or facsimiles and any other records of corporate proceedings and governmental
approvals, if any, which the Bank may have requested in connection therewith,
such documents and papers, where appropriate, to be certified by proper
corporate or governmental authorities.
3.05 Adverse Change, etc. Since December 31, 1994, nothing shall have occurred
-------------------
(and the Bank shall have become aware of no facts, conditions or other
information not previously known) which the Bank shall reasonably determine (a)
has, or could have, a material adverse effect on the rights or remedies of the
Bank, or on the ability of any Credit Party to perform its obligations to the
Bank hereunder or under the other L/C Documents to which it is a party or (b)
has, or could have, a Material Adverse Effect.
3.06 Litigation. There shall be no actions, suits or proceedings pending or
-----------
threatened (a) with respect to the issuance of the Letter of Credit, this
Agreement or the other L/C Documents or any documentation executed in connection
herewith or the other L/C Documents or the transactions contemplated hereby or
thereby or (b) which the Bank shall reasonably determine could (i) have a
Material Adverse Effect or (ii) have a material adverse effect on the rights or
remedies of the Bank hereunder or under the other L/C Documents or on the
ability of any Credit Party to perform its obligations to the Bank hereunder or
under the other L/C Documents.
3.07 Approvals, etc. (i) All necessary governmental (domestic and foreign) and
--------------
third party approvals in connection with this Agreement and the other L/C
Documents and otherwise referred to herein or therein shall have been obtained
and remain in full force and effect and evidence thereof shall have been
provided to the Bank, and (ii) all applicable waiting periods shall have expired
without any action being taken by any competent authority which restrains,
prevents or imposes materially adverse conditions upon the issuance of the
Letter of Credit and the transactions contemplated by this Agreement and the
other L/C Documents or otherwise referred to herein or therein. Additionally,
there shall not exist any judgment, order, injunction or other restraint issued
or filed or a hearing seeking injunctive relief or other restraint pending or
notified prohibiting or imposing materially adverse conditions upon the issuance
of the Letter of Credit or the transactions contemplated by this Agreement and
the other L/C Documents.
3.08 Cash Collateral Agreement; Deposit into Cash Collateral Account. The
---------------------------------------------------------------
Company shall have duly authorized, executed and delivered a cash collateral
agreement substantially in the form of Exhibit E attached hereto (as amended,
modified or supplemented from time to time, the "Cash Collateral Agreement") and
such Cash Collateral Agreement shall be in full force and effect. In addition,
the Company shall have
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<PAGE>
made or caused to be made or shall simultaneously make the deposit of
$95,600,000 into the Cash Collateral Account as required by the terms of the
Cash Collateral Agreement.
3.09 Credit Agreement Conditions. All conditions precedent set forth in
---------------------------
Sections 5 and 6 of the Credit Agreement shall have been satisfied (including,
without limitation, the issuance of the Installment Notes), and the Initial
borrowing Date under the Credit Agreement shall have occurred.
3.10 Payment of Fees. All costs, fees and expenses, and all other compensation
---------------
contemplated by this Agreement, due to the Bank (including, without limitation,
legal fees and expenses) shall have been paid to the extent due.
3.11 Letter of Credit Request. The Bank shall have received the Letter of
------------------------
Credit Request satisfying the requirements of Section 1.02 with respect to the
issuance of the Letter of Credit.
3.12 Consent Letter. The Bank shall have received a letter from CT Corporation
--------------
System, presently located at 1633 Broadway, New York, New York 10019,
substantially in the form of Exhibit F, indicating its consent to its
appointment by each Credit Party as its agent to receive service of process as
specified in Section 8.07.
The acceptance of the benefits of the issuance of the Letter of Credit shall
constitute a representation and warranty by each Credit Party to the Bank that
all of the applicable conditions specified above exist as of the date of such
issuance. All of the certificates, legal opinions and other documents and papers
referred to in this Section 3, unless otherwise specified, shall be delivered to
the Bank at its Notice Office and shall be satisfactory in form and substance to
the Bank.
SECTION 4. Representations, Warranties and Agreements. In order to induce the
------------------------------------------
Bank to enter into this Agreement and to issue the Letter of Credit provided for
herein, each Credit Party makes the following representations, warranties and
agreements with the Bank, all of which shall survive the execution and delivery
of this Agreement and the issuance of the Letter of Credit (with the issuance of
the Letter of Credit being deemed to constitute a representation and warranty
that the matters specified in this Section 4 are true and correct in all
material respects on and as of the date hereof, unless stated to relate to a
specific earlier date in which all such representations and warranties shall be
true and correct in all material respects as of such earlier date):
4.01 Corporate Status. Each Credit Party (i) is a duly organized and validly
----------------
existing corporation in good standing under the laws of the jursdiction of its
organization, (ii) has the corporate power and authority to own its property and
assets and to transact the business in which it is engaged and presently
proposes to engage and (iii)
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<PAGE>
is duly qualified and is authorized to do business and is in good standing in
all jurisdictions where the conduct of its business requires such
qualifications, except where failures to be so qualified, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
4.02 Corporate Power and Authority. Each Credit Party has the corporate power
-----------------------------
and authority to execute, deliver and perform the terms and provisions of each
of the L/C Documents to which it is a party and has taken all necessary
corporate action to authorize the execution, delivery and performance by it of
each of such L/C Documents. Each Credit Party has duly executed and delivered
each of the L/C Documents to which it is a party, and each of such L/C Documents
constitutes the legal, valid and binding obligation of each such Credit Party
enforceable in accordance with its terms, except to the extent that the
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws generally affecting creditors' rights
and by equitable principles (regardless of whether enforcement is sought in
equity or at law).
4.03 No Violation. Neither the execution, delivery or performance by any
------------
Credit Party of the L/C Documents to which it is a party, nor compliance by it
with the terms and provisions thereof, nor the consummation of the transactions
contemplated therein, (i) will contravene any applicable provision of any law,
statute, rule or regulation, or any order, writ, injunction or decree of any
court or governmental instrumentality, (ii) will conflict or be inconsistent
with or result in any breach of, any of the terms, covenants, conditions or
provisions of, or constitute a default under, or result in the creation or
imposition of (or the obligation to create or impose) any Lien (except pursuant
to the Cash Collateral Agreement) upon any of the property or assets of any
Credit Party or any of its Subsidiaries pursuant to the terms of any indenture,
mortgage, deed of trust, loan agreement, credit agreement or any other agreement
or instrument to which any Credit Party or any of its Subsidiaries is a party or
by which it or any of its property or assets are bound or to which it may be
subject or (iii) will violate any provision of the certificate of incorporation
or by-laws of any Credit Party or any of its Subsidiaries.
4.04 Litigation. There are no actions, suits or proceedings pending or
----------
threatened (i) with respect to any L/C Document or (ii) that could reasonably be
expected to have (a) a Material Adverse Effect or (b) a material adverse effect
on the rights or remedies of the Bank or on the ability of any Credit Party to
perform its obligations to the Bank hereunder and under the other L/C Documents
to which it is, or will be, a party. Additionally, there does not exist any
judgment, order or injunction prohibiting or imposing material adverse
conditions upon the issuance of the Letter of Credit.
4.05 Approvals. No order, consent, approval, license, authorization, or
---------
validation of, or filing, recording or registration with, or exemption by, any
governmental or public body or authority, or any subdivision thereof, or any
other third party, is required to authorize or is required in connection with
(i) the execution, delivery and performance
-8-
<PAGE>
of any L/C Document or (ii) the legality, validity, binding effect or
enforceability of any such L/C Document.
4.06 Representations and Warranties in the Credit Agreement. All
------------------------------------------------------
representations and warranties set forth in the Credit Agreement, are true and
correct in all material respects as of the date hereof.
4.07 Use of Credit. No part of the proceeds of any extension of credit under
-------------
this Agreement will be used for the purpose, whether immediate, incidental or
ultimate, of buying or carrying any margin stock (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System) or to
extend credit to others for the purpose of buying or carrying any such margin
stock. The issuance of the Letter of Credit will not violate or be inconsistent
with the provisions of Regulation G, T, U or X of the Board of Governors of the
Federal Reserve System.
4.08 Investment Company Act. Neither Guarantor nor any of its Subsidiaries is
----------------------
an "investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
4.09 Public Utility Holding Company Act. Neither Guarantor nor any of its
----------------------------------
Subsidiaries is a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company" within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
SECTION 5. Covenants. Each Credit Party hereby covenants and agrees that on
---------
the Effective Date and thereafter for so long as this Agreement is in effect and
until the Letter of Credit is terminated and any Unpaid Drawings, together with
interest, Fees and all other Obligations incurred hereunder, are paid in full:
5.01 Incorporation by Reference. Each of the Guarantor and the Company will,
--------------------------
and will cause each of its respective Subsidiaries to, comply with, subject to
the following sentence, each of the covenants set forth in Sections 8 and 9 of
the Credit Agreement (including, without limitation, where pertinent, the
definitions of defined terms used in such incorporated Sections) to the extent
such covenants are applicable to the Guarantor, the Company or such Subsidiary,
each of which covenants (and definitions) is incorporated herein by reference as
if fully set forth herein in its entirety. Any such covenants set forth in
Sections 8 and 9 of the Credit Agreement (and corresponding definitions) and
incorporated herein by reference (i) shall, if Bankers Trust Company has
assigned more than 50% of its rights under this Agreement, be incorporated
herein as such covenants may have been terminated, waived or amended, modified
and supplemented from time to time in accordance with the terms of the Credit
Agreement and (ii) shall, so long
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<PAGE>
as Bankers Trust Company has not assigned more than 50% of its rights under
this Agreement, be incorporated herein as such covenants are in effect on the
Effective Date without giving effect to any termination, waiver, amendment,
modification or supplement thereto and will continue to be binding on the
Guarantor, the Company and their respective Subsidiaries notwithstanding any
such termination, waiver, amendment, modification or supplement, unless
Bankers Trust Company, as the Bank hereunder, has consented to any such
termination, waiver, amendment, modification or supplement in writing for
purposes of this Agreement in which case effect will be given to such
termination, waiver, amendment, modification or supplement for purposes of this
Agreement. In addition, the terms "this Agreement", "herein", "hereof" and words
of similar purport and the references to "Note" or "Notes" as used in the Credit
Agreement shall be deemed to refer to this Agreement and the obligations of the
Company to the Bank hereunder, respectively; all references to "Credit
Document," "Credit Documents," "Document" or "Documents" shall be deemed to
include this Agreement and the other L/C Documents; the term "Event of Default"
as used in the Credit Agreement shall be deemed to refer to an Event of Default
as defined in this Agreement; and the terms "the Agent," "the Banks" and "the
Required Banks" as used in the Credit Agreement shall be deemed to refer to the
Bank.
5.02 Consummation of the Merger. Promptly following the Acquisition, but in
--------------------------
any event on the date of the issuance of the Letter of Credit, Acquisition Corp.
shall consummate the Mergers in accordance with the Acquisition Documents and
all applicable laws. On the date of issuance of the Letter of Credit but after
giving effect to the Mergers, Acquisition Corp., as the surviving corporation of
the Mergers, shall change its name to "Merkle-Korff Industries, Inc.".
SECTION 6. Events of Default. Upon the occurrence of any of the following
-----------------
specified events (each, an "Event of Default"):
6.01 Payments. The Company shall default in the payment when due of (i) any
--------
Unpaid Drawing for three or more Business Days after the date the drawing was
made or (ii) any interest on any Unpaid Drawing, or any Fees or any other
amounts owing to the Bank hereunder or under any other L/C Document, and such
default shall continue unremedied for a period of three or more Business Days;
or
6.02 Covenants. Any Credit Party shall (i) default in the due performance or
---------
observance by it of any term, covenant or agreement contained in Section 5.02 or
(ii) default in the due performance or observance by it of any other term,
covenant or agreement contained in this Agreement and such default shall
continue unremedied for a period of 30 days after written notice to the Company
by the Bank; or
6.03 Default under Credit Agreement. Any "Default" under, and as defined in,
------------------------------
the Credit Agreement (as in effect on the Effective Date) under Section 10.01
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<PAGE>
or 10.05 of the Credit Agreement (as such Sections are in effect on the
Effective Date) or any "Event of Default" under, and as defined in, the Credit
Agreement (as in effect on the Effective Date) under Sections 10.03 (as a result
of a violation of any of the covenants contained in Sections 9.09, 9.10 and/or
9.11 thereof), 10.01 or 10.05 of the Credit Agreement (as such sections are in
effect on the Effective Date) (in each case without regard to any amendment,
modification, termination or waiver thereof) shall have occurred, or
6.04 Guaranty. The Guaranty or any provision thereof shall cease to be in full
---------
force or effect, or the Guarantor or any Person acting by or on behalf of the
Guarantor shall deny or disaffirm the Guarantor's obligations under the
Guaranty, or the Guarantor shall default in the due performance or observance of
any term, covenant or agreement on its part to be performed or observed
pursuant to the Guaranty; or
6.05 Cash Collateral Agreement. At any time after the execution and delivery
-------------------------
thereof, the Cash Collateral Agreement or any provision thereof shall cease to
be in full force or effect or shall cease to give the Bank the Liens, rights,
powers and privileges purported to be created thereby (including, without
limitation, a perfected security interest in, and Lien on, all of the
"Collateral" (as defined therein)), in favor of the Bank, superior to and prior
to the rights of all third Persons and subject to no other Liens, or the Company
shall default in the due performance or observance of any term, covenant or
agreement on its part to be performed or observed pursuant to the Cash
Collateral Agreement;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Bank may take any or all of the following actions
(provided, that, if an Event of Default specified in Section 6.03 as a result of
--------
an "Event of Default" (as defined in the Credit Agreement) under Section 10.05
of the Credit Agreement (as such Section is in effect on the Effective Date)
shall occur with respect to the Company, the result which would occur upon the
giving of written notice by the Bank to the Company as specified in clause (i)
below shall occur automatically without the giving of any such notice): (i) by
written notice to the Company, declare all Obligations (including Unpaid
Drawings) owing hereunder to be, whereupon the same shall become, forthwith due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by each Credit Party (ii) terminate the Letter of
Credit in accordance with its terms; and (iii) exercise all of its rights and
remedies under the Cash Collateral Agreement and the other L/C Documents,
including, without limitation, applying any or all proceeds in the Cash
Collateral Account in accordance with the terms of the Cash Collateral
Agreement.
SECTION 7. Definitions. As used herein, the following terms shall have the
------------
meanings herein specified unless the context otherwise requires. Defined terms
in this Agreement shall include in the singular number the plural and in the
plural the singular:
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<PAGE>
"Acquisition" shall have the meaning provided in the Credit Agreement.
"Acquisition Corp." shall have the meaning provided in the first paragraph of
this Agreement.
"Acquisition Documents" shall have the meaning provided in the Credit
Agreement.
"Adjusted Certificate of Deposit Rate" shall mean, on any day, the sum
(rounded to the nearest 1/100 of 1%) of (1) the rate obtained by dividing (x)
the most recent weekly average dealer offering rate for negotiable certificates
of deposit with a three-month maturity in the secondary market as published in
the most recent Federal Reserve System publication entitled "Select Interest
Rates," published weekly on Form H.15 as of the date hereof, or if such
publication or a substitute containing the foregoing rate information shall not
be published by the Federal Reserve System for any week, the weekly average
offering rate determined by the Bank on the basis of quotations for such
certificates received by it from three certificate of deposit dealers in New
York of recognized standing or, if such quotations are unavailable, then on the
basis of other sources reasonably selected by the Bank, by (y) a percentage
equal to 100% minus the stated maximum rate of all reserve requirements as
specified in Regulation D applicable on such day to a three-month certificate of
deposit of a member bank of the Federal Reserve System in excess of S100,000
(including, without limitation, any marginal, emergency, supplemental, special
or other reserves), plus (2) the then daily net annual assessment rate as
estimated by the Bank for determining the current annual assessment payable by
the Bank to the Federal Deposit Insurance Corporation for insuring three month
certificates of deposit.
"Agreement" shall mean this Letter of Credit Agreement, as the same may be
from time to time modified, amended and/or supplemented.
"Bank" shall have the meaning provided in the first paragraph of this
Agreement.
"Base Rate" at any time shall mean the higher of (x) the rate which is 1/2 of
1% in excess of the Adjusted Certificate of Deposit Rate, (y) 1/2 of 1% in
excess of the Federal Funds Rate and (z) the Prime Lending Rate.
"Business Day" shall mean any day excluding Saturday, Sunday and any day which
shall be in the City of New York or Chicago, Illinois a legal holiday or a day
on which banking institutions are authorized by law or other governmental
actions to close.
"Cash Collateral Account" shall have the meaning provided in the Cash
Collateral Agreement.
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<PAGE>
"Cash Collateral Agreement" shall have the meaning provided in Section 3.08.
"Company" shall mean (i) prior to the consummation of the Mergers, Acquisition
Corp., and (ii) after the consummation of the Mergers, Acquisition Corp. as the
surviving corporation of the Mergers but which shall immediately change its name
to "Merkle-Korff Industries, Inc."
"Credit Agreement" shall mean the Credit Agreement, dated as of September 22,
1995, among the Guarantor, the Company, various lending institutions from time
to time party thereto and Bankers Trust Company, as Agent, and except as
otherwise provided herein, as the same may be modified, supplemented, amended,
restated, extended, renewed, refinanced, restructured or replaced from time to
time.
"Credit Party" shall mean the Company and the Guarantor.
"Default" shall mean any event, act or condition which with notice or lapse of
time or both would constitute an Event of Default.
"Effective Date" shall have the meaning provided in Section 8.09.
"Environmental Claims" shall mean any and all administrative, regulatory, or
judicial actions, suits, demands, demand letters, directives, claims, liens,
notices of noncompliance or violation, investigations, orders or proceedings
relating in any way to any Environmental Law or any permit issued, or any
approval given, under any such Environmental Law (hereinafter, "Claims"),
including, without limitation, (a) any and all Claims by governmental or
regulatory authorities for enforcement, cleanup, removal, response, remedial or
other actions or damages pursuant to any applicable Environmental Law, and (b)
any and all Claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
Hazardous Materials or arising from alleged injury or threat of injury to
health, safety or the environment.
"Environmental Law" shall mean any applicable Federal, state, foreign or
local statute, law, rule, regulation, ordinance, code, binding and enforceable
guideline, binding ant enforceable written policy and rule of common law now or
hereafter in effect and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment relating to the environment, employee health
and safety or Hazardous Materials, including, without limitation, CERCLA; RCRA;
the Federal Water Pollution Control Act, 33 U.S.C. (S) 2601 et seq., the Clean
-- ----
Air Act, 42 U.S.C. (S) 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. (S)
-- ----
3803 et sec.; the Oil Pollution Act of 1990, 33 U.S.C. (S) 2701 et seq.; the
---- -----
Emergency Planning and the Community Right-to-Know Act of 1986, 42 U.S.C.
(S) 11001
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<PAGE>
et seq., the Hazardous Material Transportation Act, 49 U.S.C. (S) 1801 et seq.
- -- ---- -- ---
and the Occupational Safety and Health Act, 29 U.S.C. (S) 651 et. seq. (to the
--- ---
extent it regulates occupational exposure to Hazardous Materials); and any state
and local or foreign counterparts or equivalents, in each case as amended from
time to time.
"Event of Default" shall have the meaning provided in Section 6.
"Federal Funds Rate" shall mean, for any period, a fluctuating interest rate
equal for each day during such period to the weighted average of the rates on
overnight Federal Funds transactions with members of the Federal Reserve System
arranged by Federal Funds brokers, as published for such day (or, if such day
is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day
which is a Business Day, the average of the quotations for such day on such
transactions received by the Bank from three Federal Funds brokers of recognized
standing selected by the Bank.
"Fees" shall mean all amounts payable pursuant to, or referred to in, Section
2.01.
"Guaranteed Obligations" shall mean the full and prompt payment when due
(whether at the stated maturity, by acceleration or otherwise) of all
reimbursement obligations and Unpaid Drawings with respect to the Letter of
Credit, together with all the other obligations (including obligations, which,
but for the automatic stay under Section 362(a) of the Bankruptcy Code, would
become due) and liabilities (including, without limitation, indemnities, fees
and interest thereon) of the Company to the Bank now existing or hereafter
incurred under, arising out of or in connection with this Agreement or the other
L/C Documents and the due performance and compliance with all the terms,
conditions and agreements contained in this Agreement and the other L/C
Documents by the Company.
"Guarantor" shall have the meaning provided in the first paragraph of this
Agreement.
"Guaranty" shall mean the guaranty of the Guarantor pursuant to Section 9 of
this Agreement.
"Hazardous Materials" shall mean (a) oil as defined by the Oil Pollution Act
of 1990, 33 U.S.C. (S) 2701 et. seq., (b) any petrochemical or petroleum
-- ---
products, radioactive materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, transformers or other equipment that
contain dielectric fluid containing levels of polychlorinated biphenyls, and
radon gas; (c) any chemicals, materials or substances defined as or included in
the definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "restricted hazardous materials," "extremely hazardous wastes,"
"restrictive hazardous wastes," "toxic substances", "toxic pollutants,"
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<PAGE>
"contaminants" or "pollutants," or words of similar meaning and regulatory
effect under any applicable Environmental Law; or (d) any other chemical,
material or substance, exposure to which is prohibited, limited or regulated by
any governmental authority.
"Initial Borrowing Date" shall have the meaning provided in the Credit
Agreement.
"Installment Notes" shall mean and include each of (i) the promissory note,
dated September 22, 1995, issued by the Company to the Sellers as partial
consideration for the Acquisition having a principal amount not to exceed
$90,000,000, which promissory note shall mature no later than December 31, 1996,
bc supported by the Letter of Credit and be in the form of Exhibit G-1 hereto
and (ii) the promissory note, dated September 22, 1995, issued by the Company to
the Sellers as partial consideration for the Acquisition having a principal
amount not to exceed $5,600,000, which promissory note shall mature no later
than December 31, 1996, be supported by the Letter of Credit and be in the form
of Exhibit G-2 hereto.
"L/C Documents" shall mean this Agreement, the Letter of Credit, the Letter
of Credit Request and the Cash Collateral Agreement.
"Letter of Credit" shall have the meaning provided in Section 1.01.
"Letter of Credit Fee" shall have the meaning provided in Section 2.01(a).
"Letter of Credit Request" shall have the meaning provided in Section 1.02.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other) or other security agreement
or preferential arrangement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement, any
financing or similar statement or notice filed under the UCC or any other
similar recording or notice statute, and any lease having substantially the same
effect as any of the foregoing).
"Material Adverse Effect" shall mean a material adverse effect on the
performance, business, operations, properties, assets, nature of assets,
liabilities, condition (financial or otherwise) or prospects of the Acquired
Business (as defined in the Credit Agreement), the Guarantor, the Company, the
Guarantor and its Subsidiaries taken as a whole or the Company and its
Subsidiaries taken as a whole.
"Mergers" shall have the meaning provided in the Credit Agreement.
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<PAGE>
"Notice Office" shall mean the office of the Bank located at 130 Liberty
Street, New York, New York 10006, Attention: Mary Kay Coyle, or such other
office as the Bank; may designate to the Borrower from time to time.
"Obligations" shall mean all amounts, direct or indirect, contingent or
absolute of every type or description, and at any time existing, owing to
the Bank pursuant to the terms of this Agreement or any other L/C Document.
"Payment Office" shall mean the office of the Bank located at 130 Liberty
Street, New York, New York 10006 or such other office as the Bank may
designate to the Borrower from time to time.
"Person" shall mean any individual, partnership, joint venture, firm,
corporation, association, trust or other enterprise or any government or
political subdivision or any agency, department or instrumentality thereof.
"Prime Lending Rate" shall mean the rate which the Bank announces from time to
time as its prime lending rate, the Prime Lending Rate to change when and as
such prime lending rate changes. The Prime Lending Rate is a reference rate and
does not necessarily represent the lowest or best rate actually charged to any
customer. The Bank may make commercial loans or other loans at rates of interest
at, above or below the Prime Lending Rate.
"Real Property" of any Person shall mean all the right, title and interest of
such Person in and to land, improvements and fixtures, including leaseholds.
"Regulation D" shall mean Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing reserve requirements.
"Release" shall mean disposing, discharging, injecting, spilling, pumping,
leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing,
pouring and the like, into or upon any land or water or air, or otherwise
entering into the indoor or outdoor environment or into or out of any Real
Property, including the movement of Hazardous Materials through or in the air,
soil, service water, ground water or property.
"Sellers" shall mean collectively, each of the stockholders of Merkle-Korff
Industries, Inc., Mercury Industries, Inc. and Elmco Industries, Inc.
"Stated Amount" of the Letter of Credit shall mean at any time the maximum
amount available to be drawn thereunder (determined regardless of whether any
conditions for drawing could then be met).
-16-
<PAGE>
"Subsidiary" of any Person shall mean and include (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person and (ii) any partnership, association, joint
venture or other entity in which such Person and/or one or more Subsidiaries,
has more than a 50% equity interest at the time.
"Taxes" shall have the meaning provided in Section 2.03.
"UCC" shall mean the Uniform Commercial Code as in effect from time to time in
the relevant jurisdiction.
"Unpaid Drawing" shall have the meaning provided in Section 1.03(a).
"Upfront Fee" shall have the meaning provided in Section 2.01(b).
"U.S. Dollars" and the sign "$" shall each mean freely transferable lawful
money of the United States of America.
"Written," "written" or "in writing" shall mean any form of written
communication or a communication by means of telex, facsimile device, telegraph
or cable.
SECTION 8. Miscellaneous.
-------------
8.01 Payment of Expenses, etc. The Company shall: (i) whether or not the
------------------------
transactions herein contemplated are consummated, pay all reasonable out-of-
pocket costs and expenses of the Bank (including, without limitation, the
reasonable fees and disbursements of White & Case) in connection with the
preparation, execution and delivery of this Agreement and the other L/C
Documents and the documents and instruments referred to herein and therein and
any amendment, waiver or consent relating hereto or thereto, and of the Bank in
connection with the enforcement of this Agreement and the other L/C Documents
and the documents and instruments referred to herein and therein (including,
without limitation, the reasonable fees and disbursements of counsel for the
Bank) and expenses incurred in connection with any reorganization or proposed
reorganization of the Guarantor, the Company or any of their respective
Subsidiaries; (ii) pay and hold the Bank harmless from and against any and all
present and future stamp, excise and other similar taxes with respect to the
foregoing matters and save the Bank harmless from and against any and all
liabilities with respect to or resulting from any delay or omission (other than
to the extent attributable to the Bank) to pay such taxes; and (iii) indemnify
the Bank and each of its officers. directors, employees, representatives and
-17-
<PAGE>
agents from and hold each of them harmless against any and all liabilities,
obligations (including removal or remedial actions), losses, damages,
penalties, claims, actions, judgments, suits, costs, expenses and disbursements
(including attorneys' and consultants' fees and disbursements) incurred by,
imposed on or assessed against any of them as a result of, or arising out of, or
in any way related to, or by reason of, (a) any investigation, litigation or
other proceeding (whether or not the Bank is a party thereto) related to the
entering into and/or performance of this Agreement or any other L/C Document or
the use of the Letter of Credit or the consummation of any transactions
contemplated herein or in any other L/C Document or the exercise of any of their
rights or remedies provided herein or in the other L/C Documents, or (b) the
actual or alleged presence of Hazardous Materials in the air, surface water or
groundwater or on the surface or subsurface of any Real Property owned, leased
or at any time operated by any Credit Party or any of its Subsidiaries, the
Release, generation, storage, transportation, handling or disposal of Hazardous
Materials at any location, whether or not owned, leased or operated by any
Credit Party or any of its Subsidiaries, the non-compliance of any Real Property
with foreign, federal, state and local laws, regulations, and ordinances
(including applicable permits thereunder) applicable to any Real Property, or
any Environmental Claim asserted against any Credit Party, any of its
Subsidiaries, its operations or any Real Property owned, leased or at any time
operated by any Credit Party or any of its Subsidiaries, including, in each
case, without limitation, the fees and disbursements of counsel and other
consultants incurred in connection with any such investigation, litigation or
other proceeding (but excluding any losses, liabilities, claims, damages or
expenses to the extent incurred by reason of the gross negligence or willful
misconduct of the Person to be indemnified). To the extent that the undertaking
to indemnify, pay or hold harmless the Bank set forth in the preceding sentence
may be unenforceable because it is violative of any law or public policy, each
Credit Party shall make the maximum contribution to the payment and satisfaction
of each of the indemnified liabilities which is permissible under applicable
law.
8.02 Right of Setoff. In addition to any rights now or hereafter granted under
---------------
applicable law or otherwise, and not by way of limitation of any such rights,
upon the occurrence of an Event of Default, the Bank is hereby authorized at any
time or from time to time, without presentment, demand, protest or other notice
of any kind to any Credit Party or any of its Subsidiaries or to any other
Person, any such notice being hereby expressly waived, to set off and to
appropriate and apply any and all deposits (general or special) and any other
indebtedness at any time held or owing by the Bank (including, without
limitation, by branches and agencies of the Bank wherever located) to or for the
credit or the account of any Credit Party or any of its Subsidiaries against and
on account of the Obligations and liabilities of any Credit Party or any of its
Subsidiaries to the Bank under this Agreement or under any of the other L/C
Documents, and all other claims of any nature or description arising out of or
connected with this Agreement or any other L/C Document, irrespective of whether
or not the Bank shall have made any demand hereunder and although said
Obligations, liabilities or claims, or any of them, shall be contingent or
unmatured.
-18-
<PAGE>
8.03 Notices. Except as otherwise expressly provided herein, all notices and
-------
other communications provided for hereunder shall be in writing (including
telegraphic, telex, facsimile or cable communication) and mailed, telegraphed,
telexed, telecopied, cabled or delivered, if to any Credit Party, at the address
specified opposite its signature below; if to the Bank, at the Notice Office;
or, at such other address as shall be designated by any party in a written
notice to the other parties hereto. All such notices and communications shall,
when mailed, telegraphed telexed, telecopied or cabled or sent by overnight
courier, be effective when deposited in the mails, delivered to the telegraph
company, cable company or overnight courier, as the case may be, or sent by
telex or telecopier, except that notices and communications to the Bank shall
not be effective until received by the Bank.
8.04 Benefit of Agreement. This Agreement shall be binding upon and inure to
--------------------
the benefit of and be enforceable by the respective successors and assigns of
the parties hereto; provided, however, no Credit Party may assign or transfer
-------- --------
any of its rights, obligations or interest hereunder or under any other L/C
Document without the prior written consent of the Bank. The Bank may assign,
negotiate, pledge or otherwise hypothecate all or any portion of this Agreement
or the Cash Collateral Agreement, or grant participations herein, in the Letter
of Credit, the Cash Collateral Agreement or in any of its rights or security
hereunder or under the Cash Collateral Agreement, including, without limitation,
the instruments securing the Company's obligations hereunder.
8.05 No Waiver; Remedies Cumulative. No failure or delay on the part of the
------------------------------
Bank in exercising any right, power or privilege hereunder or under any other
L/C Document and no course of dealing between any Credit Party and the Bank
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege hereunder or under and other L/C Document preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege hereunder or thereunder. The rights, powers and remedies herein or
in any other L/C Document expressly provided are cumulative and not exclusive of
any rights, powers or remedies which the Bank would otherwise have. No notice to
or demand on any Credit Party in any case shall entitle any Credit Party to any
other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of the Bank to any other or further action in
any circumstances without notice or demand.
8.06 Computations. All computations of interest and Fees hereunder shall be
------------
made on the basis of a year of 360 days for the actual number of days including
the first day but excluding the last day) occurring in the period for which such
interest or Fees are payable.
8.07 Governing Law: Submission to Jurisdiction: Venue. (a) THIS AGREEMENT AND
THE OTHER L/C DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER AND THEREUNDER SHALL BE
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<PAGE>
CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW
YORK. Any legal action or proceeding with respect to this Agreement or any other
L/C Document may be brought in the courts of the State of New York or of the
United States for the Southern District of New York, and, by execution and
delivery of this Agreement, each Credit Party hereby irrevocably accepts for
itself and in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts. Each Credit Party hereby further
irrevocably designates, appoints and empowers CT Corporation System, with
offices on the date hereof at 1633 Broadway, New York, New York 10019 as its
designee, appointee and agent to receive, accept and acknowledge for and on its
behalf, and in respect of its property, service of any and all legal process,
summons, notices and documents which may be served in any such action or
preceding. If for any reason such designee, appointee and agent shall cease to
be available to act as such, each Credit Party agrees to designate a new
designee, appointee and agent in New York City on the terms and for the purpose
of this provision satisfactory to the Bank under this Agreement. Each Credit
Party further irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to the Guarantor or
the Company, as the case may be, at its address set forth opposite its signature
below, such service to become effective 30 days after such mailing. Nothing
herein shall affect the right of the Bank under this Agreement to serve process
in any other manner permitted by law or to commence legal proceedings or
otherwise proceed against any Credit Party in any other jurisdiction.
(b) Each Credit Party hereby irrevocably waives any objection which it may now
or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement or any other L/C
Document brought in the courts referred to in clause (a) above and hereby
further irrevocably waives and agrees not to plead or claim in any such court
that any such action or proceeding brought in any such court has been brought in
an inconvenient forum.
8.08 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts executed by all the parties hereto shall be lodged with the Company
and the Bank.
8.09 Effectiveness. This Agreement shall become effective on the date (the
-------------
"Effective Date") on which each Credit Party and the Bank shall have executed
and delivered a counterpart hereof (whether the same or different
counterparts).
8.10 Headings Descriptive. The headings of the several sections and
--------------------
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
-20-
<PAGE>
8.11 Amendment or Waiver; etc. Neither this Agreement nor any terms hereof may
------------------------
be changed, waived, discharged or terminated unless such change, waiver,
discharge or termination is in writing signed by each Credit Party and the Bank.
8.12 Survival. All indemnities set forth herein including, without limitation,
--------
in Section 1.04, 2.03 and 8.01, shall survive the execution and delivery of this
Agreement, the issuance of the Letter of Credit and the repayment of all
Obligations.
8.13 Confidentiality. (a) Subject to the provisions of clause (b) of this
---------------
Section 8.13, the Bank agrees that it will use its best efforts not to disclose
without the prior consent of the Company (other than to its employees, auditors,
counsel or other advisors, to affiliates or to another bank party to the Credit
Agreement if the Bank or the Bank's holding or parent company in its sole
discretion determines that any such party should have access to such
information, provided such Persons shall be subject to the provisions of this
Section 8.13 to the same extent as the Bank) any information with respect to
any Credit Party or any of their respective Subsidiaries which is furnished
pursuant to this Agreement and which is designated by the Company to the Bank in
writing as confidential; provided, that the Bank may disclose any such
--------
information (a) as has become generally available to the public or has become
available to the Bank on a non-confidential basis, (b) as may be required or
appropriate in any report, statement or testimony submitted to any municipal,
state or Federal regulatory body having or claiming to have jurisdiction over
the Bank or to the Federal Reserve Board or the Federal Deposit Insurance
Corporation or similar organizations (whether in the United States or
elsewhere) or their successors, (c) as may be required or appropriate in
response to any summons or subpoena or in connection with any litigation, (d) in
order to comply with any law, order, regulation or ruling applicable to the
Bank, and (e) to any prospective participant in the Letter of Credit; provided,
--------
that such prospective participant agrees to provisions substantially identical
to those contained in this Section.
(b) Each Credit Party hereby acknowledges and agrees that the Bank may share
with any of its affiliates any information related to such Credit Party or any
of its Subsidiaries (including, without limitation, any nonpublic customer
information regarding the creditworthiness of such Credit Party and its
Subsidiaries), provided that such Persons shall be subject to the provisions of
this Section 8.13 to the same extent as the Bank.
8.14 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY
--------------------
IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER L/C
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
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<PAGE>
SECTION 9. Guaranty.
---------
9.01 The Guaranty. In order to induce the Bank to enter into this Agreement
------------
and to extend credit hereunder and in recognition of the direct benefits to be
received by the Guarantor from the issuance of the Letter of Credit, the
Guarantor or hereby agrees with the Bank as follows: the Guarantor hereby
unconditionally and irrevocably guarantees as primary obligor and not merely as
surety the full and prompt payment when due, whether upon maturity, acceleration
or otherwise, of any and all of the Guaranteed Obligations of the Company to the
Bank. If any or all of the Guaranteed Obligations of the Company to the Bank
becomes due and payable hereunder, the Guarantor unconditionally promises to pay
such indebtedness to the Bank, or order, on demand, together with any and all
expenses which may be incurred by the Bank in collecting any of the Guaranteed
Obligations. If claim is ever made upon the Bank for repayment or recovery of
any amount or amounts received in payment or on account of any of the
Guaranteed Obligations and the Bank repays all or part of said amount by reason
of (i) any judgment, decree or order of any court or administrative body having
jurisdiction over the Bank or any of its property or (ii) any settlement or
compromise of any such claim effected by the Banks with any such claimant
(including the Company), then and in such event the Guarantor agrees that any
such judgment, decree, order, settlement or compromise shall be binding upon the
Guarantor, notwithstanding any revocation of this Guaranty other instrument
evidencing any liability of the Company, and the Guarantor shall be and remain
liable to the aforesaid payees hereunder for the amount so repaid or recovered
to the same extent as if such amount had never originally been received by any
such payee.
9.02 Bankruptcy. Additionally, the Guarantor unconditionally and irrevocably
----------
guarantees the payment of any and all of the Guaranteed Obligations of the
Company to the Bank whether or not due or payable by the Company upon the
occurrence of any of the events specified in Section 10.05 of the Credit
Agreement (as in effect on the Effective Date), and unconditionally promises to
pay such indebtedness to the Bank, or order, on demand, in lawful money of the
United States.
9.03 Nature of Liability. The liability of the Guarantor hereunder is
-------------------
exclusive and independent of any security for or other guaranty of the
Guaranteed Obligations of the Company whether executed by the Guarantor, any
other guarantor or by any other party, and the liability of the Guarantor
hereunder is not affected or impaired by (a) any direction as to application of
payment by the Company or by any other party, or (b) any other continuing or
other guaranty, undertaking or maximum liability of a guarantor or of any other
party as to the Guaranteed Obligations of the Company, or (c) any payment on or
in reduction of any such other guaranty or undertaking, or (d) any dissolution,
termination or increase, decrease or change in personnel by the Company, or (e)
any payment made to the Bank on the Guaranteed Obligations which the Bank repays
to the Company pursuant to court order in any bankruptcy, reorganization,
arrangement,
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<PAGE>
moratorium or other debtor relief proceeding, and the Guarantor waives any right
to the deferral or modification of its obligations hereunder by reason of any
such proceeding.
9.04 Independent Obligation. The obligations of the Guarantor hereunder are
----------------------
independent of the obligations of any other guarantor, any other party or the
Company, and a separate action or actions may be brought and prosecuted against
the Guarantor whether or not action is brought against any other guarantor, any
other party or the Company and whether or not any other guarantor, any other
party or the Company be joined in any such action or actions. The Guarantor
waives, to the full extent permitted by law, the benefit of any statute of
limitations affecting its liability hereunder or the enforcement thereof. Any
payment by the Company or other circumstance which operates to toll any statute
of limitations as to the Company shall operate to toll the statute of
limitations as to the Guarantor.
9.05 Authorization. The Guarantor authorizes the Bank without notice or demand
-------------
(except as shall be required by applicable statute and cannot be waived), and
without affecting or impairing its liability hereunder, from time to time to:
(a) change the manner, place or terms of payment of, and/or change or extend
the time of payment of, renew, increase, accelerate or alter, any of the
Guaranteed Obligations (including any increase or decrease in the rate of
interest thereon), any security therefor, or any liability incurred directly or
indirectly in respect thereof, and the Guaranty herein made shall apply to the
Guaranteed Obligations as so changed, extended, renewed or altered;
(b) take and hold security for the payment of the Guaranteed Obligations and
sell, exchange, release, surrender, realize upon or otherwise deal with in any
manner and in any order any property by whomsoever at any time pledged or
mortgaged to secure, or howsoever securing, the Guaranteed Obligations or any
liabilities (including any of those hereunder) incurred directly or indirectly
in respect thereof or hereof, and/or any offset thereagainst;
(c) exercise or refrain from exercising any rights against the Company or
others or otherwise act or refrain from acting;
(d) release or substitute any one or more endorsers, guarantors, the Company
or other obligors;
(e) settle or compromise any of the Guaranteed Obligations, any security
therefor or any liability (including any of those hereunder) incurred directly
or indirectly in respect thereof or hereof, and may subordinate the payment of
all or any part thereof to the payment of any liability (whether due or not) of
the Company to its creditors other than the Bank;
-23-
<PAGE>
(f) apply any sums by whomsoever paid or howsoever realized to any liability
or liabilities of any Guarantor to the Bank regardless of what liability or
liabilities of the Guarantor or the Company remain unpaid;
(g) consent to or waive any breach of, or any act, omission or default under,
this Agreement or any of the instruments or agreements referred to herein, or
otherwise amend, modify or supplement this Agreement or any of such other
instruments or agreements; and/or
(h) take any other action which would, under otherwise applicable principles
of common law, give rise to a legal or equitable discharge of the Guarantor from
its liabilities under this Guaranty.
9.06 Reliance. It is not necessary for the Bank to inquire into the capacity
--------
or powers of the Company or the officers, directors, partners or agents acting
or purporting to act on their behalf, and any Guaranteed Obligations made or
created in reliance upon the professed exercise of such powers shall be
guaranteed hereunder.
9.07 Subordination. Any of the indebtedness of the Company relating to the
-------------
Guaranteed Obligations now or hereafter owing the Guarantor is hereby
subordinated to the Guaranteed Obligations of the Company owing to the Bank; and
if the Bank so requests at a time when an Event of Default exists to all such
indebtedness relating to the Guaranteed Obligations of the Company to the
Guarantor shall be collected, enforced and received by the Guarantor for the
benefit of the Bank and be paid over to the Bank on account of the Guaranteed
Obligations of the Company to the Bank, but without affecting or impairing in
any manner the liability of the Guarantor under the other provisions of this
Guaranty. Prior to the transfer by the Guarantor of any note or negotiable
instrument evidencing any of the indebtedness relating to the Guaranteed
Obligations of the Company to the Guarantor, the Guarantor shall mark such note
or negotiable instrument with a legend that the same is subject to this
subordination. Without limiting the generality of the foregoing, the Guarantor
hereby agrees with the Bank that it will not exercise any right of subrogation
which it may at any time otherwise have as a result of this Guaranty (whether
contractual, under Section 509 of the Bankruptcy Code or otherwise) until all
Guaranteed Obligations have been irrevocably paid in full in cash.
9.08 Waiver. (a) The Guarantor waives any right (except as shall be required
------
by applicable statute and cannot be waived) to require the Bank to (i) proceed
against the Company, any other guarantor or any other party, (ii) proceed
against or exhaust any security held from the Company, any other guarantor or
any other party or (iii) pursue any other remedy in the Bank's power whatsoever.
The Guarantor waives any defense based on or arising out of any defense of the
Company, any other guarantor or any other party, other than payment in full of
the Guaranteed Obligations, based on or arising out of the disability of the
Company, any other guarantor or any other party, or the
-24-
<PAGE>
unenforceability; of the Guaranteed Obligations or any part thereof from any
cause, or the cessation from any cause of the liability of the Company other
than payment in full of the Guaranteed Obligations. The Bank may, at its
election, foreclose on any security held by the Bank by one or more judicial or
nonjudicial sales, whether or not every aspect of any such sale is commercially
reasonable (to the extent such sale is permitted by applicable law), or exercise
any other right or remedy the Bank may have against the Company or any other
party, or any security, without affecting or impairing in any way the liability
of the Guarantor hereunder except to the extent the Guaranteed Obligations have
been paid. The Guarantor waives any defense arising out of any such election by
the Bank, even though such election operates to impair or extinguish any right
of reimbursement or subrogation or other right or remedy of the Guarantor
against the Company or any other party or any security.
(b) The Guarantor waives all presentments, demands for performance, protests
and notices, including without limitation notices of nonperformance, notices of
protest, notices of dishonor, notices of acceptance of this Guaranty, and
notices of the existence, creation or incurring of new or additional Guaranteed
Obligations. The Guarantor assumes all responsibility for being and keeping
itself informed of the Company's financial condition and assets, and of all
other circumstances bearing upon the risk of nonpayment of the Guaranteed
Obligations and the nature, scope and extent of the risks which the Guarantor
assumes and incurs hereunder, and agrees that the Bank shall have no duty to
advise the Guarantor of information known to them regarding such circumstances
or risks.
9.09 Maximum Liability. It is the desire and intent of the Guarantor and the
-----------------
Bank that this Guaranty shall be enforced against the Guarantor to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. If, however, and to the extent
that, the obligations of the Guarantor under this Guaranty shall be adjudicated
to be invalid or unenforceable for any reason (including, without limitation,
because of any applicable state or federal law relating to fraudulent
conveyances or transfers), then the amount of the Guaranteed Obligations of the
Guarantor shall be deemed to be reduced and the Guarantor shall pay the maximum
amount of the Guaranteed Obligations which would be permissible under applicable
law.
-25-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Agreement as of the date first above
written.
1751 Lake Cook Road, Suite 550 MK GROUP,INC.
Deerfield, Illinois 60015
Attention: Thomas C. Spielberger
By /s/
with copies to: ---------------------
Title: Vice President
Jonathan F. Boucher
The Jordan Company
9 West 57th Street, 40th Floor
New York, New York 10019
and
James B. Carlson
Mayer, Brown & Platt
1675 Broadway
New York, New York 10019
1751 Lake Cook Road, Suite 550 MK HOLDINGS, INC.
Deerfield, Illinois 60015
Attention: Thomas C. Spielberger
By /s/
---------------------
with copies to: Title: Vice President
Jonathan F. Boucher
The Jordan Company
9 West 57th Street,40th Floor
New York, New York 10019
and
James B. Carlson
Mayer, Brown & Platt
1675 Broadway
New York, New York 10019
-26-
<PAGE>
130 Liberty Street BANKERS TRUST COMPANY
New York, New York 10006
Attention: Mary Kay Coyle
Telephone: (212) 250-9094
Fascimile: (212) 250-7218
BY /s/
-------------------------
Title:
-27-
<PAGE>
EXHIBIT A
---------
Irrevocable Standby Letter of Credit No. S-10675
Beneficiary:
John D. Simms Revocable Trust Under Agreement Dated November 5, 1988 611
Edgemont Lane Park Ridge, Illinois 60068 Attention: John D. Simms
Applicant:
MK Holdings, Inc.
1751 Lake Cook Road
Suite 550
Deerfield, Illinois 60015
Attention: Thomas C. Spielberger
Gentlemen:
We, Bankers Trust Company (the "Bank"), hereby establish in your favor, as
Beneficiary, our irrevocable Standby Letter of Credit No. S-10675 (the "Letter
of Credit") in an amount not to exceed in the aggregate U.S. DOLLARS Ninety-
Five Million Six Hundred Thousand **U.S. $95,600,000** (as such amount may be
reduced from time to time in accordance with the terms hereof, the "Stated
Amount") for the account of MK Holdings, Inc. (which shall be renamed "Merkle-
Korff Industries, Inc.") (the "Company ), available by payment against
presentation at our office as stipulated herein, of your draft drawn at sight on
ourselves and accompanied by:"
(a) If the drawing is being made with respect to a principal payment
under the Secured Note, dated September 22, 1995, issued by the Company to
the Beneficiary in an aggregate principal amount equal to S90,000,000 (the
"First Installment Note"), your drawing certificate in the form of Annex
I attached hereto appropriately completed and duly signed by the Trustee
(as hereinafter defined) of the Beneficiary; or
(b) If the drawing is being made with respect to a principal payment
under the Secured Note, dated September 22, 1995, issued by the Company to
the Beneficiary, in an aggregate principal amount equal to S5,600,000 (the
"Second Installment Note"; the First Installment Note and the Second
Installment Note each,
<PAGE>
EXHIBIT A
Page 2
an "Installment Note" and collectively, the "Installment Notes"), your
drawing certificate in the form of Annex 11 attached hereto appropriately
completed and duly signed by the Trustee of the Beneficiary; or
(c) If the drawing is being made with respect to principal payments
under the Installment Notes following your receipt of a Notice of
Termination (as hereinafter defined), your drawing certificate in the form
of Annex III attached hereto appropriately completed and duly signed by the
Trustee of the Beneficiary.
If a drawing is received by the Bank at or prior to 11:00 A.M., New York City
time, on a Business Day (as hereinafter defined), and provided that such drawing
conforms to the terms and conditions hereof, payment of the drawing amount shall
be made to the Beneficiary in immediately available funds on the same Business
Day. If a drawing is received by the Bank after 11:00 A.M., New York City time,
on a Business Day, and provided that such drawing conforms to the terms and
conditions hereof, payment of the drawing amount shall be made to the
Beneficiary in immediately available funds on the next succeeding Business Day.
If a demand for payment made by you hereunder does not, in any instance,
conform to the terms and conditions of this Letter of Credit, the Bank shall
give you notice by the Business Day immediately following the date the draw
request is made that the demand for payment was not effected in accordance with
the terms and conditions of this Letter of Credit, stating the reasons therefor
and that the Bank will upon your instructions hold any documents at your
disposal or return the same to you. Upon being notified that the demand for
payment was not effected in conformity with this Letter of Credit, you may
attempt to correct any such non-conforming demand for payment to the extent that
you are entitled to do so.
Only two drawings may be made hereunder, and the amount of each drawing made
hereunder and honored by the Bank shall permanently reduce the Stated Amount
hereof by the amount of each such drawing. No demand for payment hereunder shall
exceed the Stated Amount of this Letter of Credit in effect at such time.
The Stated Amount of this Letter of Credit shall also be reduced from time to
time, upon receipt by the Bank of a reduction certificate in the form of Annex
IV attached hereto (a "Reduction Certificate"), appropriately completed and
signed by the Trustee of the Beneficiary, by the amount set forth in such
reduction certificate, effective on the date of its receipt by the Bank. It is
agreed that the Beneficiary will notify the Bank
<PAGE>
EXHIBIT A
Page 3
of a cancellation, termination, reduction or expiration of any Installment Note
by delivering a Reduction Certificate.
The Stated Amount of this Letter of Credit shall be reduced to zero and this
Letter of Credit shall automatically terminate and be delivered to us for
cancellation on the earliest of (i) the making by you of the final drawing
available to be made hereunder, (ii) receipt by us of a certificate of the
Trustee of the Beneficiary stating that both Installment Notes have been
cancelled in accordance with their respective terms and no principal amounts are
owing by the Company thereunder, (iii) the close of business on the Stated
Expiry Date, and (iv) if we have given you written notice (any such notice,
which shall be in the form of Annex V hereto, a "Notice of Termination") that an
Event of Default has occurred under the Letter of Credit Agreement, dated as of
September 22, 1995, among MK Group, Inc., the Company and the Bank, as amended,
modified, supplemented or replaced from time to time without your consent (the
"Letter of Credit Agreement"), and that this Letter of Credit will terminate, at
the close of business on the Business Day occurring thirty days after the
Business Day upon which we have so notified you. Following receipt of a Notice
of Termination from us pursuant to the preceding clause (iv) that the Letter of
Credit will terminate prior to the Stated Expiry Date, you shall bc entitled to
draw hereunder an amount equal to the lesser of (x) the Stated Amount of the
Letter of Credit as in effect on the date of drawing, and (b) the aggregate
principal amount outstanding under the Installment Notes on the date of drawing.
This Letter of Credit applies only to obligations of the Company to you in
respect of unpaid principal under the Installment Notes to make such principal
payments on the terms set forth therein.
As used herein (a) "Trustee" shall mean John D. Simms or any successor trustee
of the Beneficiary, (b) "Stated Expiry Date" shall mean December 31, 1996, and
(c) "Business Day" shall mean any day except Saturday, Sunday and any other day
on which banking institutions located in the City of New York, New York and
Chicago, Illinois are required or authorized to close.
Drafts must be presented to Bankers Trust Company at its office located at 130
Liberty Street, New York, New York 10006, Attention: Commercial Loan Division,
Standby Letter of Credit Unit, not later than the Stated Expiry Date.
Drafts must be marked "Drawn under Bankers Trust Company Letter of Credit No.
S-10675".
<PAGE>
EXHIBIT A
Page 4
Your draft and drawing certificate may be delivered to the Bank by facsimile
transmission (Fax No: (212) 25O-5817 Attention: Standby Commercial Loan
Division, Letter of Credit Unit). Any fax transmission pursuant to which a
drawing is made or reduction is notified hereunder, shall be promptly confirmed
in writing to the Bank.
If so requested by the Beneficiary, payment under this Letter of Credit may be
made by wire transfer in accordance with the payment instructions submitted with
the Beneficiary's draft and drawing certificate.
Only you may make a drawings under this Letter of Credit. Upon the payment to
you or to your account or accounts of the amount of the drawing demanded
hereunder, we shall be fully discharged of our obligation under this Letter of
Credit in respect of such drawing and we shall not thereafter be obligated to
make any further payments under this Letter of Credit in respect of any demand
for payments to you or any other person. By paying to you the amount of the
drawings demanded in accordance herewith, we make no representation as to the
correctness of the amount demanded.
This Letter of Credit sets forth in full the terms of our undertaking and
such undertaking shall not in any way be modified, amended or amplified or
limited by reason of our reference to any document, agreement or instrument
referred to herein or in which this Letter of Credit is referred to except the
Annexes referred to herein; and any such reference shall not be deemed to
incorporate herein by reference any document, agreement or instrument except for
such Annexes.
This Letter of Credit may not be transferred or assigned, either in whole or
in part.
We hereby agree with you that drafts drawn under and in compliance with the
terms and conditions of this Letter of Credit shall be duly honored on due
presentation to the Bank as set forth above.
Communications to us with respect to this Letter of Credit must be in writing
and shall be addressed to us at 130 Liberty Street, New York, New York 10006,
Attention: Commercial Loan Division, Standby Letter of Credit Unit,
specifically referring thereon to this Letter of Credit by number.
This Letter of Credit is issued subject to the Uniform Customs and Practice
for Documentary Credits (1993 Revision) ICC Publication No. 500 (the "Uniform
Customs"). This Letter of Credit shall be deemed to be a contract made
<PAGE>
EXHIBIT A
Page 5
under the laws of the State of New York and shall, as to matters not governed by
the Uniform Customs, be governed by and construed in accordance with the laws of
the State of New York including, without limitation, Article 5 of the Uniform
Commercial Code as in effect in the State of New York.
Very truly yours,
BANKERS TRUST COMPANY
By:
----------------------
Title
<PAGE>
ANNEX I
-------
FORM OF FIRST INSTALLMENT NOTE DRAWING CERTIFICATE
--------------------------------------------------
To: Bankers Trust Company
130 Liberty Street
New York, New York 10006
Attention: Commercial Loan Division, Standby Letter of Credit Unit
Re: Irrevocable Standby Letter of Credit No. S-10675.
Gentlemen:
The undersigned, the Trustee of the John D. Simms Revocable Trust Under
Agreement Dated November 5, 1988 (the "Beneficiary") hereby certifies to Bankers
Trust Company (the "Bank") with respect to the above-referenced standby letter
of credit (the "Letter of Credit," the terms defined therein and not otherwise
defined herein being used herein as therein defined) in favor of the
Beneficiary, that:
The Beneficiary is making a drawing under the Letter of Credit in an
amount of USD , which amount represents the unpaid principal of the
---------
First Installment Note, dated September 22, 1995, issued by the Company to
the Beneficiary in an initial aggregate principal amount equal to
$90,000,000, which principal is due and payable in accordance with the
terms of the First Installment Note. Payment of the amount being drawn
hereunder was demanded of the Company on and has not yet been
----------
paid. The amount demanded hereby does not on the date hereof, and will not
on the date payment hereunder is required to be made, exceed the Stated
Amount of the Letter of Credit.
Upon its receipt of the amount demanded under the Letter of Credit,
the Beneficiary will apply all of such amounts directly to the payment of
the outstanding principal of the First Installment Note.
Payment of this drawing is required to be made in immediately available funds
by wire transfer to the Beneficiary in accordance with the following payment
instructions.
[Insert Payment Instructions]
<PAGE>
ANNEX I
Page 2
IN WITNESS WHEREOF, the Beneficiary has executed and delivered this
certificate as of the day of , 199 .
--------- ------------ -
Very truly yours,
JOHN D. SIMMS REVOCABLE
TRUST UNDER AGREEMENT DATED
NOVEMBER 5, 1988
By:
-----------------------------------
Name:
Title:
<PAGE>
ANNEX II
FORM OF SECOND INSTALLMENT NOTE DRAWING CERTIFICATE
---------------------------------------------------
To: Bankers Trust Company
130 Liberty Street
New York, New York 10006
Attention: Commercial Loan Division, Standby Letter of Credit Unit
Re: Irrevocable Standby Letter of Credit No. S-10675.
Gentlemen:
The undersigned, the Trustee of the John D. Simms Revocable Trust Under
Agreement Dated November 5, 1988 (the "Beneficiary") hereby certifies to Bankers
Trust Company (the "Bank") with respect to the above-referenced standby letter
of credit (the "Letter of Credit," the terms defined therein and not otherwise
defined herein being used herein as therein defined) in favor of the
Beneficiary, that:
The Beneficiary is making a drawing under the Letter of Credit in an
amount of USD , which amount represents the unpaid principal of
the Second Installment Note, dated September 22, 1995, issued by the
Company to the Beneficiary in an aggregate principal amount equal to
$5,600,000, which principal is due and payable in accordance with the terms
of the Second Installment Note. Payment of the amount being drawn
hereunder was demanded of the Company on and has not yet been
paid. The amount demanded hereby does not on the date hereof, and will not
on the date payment hereunder is required to be made, exceed the Stated
Amount of the Letter of Credit.
Upon its receipt of the amount demanded under the Letter of Credit,
the Beneficiary will apply all of such amounts directly to the payment of
the outstanding principal of the Second Installment Note.
Payment of this drawing is required to be made in immediately available funds
by wire transfer to the Beneficiary in accordance with the following payment
instructions.
[Insert Payment Instructions]
---------------------------
<PAGE>
ANNEX II
Page 2
IN WITNESS WHEREOF, the Beneficiary has executed and delivered this
certificate as of the day of , 19 .
---------- --------------- -
Very truly yours,
JOHN D. SIMMS REVOCABLE
TRUST UNDER AGREEMENT DATED
NOVEMBER 5, 1988
By:
---------------------------
Name:
Title:
<PAGE>
ANNEX III
---------
FORM OF TERMINATION DRAWING CERTIFICATE
---------------------------------------
To: Bankers Trust Company
130 Liberty Street
New York, New York 10006
Attention: Commercial Loan Division, Standby Letter of Credit Unit
Re: Irrevocable Standby Letter of Credit No. S-10675.
Gentlemen:
The undersigned, the Trustee of the John D. Simms Revocable Trust Under
Agreement Dated November 5, 1988 (the "Beneficiary") hereby certifies to Bankers
Trust Company (the "Bank") with respect to the above-referenced standby letter
of credit (the "Letter of Credit," the terms defined therein and not otherwise
defined herein being used herein as therein defined) in favor of the
Beneficiary, that:
The Beneficiary has received written notice from the Bank that an
Event of Default has occurred under the Letter of Credit Agreement and that
the Letter of Credit is to be terminated prior to the Stated Expiry Date
and is making a drawing under the Letter of Credit in the amount of
USD__________, which amount is the lesser of (x) the Stated Amount of the
Letter of Credit as in effect on the date hereof and (y) the aggregate
principal amount outstanding under the Installment Notes, dated September
22, 1995, issued by the Company to the Beneficiary on the date hereof.
Upon receipt of the amount demanded under the Letter of Credit, the
Beneficiary will apply all of such amount directly to the payment of the
outstanding principal of the Installment Notes.
Payment of this drawing is required to be made in immediately available funds
by wire transfer to the Beneficiary in accordance with the following payment
instructions.
[Insert Payment Instructions]
---------------------------
<PAGE>
ANNEX III
Page 2
IN WITNESS WHEREOF, the Beneficiary has executed and delivered this
certificate as of the day of , 19 .
------------ ---------- --
Very truly yours,
JOHN D. SIMMS REVOCABLE
TRUST UNDER AGREEMENT DATED
NOVEMBER 5, 1988
By:
-------------------------------
Name:
Title:
<PAGE>
ANNEX IV
--------
FORM OF REDUCTION CERTIFICATE
-----------------------------
To: Bankers Trust Company
130 Liberty Street
New York, New York 10006
Attention: Commercial Loan Division, Standby Letter of Credit Unit
Re: Irrevocable Standby Letter of Credit No. S-10675.
Gentlemen:
The undersigned, the Trustee of the John D. Simms Revocable Trust Under
Agreement Dated November 5, 1988 (the "Beneficiary") hereby certifies to Bankers
Trust Company (the "Bank") with respect to the above-referenced standby letter
of credit (the "Letter of Credit," the terms defined therein and not otherwise
defined herein being used herein as therein defined) in favor of the
Beneficiary, that the principal amount of the [First] [Second] Installment Note
has been reduced by $ .
-----------------------------
The Bank is hereby instructed and authorized to reduce the Stated Amount of
the Letter of Credit by the amount set forth in the preceding paragraph without
a drawing under the Letter of Credit.
IN WITNESS WHEREOF, the Beneficiary has executed and delivered this
certificate as of the day of , 19 .
------- ----------
Very truly yours,
JOHN D. SIMMS REVOCABLE
TRUST UNDER AGREEMENT DATED
NOVEMBER 5, 1988
By:
--------------------
Name:
Title:
<PAGE>
ANNEX V
FORM OF NOTICE OF TERMINATION OF LETTER OF CREDIT
-------------------------------------------------
[Date]
John D. Simms Revocable Trust
Under Agreement Dated November 5, 1988
611 Edgemont Lane
Park Ridge, Illinois 60068
Attention: John D. Simms
Gentlemen:
Reference is made to Irrevocable Standby Letter of Credit No. S-10675 (the
"Letter of Credit"), dated September 22, 1995, issued by us in your favor, as
Beneficiary. Unless otherwise defined herein, all capitalized terms used herein
which are defined in the Letter of Credit shall have the respective meaning
provided therein.
This constitutes our notice to you pursuant to the Letter of Credit that (i)
an Event of Default under, and as defined in, the Letter of Credit Agreement has
occurred and (ii) the Letter of Credit shall terminate on , 19 ./l/
Very truly yours,
BANKERS TRUST COMPANY
By
---------------------------
Title:
cc: John L. Eisel, Esq.
Mark W. Hianik, Esq.
Wildman, Harrold, Allen & Dixon
225 W. Wacker Drive
Chicago, Illinois 60606-1229
- ----------
Insert the date which is thirty (30) days after the date hereof.
<PAGE>
EXHIBIT B
---------
FORM OF LETTER OF CREDIT REQUEST
--------------------------------
No. 1 Dated (l)
-------------
Bankers Trust Company
130 Liberty Street
New York, New York 10006
Dear Sirs:
Pursuant to Section 1.02 of the Letter of Credit Agreement, we hereby request
that Bankers Trust Company issue the Letter of Credit for the account of the
undersigned on (2) (the "Date of Issuance") in the form of Exhibit A to the
--------
Letter of Credit Agreement (as hereafter defined).
For purposes of this Letter of Credit Request, unless otherwise defined
herein, all capitalized terms used herein which are defined in the Letter of
Credit Agreement, dated as of September 22, 1995, among MK Group, Inc., MK
Holdings, Inc. (which shall be renamed "Merkle-Korff Industries, Inc."), and
Bankers Trust Company (as amended, modified or supplemented from time to time,
the "Letter of Credit Agreement") shall have the respective meaning provided
therein.
We hereby certify that:
(1) each of the conditions precedent set forth in Section 3 of the Letter of
Credit Agreement will be satisfied prior to the issuance of the Letter of
Credit.
(2) the representations and warranties contained in the Letter of Credit
Agreement and the other L/C Documents are and will be true and correct in all
material respects on the Date of Issuance, both before and after giving effect
to the issuance of the Letter of Credit requested hereby (it being understood
and agreed that any representation or warranty which by its terms is made as of
a specified date shall be required to be true and correct in all material
respects only as of such specified date); and
- ----------
(1) Date of Letter of Credit Request.
(2) Date of Issuance.
<PAGE>
EXHIBIT B
Page 2
(3) no Default or Event of Default has occurred and is continuing after
giving effect to the issuance of the Letter of Credit requested hereby, would
such a Default or Event of Default occur.
Copies of all documentation with respect to the supported transaction are
attached hereto.
MK HOLDINGS, INC.
By
--------------------------
Title
<PAGE>
EXHIBIT C
---------
FORM OF OPINION OF MAYER, BROWN & PLATT
---------------------------------------
[Date]
Bankers Trust Company
130 Liberty Street
New York, New York 10006
Ladies and Gentlemen:
We have acted as counsel to MK Group, Inc., an Illinois corporation (the
"Guarantor"), and MK Holdings, Inc., an Illinois corporation which will be
merged with Merkle-Korff, Industries, Inc., Mercury Industries, Inc. and Elmco
Industries, Inc. and shall be the surviving corporation of such mergers and
shall be renamed "Merkle-Korff Industries, Inc." immediately thereafter the
"Company", and together with the Guarantor, collectively, the "Credit Parties"),
in connection with the execution and delivery of (i) the Letter of Credit
Agreement, dated as of September 22, 1995 (the "Agreement"), among the
Guarantor, the Company and Bankers Trust Company (the "Bank") and (ii) the
Letter of Credit Cash Collateral Agreement, dated as of September 22, 1995,
between the Company and the Bank (the "Cash Collateral Agreement"). This
opinion is delivered to you pursuant to Section 3.03 of the Agreement. Unless
otherwise indicated, capitalized terms used herein but not otherwise defined
herein shall have the respective meanings set forth in the Agreement.
In connection with this opinion, we have examined the Agreement and the Cash
Collateral Agreement, as well as originals or copies, certified or otherwise
identified to our satisfaction, of such public and corporate documents and
records and have made such examination of law as we have deemed necessary or
appropriate as a basis for the opinions set forth herein.
As to questions of fact not independently verified by us, we have relied, to
the extent we deemed appropriate, upon representations and certificates of
officers of the Credit Parties, public officials and other appropriate persons.
<PAGE>
EXHIBIT C
Page 2
The opinions expressed herein are limited to matters governed by the internal
laws of New York and Illinois and the federal law of the United States of
America.
Based upon the foregoing and subject to the additional qualifications set
forth below, we are of the opinion that:
1. Each Credit Party (i) is a duly organized and validly existing corporation
in good standing under the laws of the jurisdiction of its incorporation, (ii)
has the corporate power and authority to own its property and assets and to
transact the business in which it is engaged and presently proposes to engage
and (iii) is duly qualified and is authorized to do business and is in good
standing in all jurisdictions where it is required to be so qualified, except
where failure to be so qualified, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
2. Each Credit Party has the corporate power and authority to execute, deliver
and perform the terms and provisions of each of the L/C Documents to which it
is a party and has taken all necessary corporate action to authorize the
execution, delivery and performance by it of each of such L/C Documents. Each
Credit Party has duly executed and delivered each of the L/C Documents to which
it is a party, and each of such L/C Documents constitutes the legal, valid and
binding obligation of each such Credit Party, enforceable against each such
Credit Party in accordance with its terms, except to the extent that the
foregoing may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws generally affecting creditors' rights and by
equitable principles (regardless of whether enforcement is sought in equity or
at law).
3. Neither the execution, delivery or performance by any Credit Party of the
L/C Documents to which it is a party, nor compliance by it with the terms and
provisions thereof, nor the consummation of the transactions contemplated
therein, (i) will contravene any applicable provision of any law, statute, rule
or regulation (including, without limitation, Regulations G, T, U and X of the
Board of Governors of the Federal Reserve System) or any order, writ, injunction
or decree of any court or governmental instrumentality, (ii) will conflict or
be inconsistent with or result in any breach of, any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result in the
creation or imposition of (or the obligation to create or impose) any Lien
(except pursuant to the Cash Collateral Agreement) upon any of the property or
assets of any Credit Party or any of its Subsidiaries pursuant to the terms of
any indenture, mortgage, deed of trust, credit agreement, loan agreement or any
other agreement or instrument to which any Credit Party or any of its
Subsidiaries is a party or by which it or any of its property or
<PAGE>
EXHIBIT C
Page 3
assets are bound or to which it may be subject or (iii) will violate any
provision of the certificate of incorporation or by-laws of any Credit Party or
any of its Subsidiaries.
4. No order, consent, approval, license, authorization, or validation of, or
filing, recording or registration with, or exemption by, any governmental or
public body or authority, or any subdivision thereof, or any other third party,
is required to authorize or is required in connection with (i) the execution,
delivery and performance of any L/C Document or (ii) the legality, validity,
binding effect or enforceability of any such L/C Document.
5. There are no actions, suits or proceedings pending or threatened (i) with
respect to any L/C Document or (ii) that could reasonably be expected to have
(a) a Material Adverse Effect or (b) a material adverse effect on the rights or
remedies of the Bank or on the ability of any Credit Party to perform its
obligations to the Bank under the L/C Documents to which it is a party.
Additionally, there does not exist any judgment, order or injunction
prohibiting or imposing material adverse conditions upon the issuance of the
Letter of Credit.
6. No Credit Party is an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
7. No Credit Party is a "holding company", or a subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or a "subsidiary
company" of a "holding company" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
This opinion is being furnished only to the addressee and is solely for its
benefit and the benefit of its participants and assigns in connection with the
above transaction. This opinion may not be relied upon for any other purpose, or
relied upon by any other person, firm or corporation for any purpose, without
our prior written consent.
Very truly yours,
<PAGE>
EXHIBIT D
---------
FORM OF OFFICERS' CERTIFICATE
-----------------------------
I, the undersigned, [President/Vice President] of [Name of Credit Party], a
corporation organized and existing under the laws of the State of Illinois (the
"Company"), do hereby certify on behalf of the Company that:
1. This Certificate is furnished pursuant to the Letter of Credit Agreement,
dated as of September 22, 1995, between MK Group, Inc., MK Holdings, Inc., and
Bankers Trust Company (such Letter of Credit Agreement, as in effect on the date
of this Certificate, being herein called the "Letter of Credit Agreement").
Unless otherwise defined herein, capitalized terms used in this Certificate
shall have the meanings set forth in the Letter of Credit Agreement.
2. The following named individuals are elected officers of the Company, each
holds the office of the Company set forth opposite his name and has held such
office since , 19 ./l/ The signature written opposite the name and
----------- --
title of each such officer is his genuine signature.
Name/2/ Office Signature
------------------ ------------------ ------------------
------------------ ------------------ ------------------
------------------ ------------------ ------------------
3. Attached hereto as Exhibit A is a certified copy of the Certificate of
Incorporation of the Company, as filed in the Office of the Secretary of State
of the State of Illinois on , 19 , together with all amendments
------------ --
thereto adopted through The date hereof.
4. Attached hereto as Exhibit B is a true and correct copy of the By-Laws of
the Company which were duly adopted, are in full force and effect on the date
hereof, and have been in effect since , 19 .
----------- --
5. Attached hereto as Exhibit C is a true and correct copy of resolutions
which were duly adopted on , 19 [by unanimous written consent of the
----------- --
Board of Directors of the Company [by a meeting of the Board of Directors of the
Company at
/1/ Insert a date prior to the time of any corporate action relating to the L/C
Documents or related documentation.
/2/ Include name, office and signature of the officer who will sign any L/C
Document on behalf of the Company, including the officer who will sign the
certification at the end of this Certificate or related documentation.
<PAGE>
EXHIBIT D
Page 2
which a quorum was present and acting throughout], and said resolutions have not
been rescinded, amended or modified. Except as attached hereto as Exhibit C, no
resolutions have been adopted by the Board of Directors of the Company which
deal with the execution, delivery or performance of any of the L/C Documents to
which the Company is party.
6. On the date hereof, the representations and warranties contained in the
Letter of Credit Agreement and in the other L/C Documents are true and correct
in all material respects with the same effect as though such representations and
warranties had been made on the date hereof, both before and after giving effect
to the issuance of the Letter of Credit on the date hereof, unless stated to
relate to a specific earlier date, in which case such representations and
warranties were true and correct in all material respects as of such earlier
date.
7. On the date hereof, no Default or Event of Default has occurred and is
continuing or would result from the issuance of the Letter of Credit.
8. There is no proceeding for the dissolution or liquidation of the Company or
threatening its existence.
1N WITNESS WHEREOF, I have hereunto set my hand this day of September, 1995.
----
[NAME OF CREDIT PARTY]
-------------------------
Name:
Title:
<PAGE>
EXHIBIT D
Page 3
I, the undersigned, [Secretary/Assistant Secretary] of the Company, do hereby
certify on behalf of the Company that:
1. [Name of Person making above certifications] is the duly elected and
qualified [President/Vice President] of the Company and the signature above is
his genuine signature.
2. The certifications made by [Name of Person making above certifications] on
behalf of the Company in Items 2, 3, 4, 5 and 8 above are true and correct.
IN WITNESS WHEREOF, I have hereunto set my hand this day of
------------
September, 1995.
[NAME OF CREDIT PARTY]
-------------------------------
Name:
Title:
<PAGE>
EXHIBIT E
---------
FORM OF
LETTER OF CREDIT
CASH COLLATERAL AGREEMENT
-------------------------
LETTER OF CREDIT CASH COLLATERAL AGREEMENT (as amended, modified or
supplemented from time to time, this "Agreement"), dated as of September 22,
1995, between MK HOLDINGS, INC. (which shall be renamed "Merkle-Korff
Industries, Inc."), an Illinois corporation (the "Assignor"), and BANKERS TRUST
COMPANY, a New York banking corporation (the "Bank") in connection with the
Letter of Credit Agreement hereinafter referred to. Except as otherwise defined
herein, terms used herein and defined in the Letter of Credit Agreement shall
be used herein as so defined.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, MK Group, Inc., the Assignor and the Bank have entered into a Letter
of Credit Agreement, dated as of September 22, 1995 (as the same may be amended,
modified or supplemented from time to time, the "Letter of Credit Agreement"),
providing for the issuance of the Letter of Credit as contemplated therein;
WHEREAS, the Assignor desires to have the Letter of Credit issued for its
account pursuant to the Letter of Credit Agreement;
WHEREAS, it is a condition to the issuance of the Letter of Credit that the
Assignor shall have executed and delivered to the Bank this Agreement and shall
have made the deposit in the Cash Collateral Account as required hereby, and
WHEREAS, the Assignor desires to execute this Agreement in order to satisfy
the condition described in the preceding paragraph;
NOW, THEREFORE, in consideration of the extension of credit to be made to the
Assignor and the other benefits accruing to the Assignor, the receipt and
sufficiency of which are hereby acknowledged, the Assignor hereby makes the
following representations and warranties to the Bank and hereby covenants and
agrees with the Bank as follows:
<PAGE>
EXHIBIT E
Page 2
SECTION 1. PLEDGE AND GRANT OF SECURITY INTEREST.
1.01. Obligations Secured. This Agreement is made for the benefit of the Bank
-------------------
to secure the full and prompt payment when due (whether at the stated maturity,
by acceleration or otherwise) of (i) all reimbursement obligations and Unpaid
Drawings with respect to the Letter of Credit issued under the Letter of Credit
Agreement and all Letter of Credit Fees and other Fees with respect thereto
(including, in each case, all interest thereon), (ii) all other obligations and
indebtedness (including, without limitation, indemnities, other fees and
interest thereon) of the Assignor, whether now existing or hereinafter incurred,
direct or indirect, absolute or contingent, secured or unsecured, matured or
unmatured, under, arising out of, or in connection with, the Letter of Credit
Agreement or the obligations described in the preceding clause (i) and the due
performance and compliance with the terms of the Letter of Credit Agreement by
the Assignor, (iii) any and all sums advanced by the Bank in order to preserve
the Collateral (as hereinafter defined) or preserve its security interest in the
Collateral, (iv) in the event of any proceeding for the collection or
enforcement of any indebtedness, obligations or liabilities of the Assignor
referred to in clauses (i) or (ii) above, after an Event of Default shall have
occurred and be continuing, the reasonable expenses of retaking, holding,
preparing for sale or lease, selling or otherwise disposing of or realizing on
the Collateral, or of any exercise by the Collateral Agent of its rights
hereunder, together with reasonable attorneys' fees and court costs and (v) all
amounts paid by any Indemnitee (as hereinafter defined) as to which such
Indemnitee has the right to reimbursement under Section 10 of this Agreement
(all such obligations, liabilities, sums and expenses referred to in clauses (i)
through (v) above are hereinafter called the "Obligations").
1.02. Pledge and Grant of Security Interest. As collateral security for the
--------------------------------------
Obligations, the Assignor hereby pledges and assigns to the Bank, a continuing
possessory lien and security interest in all of the right, title and interest of
the Assignor in and to the Cash Collateral Account (as defined below), in all
funds deposited therein, in all investments from time to time therein, and in
all cash and non-cash proceeds of any of the foregoing (collectively, the
"Collateral"), from the date of the establishment of the Cash Collateral Account
until the termination thereof pursuant to the terms hereof.
SECTION 2. ESTABLISHMENT OF CASH COLLATERAL ACCOUNT; ETC.
2.01. Establishment. The Bank has established in its own name and for its own
-------------
benefit an account (Account No. 18181 (the "Cash Collateral Account")) for
purposes
<PAGE>
EXHIBIT E
Page 3
of this Agreement, which Cash Collateral Account is maintained at the Bank's
office located at 130 Liberty Street, New York, New York 10006. Subject to the
provisions of this Agreement, the Cash Collateral Account shall be under the
sole dominion and control of the Bank and the Bank shall have the sole right to
make withdrawals from the Cash Collateral Account and to exercise all rights
with respect to the Collateral from time to time therein. All Collateral
delivered to or held by or on behalf of the Bank pursuant hereto shall be held
in the Cash Collateral Account in accordance with the provisions hereof.
2.02. Deposit to the Cash Collateral Account. Prior to the issuance of the
--------------------------------------
Letter of Credit, the Assignor shall deposit into the Cash Collateral Account an
amount of cash equal to $95,600,000.
2.03. Investment of Funds Deposited in the Cash Collateral Account. Until the
-------------------------------------------------------------
date on which all amounts have been withdrawn from the Cash Collateral Account,
and so long as no Default or Event of Default is in existence, the Bank will
from time to time, at the request of the Assignor, invest funds on deposit in
the Cash Collateral Account in Cash Equivalents (as hereinafter defined). All
investments made pursuant to this Section 2.03 (and any instruments evidencing
same), and all proceeds thereof, shall be held in the Cash Collateral Account as
part of the Collateral. All such investments shall be made in the name of the
Bank. All risk of loss in respect of investments made pursuant to this Section
2.03 shall be on the Assignor. Under no circumstances shall the Bank be liable
or accountable to the Assignor or any other Person for any decrease in the value
of the Cash Collateral Account, or for any loss resulting from the sale of any
investment so made. For purposes of this Agreement "Cash Equivalents" shall mean
(i) securities issued or directly and fully guaranteed or insured by the United
States or any agency or instrumentality thereof (provided that the full faith
--------
and credit of the United States is pledged in support thereof) having maturities
of not more than three months from the date of acquisition thereof, (ii) time
deposits and certificates of deposit of the Bank with maturities of not more
than three months from the date of acquisition thereof, (iii) commercial paper
issued by the Bank maturing not more than three months after the date
of acquisition thereof, (iv) the Bankers Trust Company Institutional Cash
Management Fund and (v) the Bankers Trust Institutional Treasury Money Fund.
SECTION 3. WITHDRAWALS, APPLICATIONS AND REMEDIES.
3.01. Withdrawals. (a) Subject to Section 3.01(b), the Assignor shall have no
-----------
right to withdraw any Collateral from the Cash Collateral Account, and such
Collateral
<PAGE>
EXHIBIT E
Page 4
shall remain in the Cash Collateral Account until applied by the Bank pursuant
to Section 3.02 hereof, or until released in accordance with Section 11 hereof.
(b) Without in any way limiting the Bank's ownership of the Cash Collateral
Account, on any Business Day prior to the Termination Date (as hereinafter
defined), following the delivery by the Chief Executive, the President, Chief
Financial Officer, any Vice-President or Treasurer (each, an "Authorized
Officer") of the Assignor to the Bank, not later than 12:00 Noon (New York time)
on the preceding Business Day, of a certificate stating that (i)) no Default or
Event of Default then exists, (ii) interest is due and owing under an
Installment Note on the next succeeding Business Day and certifying the amount
thereof, and (iii) the amount of cash and Cash Equivalents held in the Cash
Collateral Account exceeds the sum of (x) the Stated Amount of the Letter of
Credit at such time, (y) the amount of all Unpaid Drawings at such time and (z)
the amount of due and unpaid Letter of Credit Fees and other Fees that have
accrued on the Letter of Credit through the date of the proposed release of
funds, the Bank, so long as no Default or Event of Default then exists and so
long as the Bank does not believe in good faith that such certificate is
inaccurate, will release (without recourse and without any representation or
warranty) an amount of cash from the Cash Collateral Account equal to such
excess to the Assignor.
(c) Without in any way limiting the Bank's ownership of the Cash Collateral
Account, on any Business Day prior to the Termination Date, following the
delivery by an Authorized Officer of the Assignor to the Bank, not later than
12:00 Noon (New York time) on the preceding Business Day or following drawing
under the Letter of Credit effecting a reduction in the Stated Amount of the
Letter of Credit on the preceding Business Day which has been reimbursed to the
Bank other than from proceeds of the Cash Collateral Account, the Bank will
release to the Assignor (without recourse and without any representation or
warranty) an amount of cash from the Cash Collateral Account equal to such
access of (i) the amount of cash and Cash Equivalents held in the Cash
Collateral Account exceeds (ii) the sum of (x) the Stated Amount of the
Letter of Credit as so reduced, (y) the amount of all Unpaid Drawings at such
time and (z) the amount of due and unpaid Letter of Credit Fees and other Fees
that have accrued on the Letter of Credit through the date of the proposed
release of funds.
(d) Notwithstanding anything to the contrary contained in preceding Section
3.01(b), all Collateral in the Cash Collateral Account shall be subject, at any
time when an Event of Default shall have occurred and be continuing, to any
prior application required by Section, 3.02 hereof.
<PAGE>
EXHIBIT E
Page 5
3.02. Remedies upon an Event of Default; Application of Proceeds. If an Event
-----------------------------------------------------------
of Default: shall occur and be continuing:
(a) The Bank may, subject to any mandatory requirements of applicable law, (i)
exercise in respect of all of the Collateral in addition to other rights and
remedies provided for herein or otherwise available to it under applicable law,
all of the rights and remedies of a secured party on default under the Uniform
Commercial Code then in effect in the State of New York, (ii) withdraw any
Collateral from the Cash Collateral Account, and (iii) without notice except as
specified below, sell or liquidate any or all of the non-cash Collateral in one
or more parcels at any public or private sale, at any exchange, broker's board
or at any of the Bank's offices or elsewhere, for cash, on credit or for future
delivery, at such price or prices and upon such other terms as the Bank may
deem commercially reasonable. The Assignor agrees that, to the extent notice of
sale shall be required by law, at least 10 days' written notice to the Assignor
of the time and place of any public sale or the time after, which any private
sale or other disposition is to be made shall constitute reasonable
notification. The Bank shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Bank may adjourn any public
or private sale from time to time (by announcement, in the case of any public
sale, at the time and place fixed therefore), and such sale may, without further
notice, be made at the time and place to which it was so adjourned.
(b) All cash proceeds received by the Bank in respect of any sale of,
collection from, or other realization upon all or any part of the Collateral
shall be applied to the payment of the Obligations as follows:
(i) first, to the payment of all amounts owing the Bank of the type described
in clauses (iii), (iv) and (v) of the definition of "Obligations" set forth in
Section 1.01 of this Agreement;
(ii) second, to the extent proceeds remain after the application pursuant to
the preceding clause (i), to the payment of those Obligations described in
clauses (i) and (ii) of the definition of "Obligations" set forth in Section
1.01 of this Agreement; and
(iii) third, to the extent proceeds remain after the application pursuant to
the preceding clauses (i) and (ii)), and following the termination of this
Agreement pursuant to Section 11 hereof, to the Assignor or to whomever may be
lawfully entitled to receive such surplus.
<PAGE>
EXHIBIT E
Page 6
(c) It is understood that the Assignor shall remain liable to the extent
of any deficiency between the amount of the proceeds of the Collateral applied
as provided in preceding clause (b) and the aggregate amount of the Obligations.
SECTION 4. FURTHER ASSURANCES.
The Assignor agrees that it will, at any time and from time to time at its
expense, promptly execute and deliver all further agreements, instruments and
other documents and take all further action that may be necessary or that the
Bank may reasonably request in order to perfect and protect the security
interest purported to be created hereby or otherwise to enable the Bank to
exercise and enforce its rights and remedies hereunder.
SECTION 5. TRANSFERS AND OTHER LIENS.
The Assignor agrees that it will not (i) sell, assign (by operation of law or
otherwise) or otherwise dispose of any interest hereunder or that the Assignor
may purport to have in respect of the Collateral or (ii) create or suffer to
exist any Lien upon or with respect to any Collateral (except for the security
interest purported to be created hereby).
SECTION 6. ATTORNEY-IN-FACT.
The Assignor hereby irrevocably appoints the Bank its attorney-in-fact, with
full authority after the occurrence of and during the continuance of an Event of
Default, in the place and stead of the Assignor and in the name of the Assignor
or otherwise, from time to time in the Bank's discretion to execute any
instrument and to take any other action which the Bank may deem necessary or
advisable to accomplish the purposes of this Agreement or to facilitate the
assignment or other transfer by the Bank of any or all of its rights hereunder,
including, without limitation, (i) to receive, endorse and collect all
instruments made payable to the Assignor and representing any interest payment
or other distribution in respect of the Collateral and to give full discharge
for the same, and (ii) to execute and deliver any and all instruments and other
documents that the Bank may request in connection with the exercise by the Bank
of any or all of its rights hereunder.
<PAGE>
EXHIBIT E
Page 7
SECTION 7. PERFORMANCE BY THE BANK
If the Assignor fails to perform any agreement or obligation contained herein,
the Bank itself may perform or cause performance of such agreement or
obligation, and the expenses of the Bank incurred in connection therewith shall
be payable to the Bank by the Assignor.
SECTION 8. RESPONSIBILITY OF THE BANK
Neither the Bank nor any of its directors, officers, agents, employees,
affiliates, representatives and agents shall be liable (i) for any failure to
invest or reinvest any cash in the (Cash Collateral Account in accordance
herewith, provided that such Person shall be liable for its gross negligence or
--------
willful misconduct, (ii) or for any losses incurred by reason of investments
made by the Bank pursuant to Section 2.03 hereof or (iii) for any action taken
or omitted to be taken by the Bank (x) in good faith in accordance with the
advice of counsel with respect to any question as to the construction of any
provision hereof or any action to be taken by the Bank hereunder or (y) in
accordance with any instructions or other notice which the Bank believes in good
faith to be properly given by the assignor hereunder.
SECTION 9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE ASSIGNOR.
The Assignor represents and warrants that (a) on the date of the deposit of
any Collateral in the Cash Collateral Account, it will be the legal, record and
beneficial owner of, and will have good and marketable title to, the Collateral
subject to no pledge, lien, mortgage, hypothecation, security interest, charge,
option or other encumbrance whatsoever, except the liens and security interests
created by this Agreement; (b) it has full corporate power, authority and legal
right to pledge all the Collateral pledged by it pursuant to this Agreement; (c)
this Agreement has been duly authorized, executed and delivered by the Assignor
and constitutes a legal, valid and binding obligation of the Assignor
enforceable in accordance with its terms, except to the extent that the
enforceability hereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws generally affecting creditors'
rights and by equitable principles (regardless of whether enforcement is sought
in equity or at law); (d) the pledge, assignment and granting of a security
interest in the Cash Collateral Account pursuant to this Agreement creates, and
upon the deposit in the Cash Collateral Account of any other Collateral
pursuant to this Agreement will create, a valid and perfected first security
interest in all of the Assignor's
<PAGE>
EXHIBIT E
Page 8
right, title and interest in and to the Cash Collateral Account and the
Collateral so deposited, as the case may be, and the proceeds thereof subject to
no prior lien or encumbrance or to any agreement purporting to grant any third
party lien or encumbrance on property or assets of the Assignor which would
include the Collateral, and no UCC or other filings are required to be made in
connection with the foregoing or to perfect the security interests created
hereby: (e) no consent of any other party (including, without limitation, any
stockholder or creditor of the Assignor or any of its Subsidiaries) and no
consent, license, permit, approval or authorization of, exemption by, notice or
report to, or registration, filing or declaration with (except, in each case, as
have been obtained or made on or prior to the Effective Date), any governmental
authority is required to be obtained in connection with the execution, delivery
or performance of this Agreement; and (f) the execution, delivery and
performance of this Agreement will not violate any provision of any applicable
law or regulation or of any order, judgment, writ, award or decree of any court,
arbitrator or governmental authority, domestic or foreign or of the certificate
of incorporation or by-laws of the Assignor or any of its Subsidiaries or of any
securities issued by the Assignor or any of its Subsidiaries, or of any
indenture, mortgage, deed of trust, lease, credit agreement or loan agreement,
or any other agreement, contract or other instrument to which the Assignor or
any of its Subsidiaries is a party or which purports to be binding upon the
Assignor or any of its Subsidiaries or upon any of their respective assets and
will not result in the creation or imposition of (or the obligation to create or
impose) any lien or encumbrance on any of the assets of the Assignor or any of
its Subsidiaries except as contemplated by this Agreement. The Assignor
covenants and agrees that it will defend the Bank's right, title and security
interest in and to the Collateral and the proceeds thereof, against the claims
and demands of all persons whomsoever; and the Assignor covenants and agrees
that it will have like title to and right to pledge any other property at any
time hereafter pledged to the Bank as Collateral hereunder and will likewise
defend the right thereto and security interest therein of the Bank.
SECTION 10. INDEMNITY.
10.1. Indemnity. (a) The Assignor agrees to indemnify, reimburse and hold the
---------
Bank:, its successors, assigns, employees, agents and servants (hereinafter in
this Section 10.1 referred to individually as "Indemnitee," and collectively
as "Indemnitees") harmless from any and all liabilities, obligations, damages,
injuries, penalties, claims, demands, actions, suits, judgments and any and all
costs, expenses or disbursements (including attorneys' fees and expenses) of
whatsoever kind and nature (for the purposes of this Section 10.1 the foregoing
are collectively called "expenses") imposed on, asserted against or incurred
by any of the Indemnitees in any way relating to or arising out of this
<PAGE>
EXHIBIT E
Page 9
Agreement, the Letter of Credit Agreement, any other L/C Document or any other
document executed in connection herewith and therewith or in any other way
connected with the administration of the transactions contemplated hereby and
thereby or the enforcement of any of the terms of, or the preservation of any
rights under any thereof or in any way relating to or arising out of the use of
the Collateral; provided that no Indemnitee shall be indemnified pursuant to
--------
this Section 10.1(a) for expenses to the extent caused by the gross negligence
or willful misconduct of such Indemnitee. The Assignor agrees that upon written
notice by any Indemnitee of the assertion of such a liability, obligation,
damage, injury, penalty, claim, demand, action, suit or judgment, the Assignor
shall assume full responsibility for the defense thereof. Each Indemnitee agrees
to use its best efforts to promptly notify the Assignor of any such assertion of
which such Indemnitee has knowledge.
(b) Without limiting the application of Section 10.1(a) hereof, the Assignor
agrees to pay, or reimburse the Bank for any and all fees, costs and expenses of
whatever kind or nature incurred in connection with the creation, preservation
or protection of the Bank's Liens on, and security interest in, the Collateral,
including, without limitation, all fees and taxes in connection with the
recording or filing of instruments and documents in public offices, payment or
discharge of any taxes or Liens upon or in respect of the Collateral, premiums
for insurance with respect to the Collateral and all other fees, costs and
expenses in connection with protecting, maintaining or preserving the Collateral
and the Bank's interest therein, whether through judicial proceedings or
otherwise, or in defending or prosecuting any actions, suits or proceedings
arising out of or relating to the Collateral.
(c) Without limiting the application of Section 10.#l(a) or (b) hereof, the
Assignor agrees to pay, indemnify and hold each Indemnitee harmless from and
against any loss, costs, damages and expenses which such Indemnitee may suffer,
expend or incur in consequence of or growing out of any misrepresentation by
the Assignor in this Agreement, the Letter of Credit Agreement, any other L/C
Document or in any writing contemplated by or made or delivered pursuant to or
in connection with this Agreement, the Letter of Credit Agreement or any other
L/C Document.
(d) If and to the extent that the obligations of the Assignor under this
Section 10.1 are unenforceable for any reason, the Assignor hereby agrees to
make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under applicable law.
<PAGE>
EXHIBIT E
Page 10
10.2. Indemnity Obligations Secured by Collateral; Survival. Any amounts paid
-----------------------------------------------------
by any Indemnitee as to which such Indemnitee has the right to reimbursement
shall constitute Obligations secured by the Collateral. The indemnity
obligations of the Assignor contained in this Section 10 shall continue in full
force and effect notwithstanding the full payment of all Obligations.
SECTION 11. TERMINATION; RELEASE.
(a) After the Termination Date, this Agreement shall terminate, and the Bank,
at the request and expense of the Assignor will execute and deliver to the
Assignor, a proper instrument or instruments acknowledging the satisfaction and
termination of this Agreement, and will duly assign, transfer and deliver to the
Assignor (without recourse and without any representation or warranty) such of
the Collateral as may remain in the possession of the Bank and has not
theretofore been sold or otherwise applied or released pursuant to this
Agreement together with any monies at the time held by the Bank hereunder. As
used in this Agreement, "Termination Date" shall mean the date upon which the
Letter of Credit issued pursuant to the Letter of Credit Agreement has been
terminated in accordance with its terms, and all Obligations then outstanding
have been paid in full.
(b) At any time that the Assignor desires that Collateral be released as
provided in the foregoing Section 11(a), the Assignor shall deliver to the Bank
a certificate signed by any Authorized Officer of the Assignor stating that the
release of the respective Collateral is permitted pursuant to said Section
11(a).
SECTION 12. NOTICES, ETC.
Except as otherwise specified herein, all notices, requests, demands or other
communications to or upon the respective parties hereto shall be in writing and
deemed to have been duly given or made when delivered to the party to which such
notice, request, demand or other communication is required or permitted to be
given or made under this Agreement, addressed as follows:
<PAGE>
EXHIBIT E
PAGE 11
(a) if to the Assignor, at:
1751 Lake Cook Road
Suite 550
Deerfield, Illinois 60015
Attention: Thomas C. Spielberger
with copies to:
The Jordan Company
9 West 57th Street
40th Floor
New York, New York 10019
Attention: Jonathan F. Boucher
and
James Carlson, Esq.
Mayer Brown & Platt
1675 Broadway
New York, New York 10019
(b) if to the Bank, at:
Bankers Trust Company
130 Liberty Street
New York, New York 10006
Attention: Mary Kay Coyle
or at such other address as shall have been furnished in writing by any Person
described above to the party required to give notice hereunder.
Section 13. MISCELLANEOUS.
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE CONSTRUED IN ACCORDANCE W1TH AND BE GOVERNED BY THE LAW OF THE STATE OF
NEW YORK. This
<PAGE>
EXHIBIT E
Page 12
Agreement shall be binding upon the Assignor and its successors and assigns and
shall inure to the benefit of and be enforceable by the Bank and its successors
and assigns. The headings in this Agreement are for purposes of reference only
and shall not limit or define the meaning hereof. This Agreement may be executed
in any number of counterparts, each of which shall be an original, but all of
which shall constitute one instrument. Delivery of an executed counterpart of
the signature pages to this Agreement by telecopier shall be effective as
delivery of a manually executed counterpart of this Agreement. This Agreement
shall become effective on the date on which each of the parties shall have
executed and delivered a copy hereof. In the event that any provision of this
Agreement shall prove to be invalid or unenforceable, such provision shall be
deemed to be severable from the other provisions of this Agreement Which shall
remain binding on all parties hereto.
SECTION 14. WAIVER; AMENDMENT.
None of the terms and conditions of this Agreement may be changed, waived,
modified or varied in any manner whatsoever unless in writing duly signed by the
Assignor and the Bank.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
MK HOLDINGS, INC., as Assignor
By
----------------------------
Title:
BANKERS TRUST COMPANY
By
----------------------------
Title:
<PAGE>
EXHIBIT F
---------
[LETTERHEAD OF CT CORPORATION SYSTEM]
-----------------------------------
[Date]
Bankers Trust Company
130 Liberty Street
New York, New York 10006
Ladies and Gentlemen:
Reference is made to the Letter of Credit Agreement, dated as of September 22,
1995, among MK Group, Inc. ("Parent"), MK Holdings, Inc. (which shall be renamed
"Merkle-Korff Industries, Inc.") (the "Company"), and Bankers Trust
Company (the "Bank") (as such Letter of Credit Agreement may be modified,
supplemented or amended from time to time, the "Credit Agreement"). Unless
otherwise defined herein, capitalized terms used in this letter shall have the
meanings set forth in the Credit Agreement.
Pursuant to Section 8.07 of the Credit Agreement each of Parent and the
Company has irrevocably designated, appointed and empowered the undersigned, CT
Corporation System, with offices currently located at 1633 Broadway, New York,
New York 10019, as its authorized designee, appointee and agent to receive,
accept and acknowledge for and on its behalf, and in respect of its property,
service of any and all legal process, summons, notices and documents which may
be served in any such action or proceeding brought in the courts of the State of
New York or of the United States of America for the Southern District of New
York with respect to the Credit Agreement or any other L/C Document.
<PAGE>
EXHIBIT F
Page 2
The undersigned hereby informs you that it irrevocably accepts such
appointment as agent as set forth in Section 8.07 of the Credit Agreement and
agrees with you that the undersigned (i) shall inform the Bank promptly in
writing of any change of its address in New York City, (ii) shall perform its
obligations as such process agent in accordance with the provisions of Section
8.07 of the Credit Agreement and (iii) shall forward promptly to Parent or the
Company, as the case may be, any legal process, summons, notices and
documents received by the undersigned in its capacity as process agent.
As process agent, the undersigned, and its successor or successors, agree to
discharge the above-mentioned obligations and will not refuse fulfillment of
such obligations under Section 8.07 of the Credit Agreement.
Very truly yours,
CT CORPORATION SYSTEM
By
---------------------------
Title:
<PAGE>
EXHIBIT G-1
-----------
THIS NOTE HAS NOT BEEN REGISTERED UNDER THF SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE STATE SECURITIES LAWS AND ACCORDINGLY MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT OR LAWS OR PURSUANT TO AN EXEMPTION THEREFROM.
MK HOLDINGS, INC.
SECURED NOTE
DUE DECEMBER 26, 1996
$90,000,000 Deerfield, Illinois
September 22, 1995
FOR VALUE RECEIVED, the undersigned, MK HOLDINGS, INC., an Illinois
corporation (the "Corporation"), hereby promises to pay to the John D. Simms
Revocable Trust Under Agreement dated November 5, 1988 c/o JOHN D. SIMMS, as
agent for the Sellers (as defined in the Purchase Agreement) (together with his
successors and permitted assigns, the "Note Holders' Agent"), in immediately
available funds by wire transfer in accordance with written instructions
provided to the Corporation by the Note Holders' Agent, or in the absence of
such instructions by cashier's check at the office of the Note Holders' Agent at
611 Edgemont Lane, Park Ridge, Illinois 60068, the aggregate principal amount of
NINETY MILLION DOLLARS U.S. $90,000,000 on December 26, 1996 (subject to Section
1.2 hereof). Certain capitalized terms are used in this Note as defined in
Section 4.
Section 1. Payment.
-------
1.1 Interest. The outstanding principal amount of this Note which is due in
--------
accordance with the provisions hereof shall bear interest (computed on the basis
of a three hundred sixty-five (365) or three hundred sixty-six (366) day year,
as the case may be) at a rate equal to the Secured Note Interest Rate from
September 23, l995 to (but excluding) the date on which the principal amount of
this Note is paid in full. Such interest shall be due and payable on or before
the close of business in the Note Holders' Agent's account at Bankers Trust
Company on each Acceleration Date provided below and any unpaid balance of such
interest shall be due and payable on or before the close of business in the Note
Holders' Agent's account at Bankers Trust Company on the Maturity Date.
1.2 Principal. The Corporation shall pay the entire unpaid balance of
---------
principal on this Note on December 26, 1996, except that
-1-
<PAGE>
such payment of such principal amount and all accrued interest may be
accelerated by
(i) the Note Holders' Agent in writing by five (5) Business Days prior
notice to the Corporation to any of the four Acceleration Dates provided below:
provided, however, such notice shall not be given by the Note Holders' Agent
unless and until the earliest to occur of December 28, l995, March 28, 1996,
June 27, 1996, or September 26, 1996 (said four dates referred to as the
"Acceleration Dates"), after the enactment and effective date of an amendment to
the Internal Revenue Code of 1986 as amended (the "Code") with the direct or
indirect result that the maximum effective rate of tax that will be payable on
any payments made under this Note that constitute, in part, Net Capital Gains
(as defined in Section 1222 of the Code) realized from payments hereunder
accounted for under the "installment method" (as defined in Section 453 (c) of
the Code) and received after such change in law becomes effective, is lower
than twenty-eight percent (28%); or
(ii) the occurrence of an Event of Default under this Note; or
(iii) receipt of written notice fron Bankers Trust by the Note Holders'
Agent of pending termination of the Letter of Credit.
1.3 Business Days. Whenever payment of principal of, or interest on, this
-------------
Note shall be due on a date that is not a Business Day, the date for payment
thereof shall be the next succeeding Business Day and interest due at the rate
then in effect on the unpaid principal and any other amounts payable hereunder
shall accrue during such extension and shall be payable on such succeeding
Business Day.
1.4 Note Holder Agreement. All payments of principal and interest hereunder
---------------------
and all notices, information, approvals, or disclosures required hereunder
shall be made to the Note Holders' Agent, who is the payee of this Note for all
purposes of this Note. The Note Holders' Agent shall accept said payments
subject to the terms and provisions of that certain Note Holder Agreement
("Note Holder Agreement") dated September 22, l995, by and among the Note
Holders' Agent and the Sellers (said parties to such Note Holder Agreement are
herein collectively referred to as the "Holders"). No change in the Note
Holders' Agent shall be effective until given to the Corporation in Writing.
1.5 Cost of Collection. In the event this Note, or any part hereof, is not
------------------
paid when due, the Corporation agrees to pay on demand all costs of collection,
including reasonable attorneys' fees. Any amount of principal, interest or other
amounts due hereunder which are not paid when due, whether by acceleration or
otherwise, shall bear interest at the rate of seven and a quarter percent
(7.25%) per annum, until such amounts are paid.
-2-
<PAGE>
1.6 No Set-off. All obiligations of the Corporation hereunder are
----------
independent covenants from the obligations of the Holders under the Purchase
Agreement. The Corporation shall not be entitled to set-off or reduce any
amounts of interest payable hereunder for any obligations or liabilities of
the Holders, to the Corporation or any claims by the Corporation against the
Holders except for liabilities or obligations under Section 1.07, of the
Purchase Agreement.
1.7 No Prepayment. The Corporation shall not prepay this Note in whole or
-------------
in part.
Section 2. Supporting Letter of Credit.
---------------------------
2.1 Letter of Credit. This Note is supported by a Letter of Credit dated
----------------
this date issued by Bankers Trust Company in favor of Note Holders' Agent. The
terms of the Letter of Credit are incorporated into this Note by reference to
the same effect as if set forth in this Note in their entirety. In the event of
a default under this Note, the Note Holders' Agent may exercise any of the
remedies granted hereunder or by the Letter of Credit.
Section 3. Defaults
--------
3.1 Events of Default. If one or more of the following events ("Event of
-----------------
Default") shall have occurred and be continuing:
(a) the Corporation shall fail to pay on the due date thereof any
principal of this Note or shall fail to pay on the due date thereof any
interest and the same shall not have been cured within 3 days after written
notice thereof has been given by the Note Holders' Agent to the
Corporation;
(b) the Corporation or Bankers Trust Company shall commence a voluntary
case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency
or other similar law now or hereafter in effect or seeking the appointment
of a trustee, receiver, liquidator, custodian or other similar official, or
shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other proceeding
commenced against it, or shall make a general assignment for the benefit of
creditors; or
(c) an involuntary case or other proceeding shall be comnenced against
the Corporation or Bankers Trust Company seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the
-3-
<PAGE>
appointment of a trustee, receiver, liquidator, custodian or other similar
official, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of 90 days; or an order for relief
shall be entered against the Corporation or Bankers Trust Company under the
Federal bankruptcy laws as now or hereafter in effect;
then, and in every such event, the Note Holders' Agent shall have the right to
elect without notice, to (i) declare the principul balance remaining unpaid
under this Note, and all unpaid interest accrued hereon immediately due and
payable in full, (ii) draw on the Letter of Credit, and/or (iii) exercise any
and all other rights and remedies available at law or in equity.
3.2 Waiver. The Corporation hereby waives presentment, demand, protest,
------
notice of dishonor and/or protest, notice of nonpayment and all other notices
and demands, and assents to the extension of the time of payment, forbearance or
other indulgence, without notice.
Section 4. Definitions. For purposes of this Note, the following terms have
-----------
the meanings set forth below:
"Business Day" means any day except a Saturday, Sunday or other days on
------------
which commercial banks in New York City are required or authorized by law to
close.
"Letter of Credit" means the $95,600,000 Letter of Credit issued of even
----------------
date herewith in favor of the Note Holders' Agent by Bankers Trust Company at
the request of the Corporation.
"Maturity Date" means December 26, 1996, or such earlier date when this
-------------
Note is due and payable in full pursuant to the terms hereof.
"Note" means this Secured Promissory Note dated September 22, 1995.
----
"Purchase Agreement" means the Agreement for Purchase and Sale of Stock of
------------------
Merkle-Korff Industries, Inc., Mercury Industries, Inc. and Elmco Industries,
Inc. dated as of May 26, 1995, among the Corporation and the Sellers, as
amended.
-4-
<PAGE>
"Secured Note Interest Rate" means, (i) from and including September 23,
--------------------------
1995 through Septedber 27, l995, 5.16% per annum; (ii) from September 28, 1995
through December 27, l995, an amount exactly equal to the rate per annum paid
on ninety day Treasury Bills issued on September 28, l995; (iii) from December
28, 1995 through March 27, 1996, an amount exactly equal to the rate per annum
paid on ninety day U.S. Treasury Bills issued on December 28, 1995; (iv) from
March 28, 1996 through June 26, l996, an amount exactly equal to the rate per
annum paid on ninety day U.S. Treasury Bills issued on March 28, 1996; (v)
from June 27, 1996 through September 25, 1996, an amount exactly equal to the
rate per annum paid on ninety day U.S. Treasury Bills issued on June 27, 1996;
and (vi) from September 26, 1996 through December 25, 1996, an amount exactly
equal to the rate per annum paid on ninety day Treasury Bills issued on
September 26, 1996.
Section 5. Miscellaneous.
-------------
5.1 Notices. All notices, requests and other communications to any party
-------
hereunder shall be in writing and shall be delivered personally, sent by
facsimile transmission or sent by certified, registered or express mail, postage
prepaid, and shall be deemed given when so delivered personally, or sent by
facsimile transmission, or if mailed or sent overnight courier, upon receipt
thereof, as follows:
If to the Corporation to:
Thomas H. Quinn, President
Jordan Industries, Inc.
ArborLake Centre
Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60015
Telephone: 708-945-5591
Telecopier: 708-945-5698
with a copy to:
G. Robert Fisher, Esq.
Michael J. Van Dyke, Esq.
Bryan Cave LLP
1200 Main Street
Suite 3500
Kansas City, Missouri 64105
Telephone: 816-474-7400
Telecopier: 816-391-7600
-5-
<PAGE>
If to the Note Holders' Agent, to:
c/o John D. Simms
61l Edgemont Lane
Park Ridge, Illinois 60068
Telephone: 708-825-1569
with a copy to:
John L. Eisel, Esq.
Mark W. Hianik, Esq.
Wildman, Harrold, Allen & Dlxon
225 West Wacker Drive
Chicago, Illinois 60606-1229
Telephone: 312-201-2000
Telecopier: 312-201-2555
Each party may, by notice given in accordance with this Section to the other
party, designate another address or person for receipt of notices hereunder.
5.2 No Waivers. No failure or delay by the Note Holders' Agent in
----------
exercising any right, power or privilege hereunder or under this Note shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law. The
acceptance by the Note Holders' Agent of any partial payment made hereunder
after the time when any of the Corporation's liabilities hereunder become due
and payable will not waive, affect or diminish any right of the Note Holders'
Agent to require strict compliance and performance herewith. No notice to or
demand on the Corporation in any case shall entitle the Corporation to any
other or further notice or demand in or related to similar circumstances
requiring such notice.
5.3 Amendments and Waivers. Any provision of this Note may be amended or
----------------------
waived if, but only if, such amendment or waiver is in writing, signed by the
Corporation and the Note Holders' Agent.
5.4 Successors and Assigns. The provisions of this Note shall be binding
----------------------
upon and inure to the benefit of the Note Holders' Agent and his successors and
permitted assigns under Section 1.4. Without the prior written consent of the
Corporation the Note Holders' Agent agrees not to, (a) sell, assign, pledge or
otherwise transfer, in whole or in part, directly or indirectly, this Note or
any interest therein or (b) create, incur or suffer to exist any security
interest, lien, charge or other encumbrance whatsoever upon this Note.
-6-
<PAGE>
5.5 Company Obligations. The Holders agree and acknowledge that this Note
-------------------
and the Corporation's obligations hereunder are solely obligations and
liabilities of the Corporation. None of the Corporation's directors, officers,
employees, stockholders, advisors, consultants and affiliates or any other
persons shall be obligated or liable in respect of this Note, and the Note
Holders' Agent hereby releases them from any such obligation of liability.
5.6 LITIGATION. THIS NOTE SHALL BE GOVERNED BY, CONSTRUED, APPLIED AND
----------
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS, AND NO
CHOICE OF LAW PROVISION SHALL BE USED TO APPLY ANY LAW OTHER THAN THAT OF
ILLINOIS, AND NO DEFENSE, COUNTERCLAIM OR RIGHT OF SET-OFF GIVEN OR ALLOWED BY
THE LAWS OF ANY STATE OR JURISDICTION, OR ARISING OUT OF THE ENACTMENT,
MODIFICATION OR REPEAL OF ANY LAW, REGULATION, ORDINANCE OR DECREE OF ANY
FOREIGN JURISDICTION, SHALL BE INTERPOSED IN ANY ACTION HEREON. SUBJECT TO
SECTION 5.7, THE PARTIES AGREE THAT ANY ACTION OR PROCEEDING TO ENFORCE OR
ARISING OUT OF THIS NOTE SHALL BE COMMENCED IN THE STATE COURTS, OR IN THE
UNITED STATES DISTRICT COURTS IN CHICAGO, ILLINOIS. THE PARTIES CONSENT TO SUCH
JURISDICTION, AGREE THAT VENUE WILL BE PROPER IN SUCH COURTS AND WAIVE ANY
OBJECTIONS BASED UPON FORUM NON CONVENIENS. THE CHOICE OF FORUM SET FORTH IN
----- --- ----------
THIS SECTION 5.6 SHALL BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY ACTION UNDER
THIS AGREEMENT IN ANY JURISDICTION.
5.7 JURY WAIVER. THE CORPORATION IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY
-----------
JURY IN ANY ACTION OR PROCEEDING (I) TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR
IN CONNECTION WITH THIS NOTE OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR
(II) ARISING FROM ANY DISPUTE OR CONTROVERSY IN CONNECTION WITH OR RELATED TO
THIS NOTE OR ANY SUCH AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT, AND AGREES
THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE
A JURY.
MK HOLDINGS, INC.
By /s/ Jonathan F. Boucher
-------------------------
Name: Jonathan F. Boucher
Title: Vice-President
-7-
<PAGE>
EXHIBIT G-2
-----------
New Exhibit 1.02 (a) (2)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE STATE SECURITIES LAWS AND ACCORDINGLY MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT OR LAWS OR PURSUANT TO AN EXEMPTION THEREFROM.
MK HOLDINGS, INC.
SECURED NOTE
DUE SEPTEMBER 25, 1996
$5,600,000 Deerfield, Illinois
September 22, 1995
FOR VALUE RECEIVED, the undersigned, MK HOLDINGS, INC., an Illinois
corporation (the "Corporation"), hereby promises to pay to the John D. Simms
Revocable Trust Under Agreement dated November 5, 1988 c/o JOHN D. SIMMS, as
agent for the Sellers (as defined in the Purchase Agreement) (together with his
successors and permitted assigns, the "Note Holders' Agent"), in immediately
available funds by wire transfer in accordance with written instructions
provided to the Corporation by the Note Holders' Agent, or in the absence of
such instructions by cashier's check at the office of the Note Holders' Agent at
611 Edgemont Lane, Park Ridge, Illinois 60068, the aggregate principal amount of
FIVE MILLION SIX HUNDRED THOUSAND DOLLARS U.S. $5,600,000 on September 25, 1995.
Certain capitalized terms are used in this Note as defined in Section 4.
Section 1. Payment.
-------
1.1 Interest. The outstanding principal amount of this Note which is due in
--------
accordance with the provisions hereof shall bear interest (computed on the basis
of a three hundred sixty-five (365) or three hundred sixty-six (366) day year,
as the case may be) at a rate equal to the Secured Note Interest Rate from
September 23, 1995 to (but excluding) the date on which the principal amount of
this Note is paid in full. Such interest shall be due and payable on or before
the close of business on the Maturity Date.
1.2 Princical. The Corporation shall pay the entire unpaid balance of
---------
principal on this Note on or before the close of business on Sectember 25, 1995.
-1-
<PAGE>
1.3 Business Days. Whenever payment of principal of, or interest on, this
-------------
Note shall be due on a date that is not a Business Day, the date for payment
thereof shall be the next succeeding Business Day and interest due at the rate
then in effect on the unpaid principal and any other amounts payable hereunder
shall accrue during such extension and shall be payable on such succeeding
Business Day.
1.4 Note Holder Agreement. All payments of principal and interest hereunder
---------------------
and all notices, information, approvals, or disclosures required hereunder shall
be made to the Note Holders' Agent, who is the payee of this Note for all
purposes of this Note. The Note Holders' Agent shall accept said payments
subject to the terms and provisions of that certain Note Holder Agreement
("Note Holder Agreement") dated September 22, 1995, by and among the Note
Holders' Agent and the Sellers (said parties to such Note Holder Asreement are
herein collectively referred to as the "Holders").
No change in the Note Holders' Agent shall be effective until given to the
Corporation in writing signed by all of the parties thereto.
1.5 Cost of Collection. In the event this Note, or any part hereof, is not
------------------
paid when due, the Corporation agrees to pay on demand all costs of collection,
including reasonable attorneys' fees. Any amount of principal, interest or
other amounts due hereunder which are not paid when due, whether by acceleration
or otherwise, shall bear interest at the rate of seven and a quarter percent
(7.25%) per annum, until such amounts are paid.
1.6 No Set-off. ALL obligations of the Corporation hereunder are
----------
independent covenants from the obligations of the Holders under the Purchase
Agreement. The Corporation shall not be entitled to set-off and reduce any
amounts of interest payable hereunder for any obligations or liabilities of the
Holders to the Corporation or any claims by the Corporation against the Holders
except for claiming under Section 1.07 of the Purchase Agreement.
1.7 No Prepayment. The Corporation shall not prepay this Note in whole or
-------------
in part.
Section 2. Supporting Letter of Credit.
---------------------------
2.1 Letter of Credit. This Note is supported by a Letter of Credit dated
----------------
this date issued by Bankers Trust Company in favor of Note Holders' Agent. The
terms of the Letter of Credit are incorporated into this Note by reference to
the same effect as if set forth in this Note in their entirety. In the event of
a default under this Note, the Note Holders' Agent may exercise any of the
remedies granted hereunder or by the Letter of Credit.
-2-
<PAGE>
Section 3. Defaults
--------
3.1 Events of Default. If one or more of the following events ("Event of
-----------------
Default") shall have occurred and be continuing:
(a) the Corporation shall fail to pay on the due date thereof any
principal of this Note or shall fail to pay on the due date thereof any
interest and the same shall not have been cured within 5 days after written
notice thereof has been given by the Note Holders' Agent to the
Corporation;
(b) the Corporation or Bankers Trust Company shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or
other relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official, or shall consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for
the benefit of creditors; or
(c) an involuntary case or other proceeding shall be commenced against
the Corporation or Bankers Trust Company seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 90 days; or an
order for relief shall be entered against the Corporation under the
Federal bankruptcy laws as now or hereafter in effect;
then, and in every such event, the Note Holders' Agent shall have the right to
elect without notice, to (i) declare the principal balance remaining unpaid
under this Note, and all unpaid interest accrued hereon immediately due and
payable in full, (ii) draw on the Letter of Credit, and/or (iii) exercise any
and all other rights and remedies available at law or in equity. Failure to
exercise these options shall not constitute a waiver of the right to exercise
the same in the event of any subsequent Event of Default due and payable without
presentment, demand, protest or further notice of any kind, all of which are
hereby waived by the Corporation.
3.2 Waiver. The Corporation hereby waives presentment, demand, protest,
------
notice of dishonor and/or protest, notice of nonpayment and all other notices
and demands, and assents to the extension of the time of payment, forbearance
or other indulgence, without notice.
-3-
<PAGE>
Section 4. Definitions. For purposes of this Note, the following terms have
-----------
the meanings set forth below:
"Business Day" means any day except a Saturday, Sunday or other days on
------------
which commercial banks in New York City are required or authorized by law to
close.
"Letter of Credit" means the $95,600,000 Letter of Credit issued of even
----------------
date herewith in favor of the Note Holders' Agent by Bankers Trust Company at
the request of the Corporation.
"Maturity Date" means September 25, 1995, or such earlier date when this
-------------
Note is due and payable in full pursuant to the terms hereof.
"Note" means this Secured Promissory Note dated September 22, 1995.
----
"Purchase Aqreement" means the Agreement for Purchase and Sale of Stock of
------------------
Merkle-Korff Industries, Inc., Mercury Industries, Inc. and Elmco Industries,
Inc. dated as of May 26, 1995, among the Corporation and the Sellers, as
amended.
"Secured Note Interest Rate" means 5.16% per annum.
Section 5. Miscellaneous.
-------------
5.1 Notices. All notices, requests and other communications to any party
-------
hereunder shall be in writing and shall be delivered personally, sent by
facsimile transmission or sent by certified, registered or express mail, postage
prepaid, and shall be deemed given when so delivered personally, or sent by
facsimile transmission, or if mailed or sent by overnight courier, upon receipt
thereof, as follows:
If to the Corporation to:
Thomas H. Quinn, President
Jordan Industries, Inc.
ArborLake Centre
Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60015
Telephone: 708-945-5591
Telecopier: 708-945-5698
-4-
<PAGE>
with a copy to:
G. Robert Fisher, Esq.
Michael J. Van Dyke, Esq.
Bryan Cave LLP
1200 Main Street
Suite 3500
Kansas City, Missouri 64105
Telephone: 816-474-7400
Telecopier: 816-391-7600
If to the Note Holders' Agent, to:
c:/o John D. Simms
611 Edgemont Lane
Park Ridge, Illinois 60068
Telephone: 708-825-1569
with a copy to:
John L. Eisel, Esq.
Mark W. Hianik, Esq.
Wildman, Harrold, Allen & Dixon
225 West Wacker Drive
Chicago, Illinois 60606-1229
Telephone: 312-201-2000
Telecopier: 312-201-2555
Each party may, by notice given in accordance with this Section to the other
party, designate another address or person for receipt of notices hereunder.
5.2 No Waivers. No failure or delay by the Note Holders' Agent in
----------
exercising any right, power or privilege hereunder or under this Note shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law. The
acceptance by the Note Holders' Agent of any partial payment made hereunder
after the time when any of the Corporation's liabilities hereunder become due
and payable will not waive, affect or diminish any right of the Note Holders'
Agent to require strict compliance and performance herewith. No notice to or
demand on the Corporation in any case shall entitle the Corporation to any other
or further notice or demand in or related to similar circumstances requiring
such notice.
-5-
<PAGE>
5.3 Amendments and Waivers. Any provision of this Note may be amended or
----------------------
waived if, but only if, such amendment or waiver is in writing, signed by the
Corporation and the Note Holders' Agent.
5.4 Successors and Assigns. The provisions of this Note shall be binding
----------------------
upon and inure to the benefit of the Note Holders' Agent and his successors and
permitted assigns under Section 1.4. Without the prior written consent of the
Corporation the Note Holders' Agent agrees not to, (a) sell, assign, pledge or
otherwise transfer, in whole or in part, directly or indirectly, this Note or
any interest therein or (b) create, incur or suffer to exist any security
interest, lien, charge or other encumbrance whatsoever upon this Note.
5.5 Company Obligations. The Holders agree and acknowledge that this Note
-------------------
and the Corporation's obligations hereunder are solely obligations and
liabilities of the Corporation. None of the Corporation's directors, officers,
employees, stockholders, advisors, consultants and affiliates or any other
persons shall be obligated or liable in respect of this Note, and the Note
Holders' Agent hereby releases them from any such obligation of liability.
5.6 LITIGATION. THIS NOTE SHALL BE GOVERNED BY, CONSTRUED, APPLIED AND
----------
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS, AND NO
CHOICE OF LAW PROVISION SHALL BE USED TO APPLY ANY LAW OTHER THAN THAT OF
ILLINOIS, AND NO DEFENSE, COUNTERCLAIM OR RIGHT OF SET-OFF GIVEN OR ALLOWED BY
THE LAWS OF ANY STATE OR JURISDICTION, OR ARISING OUT OF THE ENACTMENT,
MODIFICATION OR REPEAL OF ANY LAW, REGULATION, ORDINANCE OR DECREE OF ANY
FOREIGN JURISDICTION, SHALL BE INTERPOSED IN ANY ACTION HEREON. SUBJECT TO
SECTION 5.7, THE PARTIES AGREE THAT ANY ACTION OR PROCEEDING TO ENFORCE OR
ARISING OUT OF THIS NOTE SHALL BE COMMENCED IN THE STATE COURTS, OR IN THE
UNITED STATES DISTRICT COURTS IN CHICAGO, ILLINOIS. THE PARTIES CONSENT TO SUCH
JURISDICTION, AGREE THAT VENUE WILL BE PROPER IN SUCH COURTS AND WAIVE ANY
OBJECTIONS BASED UPON FORUM NON CONVENIENS. THE CHOICE OF FORUM SET FORTH IN
----- --- ----------
THIS SECTION 5.6 SHALL BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY ACTION UNDER
THIS AGREEMENT IN ANY JURISDICTION
5.7 JURY WAIVER. THE CORPORATION IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY
-----------
JURY IN ANY ACTION OR PROCEEDING (I) TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR IN
CONNECTION WITH THIS NOTE OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR (II)
ARISING FROM ANY DISPUTE OR CONTROVERSY IN CONNECTION WITH OR RELATED TO THIS
NOTE OR ANY SUCH AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT,
-6-
<PAGE>
AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND
NOT BEFORE A JURY.
MK HOLDINGS, INC.
By /s/ Jonathan F. Boucher
------------------------
Name: Jonathan F. Boucher
---------------------
Title: Vice-President
--------------------
-7-
<PAGE>
ANNEX III
---------
FORM OF TERMINATION DRAWING CERTIFICATE
---------------------------------------
To: Bankers Trust Company
130 Liberty Street
New York, New York 10006
Attention: Commercial Loan Division, Standby Letter of Credit Unit
Re: Irrevocable Standby Letter of Credit No. S-10675.
Gentlemen:
The undersigned, the Trustee of the John D. Simms Revocable Trust Under
Agreement Dated November 5, 1988 (the "Beneficiary") hereby certifies to
Bankers Trust Company (the "Bank") with respect to the above-referenced standby
letter of credit (the "Letter of Credit," the terms defined therein and not
otherwise defined herein being used herein as therein defined) in favor of the
Beneficiary, that:
The Beneficiary has received written notice from the Bank that
an Event of Default has occurred under the Letter of Credit Agreement
and that the Letter of Credit is to be terminated prior to the Stated
Expiry Date and is making a drawing under the Letter of Credit in the
amount of USD_____________, which amount is the lesser of (x) the
Stated Amount of the Letter of Credit as in effect on the date
hereof and (y) the aggregate principal amount outstanding under the
Installment Notes, dated September 22, 1995, issued by the Company to
the Beneficiary on the date hereof.
Upon receipt of the amount demanded under the Letter of Credit,
the Beneficiary will apply all of such amount directly to the payment
of the outstanding principal of the Installment Notes.
Payment of this drawing is required to be made in immediately
available funds by wire transfer to the Beneficiary in accordance with the
following payment instructions.
[Insert Payment Instructions]
<PAGE>
ANNEX III
Page 2
IN WITNESS WHEREOF, the Beneficiary has executed and delivered this
certificate as of the _________ day of _____________, 19__.
Very truly yours,
JOHN D. SIMMS REVOCABLE
TRUST UNDER AGREEMENT DATED
NOVEMBER 5, 1988
By:
---------------------
Name:
Title:
<PAGE>
EXHIBIT 10.8
FIRST AMENDMENT TO LETTER OF CREDIT AGREEMENT
---------------------------------------------
FIRST AMENDMENT TO LETTER OF CREDIT AGREEMENT (this "Amendment"),
dated as of November 7, 1996, among MK GROUP, INC. (the "Guarantor"), MERKLE-
KORFF INDUSTRIES, INC. (the "Company") and BANKERS TRUST COMPANY (the "Bank").
Unless otherwise defined herein, all capitalized terms used herein and not
otherwise defined shall have the respective meanings provided such terms in the
Letter of Credit Agreement.
W I T N E S S E T H :
-------------------
WHEREAS, the Guarantor, the Company and the Bank are parties to a
Letter of Credit Agreement, dated as of September 22, 1995 (the "Letter of
Credit Agreement"); and
WHEREAS, the parties hereto wish to amend the Letter of Credit
Agreement as herein provided;
NOW, THEREFORE, it is agreed:
I. Amendments to Letter of Credit Agreement.
----------------------------------------
1. Section 1.01 of the Letter of Credit Agreement is hereby amended
by inserting the word "Original" immediately following the text "Initial
Borrowing Date under the" appearing in said Section.
2. Section 3.09 of the Letter of Credit Agreement is hereby amended
by (i) inserting the word "Original" immediately following the text "in Sections
5 and 6 of the" appearing in said Section and (ii) inserting the word "Original"
immediately following the text "Date under the" appearing in said Section.
3. Section 4.06 of the Letter of Credit Agreement is hereby amended by
inserting the word "Original" immediately following the text "in the" appearing
in said Section.
4. The preamble of Section 5 of the Letter of Credit Agreement is
hereby amended by deleting the phrase "the Effective Date" appearing therein and
inserting in lieu thereof the phrase "(x) the First Amendment Effective Date, in
the case of Section 5.01 and (y) the Effective Date, in the case of Section
5.02,".
5. Section 5.01 of the Letter of Credit Agreement is hereby amended
by (i) deleting the phrase "Each of the Guarantor and the Company will, and will
cause each of its respective" and inserting in lieu thereof the text "(A) The
Guarantor will cause each of its Subsidiaries to and (B) the Company will, and
will cause each of its", (ii) deleting
<PAGE>
the phrase "the Guarantor," appearing in the first sentence of said Section,
(iii) deleting the phrase "the Guarantor, the Company and their respective
Subsidiaries" appearing in the second sentence of said Section and inserting in
lieu thereof the phrase "the respective Subsidiaries of the Guarantor and the
Company" and (iv) deleting the phrase "Effective Date" appearing therein and
inserting in lieu thereof the phrase "First Amendment Effective Date".
6. Section 6.03 of the Letter of Credit Agreement is hereby amended
by (i) deleting the phrase "Effective Date" in each place it appears therein and
inserting in lieu thereof the phrase "First Amendment Effective Date" and (ii)
deleting the text ", 9.09, 9.10 and/or 9.11" appearing therein and inserting in
lieu thereof the text "9.08 and/or 9.09".
7. The remedies provision appearing at the end of Section 6 of the
Letter of Credit Agreement is hereby amended by deleting the phrase "Effective
Date" appearing therein and inserting in lieu thereof the phrase "First
Amendment Effective Date".
8. The definition of "Acquisition" appearing in Section 7 of the
Letter of Credit Agreement is hereby amended by inserting the word "Original"
immediately following the text "provided in the" appearing therein.
9. The definition of "Acquisition Documents" appearing in Section 7
of the Letter of Credit Agreement is hereby amended by inserting the word
"Original" immediately following the text "provided in the" appearing therein.
10. The definition of "Credit Agreement" appearing in Section 7 of
the Letter of Credit Agreement is hereby amended by (i) deleting the date
"September 22, 1995" appearing therein and inserting in lieu thereof the date
"November 7, 1996"; (ii) deleting the phrase "the Guarantor, the Company" and
inserting in lieu thereof the phrase "Motors and Gears Industries, Inc."
11. The definition of "Initial Borrowing Date" appearing in Section 7
of the Letter of Credit Agreement is hereby amended by inserting the word
"Original" immediately following the text "provided in the" appearing therein.
12. The definition of "Material Adverse Effect" appearing in Section
7 of the Letter of Credit Agreement is hereby amended by inserting the word
"Original" immediately following the text "as defined in the" appearing therein.
13. The definition of "Mergers" appearing in Section 7 of the Letter
of Credit Agreement is hereby amended by inserting the word "Original"
immediately following the text "provided in the" appearing therein.
14. Section 7 of the Letter of Credit Agreement is hereby further
amended by inserting in the appropriate alphabetical order the following new
definition:
-2-
<PAGE>
"First Amendment" shall mean the First Amendment to this Agreement,
dated as of November 7, 1996.
"First Amendment Effective Date" shall have the meaning provided in
the First Amendment.
"Original Credit Agreement" shall mean the Credit Agreement, dated as
of September 22, 1995, among the Guarantor, the Company, various lending
institutions from time to time party thereto and Bankers Trust Company, as
Agent, as in effect on the First Amendment Effective Date (prior to giving
effect to the First Amendment).
15. Section 9.02 of the Letter of Credit Agreement is hereby amended
by deleting the phrase "Effective Date" appearing in said Section and inserting
in lieu thereof the phrase "First Amendment Effective Date".
II. Miscellaneous Provisions.
------------------------
1. In order to induce the Bank to enter into this Amendment, each of
the Company and the Guarantor hereby represents and warrants that:
(a) no Default or Event of Default exists as of the First Amendment
Effective Date (as defined below), both before and after giving effect to
this Amendment; and
(b) all of the representations and warranties contained in the Letter
of Credit Agreement and the other L/C Documents are true and correct in all
material respects on the First Amendment Effective Date, both before and
after giving effect to this Amendment, with the same effect as though such
representations and warranties had been made on and as of the First
Amendment Effective Date (it being understood that any representation or
warranty made as of a specific date shall be true and correct in all
material respects as of such specific date).
2. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Letter of
Credit Agreement or any other L/C Document.
3. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Company and the Bank.
-3-
<PAGE>
4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
5. This Amendment shall become effective on the date (the "First
Amendment Effective Date") when each of the Guarantor, the Company and the Bank
shall have signed a copy hereof (whether the same or different copies) and shall
have delivered (including by way of facsimile transmission) the same to the Bank
at 130 Liberty Street, New York, New York 10006 Attention: Mary Kay Coyle.
6. From and after the First Amendment Effective Date, all references
in the Letter of Credit Agreement and each of the other L/C Documents to the
Letter of Credit Agreement shall be deemed to be references to the Letter of
Credit Agreement as amended hereby.
* * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Amendment as of the date first
above written.
MK GROUP, INC.
By /s/ Jonathan F. Boucher
---------------------------
Title:
MERKLE-KORFF INDUSTRIES, INC.
By /s/ Jonathan F. Boucher
---------------------------
Title:
BANKERS TRUST COMPANY
By /s/ Patricia Hogan
----------------------------
Title: Vice President
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<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND ACCORDINGLY MAY NOT
BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR LAWS OR PURSUANT TO
AN EXEMPTION THEREFROM. THE PRINCIPAL AMOUNT OF THIS NOTE, AND INTEREST
IN RESPECT THEREOF, IS SUBORDINATED TO THE PAYMENT IN FULL OF ALL SENIOR
INDEBTEDNESS AND IS SUBJECT TO SET-OFF, ALL AS DESCRIBED IN THIS NOTE.
MK HOLDINGS, INC.
NON-NEGOTIABLE SUBORDINATED NOTE
DUE DECEMBER 31, 2003
$5,000,000 Deerfield, Illinois
September 22, 1995
FOR VALUE RECEIVED, the undersigned, MK HOLDINGS, INC., an Illinois
corporation (together with its successors, the "Corporation"), hereby promises
to pay to the John D. Simms Revocable Trust Under Agreement dated November 5,
1988, c/o John D. Simms, as agent (together with his successors and permitted
assigns, the "Note Holders' Agent"), in immediately available funds by wire
transfer in accordance with written instructions provided to the Corporation by
the Note Holders' Agent or in the absence of such instructions by cashier's
check at the office of the Note Holders' Agent at 611 Edgemont Lane, Park Ridge,
Illinois 60068, the aggregate principal amount of FIVE MILLION DOLLARS
($5,000,000), subject to Section 6 hereof, on the installment dates listed in
Section 1.2 hereof. Certain capitalized terms are used in this Note as defined
in Section 7.
Section 1. Payment.
-------
1.1 Interest. The outstanding principal amount of this Note which is due in
--------
accordance with the provisions hereof with respect to any fiscal year of the
Corporation and which is unpaid following the end of said fiscal year of the
Corporation shall bear interest (computed on the basis of a 365 or 366 day year,
as the case may be) at a rate equal to nine percent (9%) per annum from
September 23, 1995 to (but excluding) the date on which the principal amount of
this Note is paid in full (the "Maturity
- 1 -
<PAGE>
Date"). Subject to Section 6 hereof, such interest shall be due and payable
annually in arrears with respect to each fiscal year of the Corporation (or
portion thereof) on or before the 120th day following the end of such
Corporation's fiscal year ("Interest Payment Dates"), commencing with the fiscal
year ending December 31, 1995, and ending on the Maturity Date. Accrued interest
for each such fiscal year shall also bear interest (computed on the basis of a
365 or 366 day year, as the case may be) at a rate equal to nine percent (9%)
per annum from the first day following the end of the Corporation's fiscal year
during which such interest has accrued to (but excluding) the actual Interest
Payment Date for such fiscal year.
1.2 Principal. Subject to Section 6 hereof, the Corporation shall pay
---------
installments of principal on this Note as follows:
DATE AMOUNT
---- ------
December 31, 2000 $1,000,000
December 31, 2001 $1,250,000
December 31, 2002 $1,250,000
and on December 31, 2003, the entire then outstanding principal amount of this
Note.
1.3 Business Days. Whenever payment of principal of, or interest on, this
-------------
Note shall be due on a date that is not a Business Day, the date for payment
thereof shall be the next succeeding Business Day and interest due on the unpaid
principal and any other Amounts Payable hereunder shall accrue during such
extension and shall be payable on such succeeding Business Day.
1.4 Note Holders' Agent. All payments of principal and interest hereunder
-------------------
and all notices, information, approvals, or disclosures required hereunder with
respect to the "Holders" (defined below) shall be made to the Note Holders'
Agent. The Note Holders' Agent shall accept said payments subject to the terms
and provisions of that certain Note Holder Agreement ("Note Holder Agreement")
of even date herewith by and among the Note Holders' Agent and the "Sellers"
as defined in the Purchase Agreement (said parties to the Note Holder Agreement
are herein collectively referred to as the "Holders"). The Note Holders' Agent
shall be one person appointed and serving in a manner consistent- with the Note
Holder Agreement. No change in the Note Holders' Agent shall be effective until
given to the Corporation in writing.
- 2 -
<PAGE>
Section 2. Prepayments
-----------
2.1 Optional Prepayment. The Corporation shall have the right to prepay the
-------------------
principal amount of this Note in whole or in part at any time, or from time to
time, without payment of any premium or penalty whatsoever, together with
interest thereon accrued to the date of prepayment, and any such prepayment
shall be applied to reduce the Corporation's principal payment obligations under
Section 1.2 in the order of maturity of such payment obligations; provided,
however, that so long as any Senior Indebtedness remains outstanding and unpaid,
any commitment to provide Senior Indebtedness is outstanding, or any other
amount is owing to the holders of Senior Indebtedness, this Note may not be
prepaid in whole or in part, without the written consent of the holders of
Senior Indebtedness.
Section 3. Set-off. Subject to Section 5, the Corporation shall be entitled
-------
to set-off and reduce any Amounts Payable hereunder for any obligations or
liabilities of any of the Holders to the Corporation or any claims by the
Corporation against any of the Holders including, without limitation, any
obligations or liabilities to the Corporation under the Purchase Agreement
(including without limitation Sections 1.06 and 1.07 of the Purchase Agreement)
or the Employment and Noncompetition Agreements. The Holders, by appointing the
Note Holders' Agent to accept this Note, hereby acknowledge and agree to the
foregoing provisions and any subsequent transferee or successor shall be bound
by the foregoing.
Section 4. Covenants. The Corporation covenants and agrees that, so long as
---------
any Amounts Payable under this Note remain unpaid:
4.1 Information. The Corporation shall provide to the Note Holders' Agent as
-----------
soon as practicable and in any event within 120 days after the end of each
fiscal year of the Corporation, a consolidated balance sheet of the Corporation
and its subsidiaries as at the end of such fiscal year, and the related
consolidated statements of income for such fiscal year, prepared in accordance
with generally accepted accounting principles.
4.2 Merger. Subject to Section 5.1(e), the Corporation will not consolidate
------
or merge with or into any other corporation, other than (a) the merger or
consolidation of a subsidiary with or into the Corporation, (b) a merger
pursuant to which the Corporation is the surviving corporation, or (c) a merger
or consolidation in which the Corporation is not the surviving corporation and
pursuant to which the surviving or consolidated entity assumes the Corporation's
covenants and obligations under this Note and the surviving corporation has at
least the same amount of stockholders' equity as does the Corporation on the
date of such merger or consolidation.
- 3 -
<PAGE>
4.3 Sale of Assets. Subject to Section 5.1(e), the corporation will not sell
--------------
or otherwise dispose of all or substantially all of its assets in a single
transaction or series of related transactions other than to an Affiliate unless
(a) in connection therewith this Note is prepaid, or (b) the acquiring entity
expressly assumes the Corporation's covenants and obligations under this Note
and the acquiring entity has at least the same amount of stockholders' equity as
does the Corporation (or subsequent obligor) on the date of such assignment or
sale. Upon the assumption by the acquiring entity of the Corporation's covenants
and obligations under this Note, the Corporation shall be released and
discharged from its obligations and liabilities hereunder, without the
requirement of further notice or consent from the Holders or the Note Holders'
Agent.
4.4 Dividends. Until this Note and all Amounts Payable hereunder are paid in
---------
full in accordance herewith, the Corporation will not make payments to
stockholders of the Corporation's capital stock as dividends or for the
redemption or other acquisition of said capital stock ("Dividends"). For
purposes of this Section 4.4, Dividends shall not mean any payments between the
Corporation and any Affiliate in connection with any of the following: (a)
payments on Senior Indebtedness, (b) payments under any tax sharing agreement in
connection with the filing of consolidated Federal and/or state income tax
returns with any consolidated Affiliate group provided such payments do not
exceed the Corporation's separate share of Federal and state income tax
liability computed under such agreement, (c) payments under any management
services agreement between the Corporation and any Affiliate provided said
management fees to all Affiliates in the aggregate do not exceed for any fiscal
year of the Corporation (x) one percent (1%) of the Corporation's gross sales
for said fiscal year; (y) two percent (2%) of the aggregate consideration paid
in connection with (1) an initial public offering of the Corporation's common
stock, (2) the sale of all of the common stock or substantially all of the
assets of the Corporation to a third party who is not an Affiliate of the
Corporation, or (3) the purchase by the Corporation or any direct or indirect
subsidiary of the Corporation of all the equity or substantially all of the
assets of a company that is not affiliated with the Corporation; and (z) one
percent (1%) of the amount obtained or made available pursuant to any financing
after the date hereof, and (d) the payment or settlement of arm's length
intercompany arrangements or transactions between the Corporation and any
Affiliate, provided the terms of any said arrangements or transactions are
comparable to those that would have been accepted by an independent third party.
4.5 Capitalization. As of the date hereof, the Corporation will have
--------------
received a minimum aggregate equity contribution for its common or preferred
capital stock of $29,406,250.
- 4 -
<PAGE>
Section 5. Defaults
--------
5.1 Events of Default. If one or more of the following events ("Events of
-----------------
Default") shall have occurred and be continuing:
(a) the Corporation shall fail to pay on the due date thereof any
principal of this Note or shall fail to pay on the due date thereof any
interest or any other Amounts Payable hereunder and the same shall not have
been cured within 20 days after written notice thereof has been given by the
Note holders' Agent to the Corporation and the Representative;
(b) the Corporation shall fail to observe or perform any covenant or
agreement contained in this Note (other than those covered by clause (a)
above) and the same shall not have been cured within 30 days after written
notice thereof has been given by the Note Holders' Agent to the Corporation
and the Representative;
(c) the Corporation shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect
to itself or its debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official, or shall consent
to any such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against it, or
shall make a general assignment for the benefit of creditors; or
(d) an involuntary case or other proceeding shall be commenced against
the Corporation seeking liquidation, reorganization or other relief with
respect to it or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official, and such
involuntary case or other proceeding shall remain undismissed and unstayed
for a period of 90 days; or an order for relief shall be entered against the
Corporation under the Federal bankruptcy laws as now or hereafter in effect;
(e) the Corporation or its shareholders shall engage in any sale,
exchange, merger,combination, stock issuance or other transaction, as a
result of which any one Person who is not a member of the Jordan Group
acquires voting control of the common stock of the Corporation ("Change in
Control"). For purposes of this Section, members of the Jordan Group shall
include Jordan Industries, Inc., The Jordan Company, Leucadia National
Corporation, Jordan/Zalaznick Capital Corporation, Mezzanine Capital and
Income Fund, PLC and their respective direct and indirect subsidiaries, and
any other person that directly or indirectly, through one or more
- 5 -
<PAGE>
intermediaries, controls or is controlled by or is under common control with
them, and John W. Jordan II, Thomas H. Quinn, David Zalaznick or Jonathan F.
Boucher. For purposes of this Section, the term "Person" shall include any
single individual, any single entity and, in either case, their "Affiliates"
as that term is defined under the Securities Act of 1934.
then, and in every such event, subject to the provisions of the succeeding
sentence and Section 6, the Note Holders' Agent may, by notice to the
Corporation and to the holders of Senior Indebtedness, declare the principal
amount of this Note together with accrued interest thereon, to be, and such
portions of the principal amount of this Note (and accrued interest thereon)
shall thereupon become, due and payable on the tenth Business Day following
delivery of such notice to the Corporation and to the holders of Senior
Indebtedness without presentment, demand, protest or further notice of any kind,
all of which are hereby waived by the Corporation. The Note Holders' Agent, by
accepting this Note and the benefits hereof, and the Holders, by appointing the
Note Holders' Agent to accept this Note and the benefits hereof, each agree (i)
that the holders of Senior Indebtedness may (but shall not be obligated to) cure
any event giving rise to a notice of acceleration pursuant to the preceding
sentence after the holders of Senior Indebtedness receive such notice of
acceleration and that any such cure by the holders of Senior Indebtedness prior
to the tenth Business Day following delivery of such notice of acceleration
shall be effective to rescind such notice of acceleration; and (ii) that during
the period from and including the date of the occurrence of any Event of Default
or any event that, with notice or the passage of time or both, would become an
Event of Default, until the tenth Business Day after the date of delivery of
such notice of acceleration given in respect of such Event of Default the Note
Holders' Agent and the Holders shall not be entitled, and will not take any
other action (besides the delivery of notices of default and acceleration),
including any judicial process, to demand payment or enforce any Indebtedness in
respect of this Note or any other claim with regard to any Amounts Payable.
Section 6. Subordination.
-------------
6.1 Loans Subordinated to Senior Indebtedness. Notwithstanding any provision
-----------------------------------------
of this Note to the contrary, the Corporation covenants and agrees, and the
Holders by appointing the Note Holders' Agent to accept this Note likewise
covenant and agree, that all Amounts Payable shall be subordinated to the extent
set forth in this Section 6. This Section 6 shall constitute a continuing offer
to and covenant with all persons who become holders of, or continue to hold,
Senior Indebtedness (irrespective of whether such Senior Indebtedness was
created or acquired concurrently or after the issuance of this Note). The
provisions
- 6 -
<PAGE>
of this Section 6 are made for the benefit of all present and future holders of
Senior Indebtedness (and their successors and assigns), and shall be enforceable
by them directly against every Holder and the Note Holders' Agent.
6.2 Priority and Payment Over of Proceeds in Certain Events.
-------------------------------------------------------
(a) Upon any payment or distribution of assets of the Corporation
whether in cash, property, securities or otherwise, in the event of any
dissolution, winding up or total or partial liquidation, reorganization,
arrangement, adjustment protection, relief or composition, or assignment
for the benefit of creditors of the Corporation, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership, reorganization,
relief or other proceedings or upon an assignment for the benefit of
creditors or any other marshalling of all or part of the assets and
liabilities of the Corporation (the foregoing events herein collectively
referred to as an "Insolvency Event"), all Senior Indebtedness shall first
be paid in full, in cash, or payment provided for in cash equivalents in a
manner satisfactory to the holders of Senior Indebtedness; before the Note
Holders' Agent shall be entitled to receive any payment or distribution of
assets of the Corporation relating to any Amounts Payable. Upon any
Insolvency Event, any payment or distribution of assets of the Corporation,
whether in cash, property, securities or otherwise, to which the Note
Holderst Agent would be entitled relating to any Amounts Payable, except for
the provisions of this Section 6, shall be made by the Corporation or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, directly to the holders of the Senior
Indebtedness or their representatives for application to the payment or
prepayment of all Senior Indebtedness in full after giving effect to any
concurrent payment or distribution to the holders of such Senior
Indebtedness.
(b) (x) If there has occurred and is continuing a default in the
payment of all or any portion of any Senior Indebtedness, unless and until
such default shall have been cured or waived, the Corporation shall not make
any payment on or with respect to any Amounts Payable or acquire this Note
(or any portion thereof) for cash, property, securities or otherwise during
the period (a "Payment Default Blockage Period") in which such default is
continuing; or (y) if an event (not involving the non-payment of any Senior
Indebtedness) shall have occurred or, with the giving of notice, or passage
of time, or both, would occur, that would allow holders of any Senior
Indebtedness to accelerate or otherwise demand the payment thereof, and, in
the case of this clause (y) the holders of the Senior Indebtedness give
written notice of such event to the Corporation (the date that such
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<PAGE>
notice is received by the Corporation is the "Notice Date"), the Corporation
shall not make any payment on or with respect to any Amounts Payable or
acquire this Note (or any portion hereof) for cash, property, securities or
otherwise during the period (a "Nonpayment Default Blockage Period" and
together with Payment Default Blockage Period, each also sometimes herein
called a "Blockage Period") commencing on the Notice Date and ending on the
earlier of (1) two years after the Notice Date if at the end of such two
year period such event is not the subject of judicial proceedings and such
Senior Indebtedness shall not have been accelerated, (2) the date such event
is cured or waived to the satisfaction of the holders of the Senior
Indebtedness, or (3) the date the holders of such Senior Indebtedness shall
have given notice to the Corporation of the voluntary termination of such
Nonpayment Default Blockage Period. By virtue of accepting this Note and the
benefits hereof, during any Blockage Period, the Note Holders' Agent shall
not be entitled, and will not take any action, including any judicial
process, to accelerate, demand payment or enforce any Indebtedness in
respect of this Note or any other claim with regard to any Amounts Payable.
Interest will accrue on any installment of the principal (and on the
interest) actually payable during any Blockage Period. Upon the expiration
of any Blockage Period, principal and interest will be paid in accordance
with the terms of this Note, except that the principal and interest payable
during the. B1ockage Period will be deferred, and become principal due on
the Maturity Date. Any such deferred principal shall continue to bear
interest, and any deferred interest shall bear interest. All such deferred
principal and interest amounts shall be payable only on the Maturity Date.
All interest on the deferred interest and principal shall be paid on the
same dates as interest is paid under Section 1.1 hereof.
(c) If, notwithstanding the foregoing provisions prohibiting payments
or distributions, any Holder shall have received any payment of, or on
account of, any Amounts Payable that was prohibited by this Section 6,
before all Senior Indebtedness shall have been paid in full, then and in
such event such payments or distributions shall be received and held in
trust for the holders of the Senior Indebtedness and promptly paid over or
delivered to the holders of the Senior Indebtedness remaining unpaid thereof
to the extent necessary to pay in full, in cash or cash equivalents
satisfactory to the holders of the Senior Indebtedness, such Senior
Indebtedness in accordance with its terms after giving effect to any
concurrent payment or distribution to the holder of such Senior
Indebtedness, provided, that any such payment which is, for any reason, not
so paid over or delivered shall be held in trust by such Holder for the
holders of Senior Indebtedness.
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<PAGE>
(d) So long as any Senior Indebtedness remains outstanding or the
commitment to make credit extensions of said Senior Indebtedness shall not
have been terminated, the Note Holders' Agent will not be entitled to take,
demand or receive, directly or indirectly, by setoff, redemption purchase
or in any manner, any voluntary prepayment or other payment of any Amounts
Payable in amounts or in a manner which are in violation of the provisions
of this Section 6.
(e) Upon any payment or distribution of assets referred to in Section
6.2(a), the Note Holders' Agent shall be entitled to rely upon any order or
decree of a court of competent jurisdiction in which such dissolution,
winding up, liquidation or reorganization proceedings are pending, and upon
a certificate of the receiver, trustee in bankruptcy, liquidating trustee,
agent or other person making any such payment or distribution of assets,
delivered to the Note Holders' Agent for the purpose of ascertaining the
persons entitled to participate in such distribution of assets, the holders
of Senior Indebtedness and other Indebtedness of the Corporation, the amount
thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Section 6.
(f) Upon the maturity of any Senior Indebtedness (including interest
thereon or fees or any other amounts owing in respect thereof), whether at
stated maturity, by acceleration or otherwise, all Obligations owing in
respect thereof, shall first be paid in full, in cash, before any payment,
whether in cash, property, securities or otherwise, is made on account of
this Note.
(g) The Corporation agrees that it will not make any payment in
respect of any Amounts Payable, or take any other action, in contravention
of the provisions of this Note.
6.3 Rights of Holders of Senior Indebtedness Not To Be Impaired, etc.
----------------------------------------------------------------
(a) No right of any present or future holder of any Senior
Indebtedness to enforce the subordination and other terms and conditions
provided herein shall at any time in any way be prejudiced or impaired by
any act or failure to act by any such holder, or by any noncompliance by the
Corporation, with the terms and provisions and covenants herein regardless
of any knowledge thereof any such holder may have or otherwise be charged
with.
(b) This Section 6, Section 5 and all references to this Section 6 and
to Section 5 may not be amended without the written consent of each holder
of the Senior Indebtedness and
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<PAGE>
of the Note Holders' Agent, and any purported amendment without such consent
shall be void. No holder of Senior Indebtedness shall be prejudiced in such
holder's right to enforce the subordination and other terms and conditions
of this Note by any act or failure to act by the Corporation or anyone in
custody of its assets or property.
6.4 Subrogation. Subject to and upon the payment in full of all Senior
-----------
Indebtedness, the Holders and the Note Holders' Agent shall be subrogated, to
the extent of payments or distributions made to the holders of Senior
Indebtedness pursuant to or by reason of this Section 6, to the rights of the
holders of such Senior Indebtedness to receive payments or distributions of
assets of the Corporation made on such Senior Indebtedness until all amounts due
under this Note shall be paid in full; and for the purposes of such subrogation,
no payments or distributions to holders of such Senior Indebtedness of any cash,
property or securities to which the Holders and the Note Holders' Agent would be
entitled except for the provisions of this Section 6, and no payment over
pursuant to the provisions of this Section 6 to holders of such Senior
Indebtedness by the Note Holders' Agent, shall, as among the Corporation, its
creditors (other than holders of such Senior Indebtedness) and the Note Holders'
Agent be deemed to be a payment by the Corporation to or on account of such
Senior Indebtedness, it being understood that the provisions of this Section 6
are solely for the purpose of defining the relative rights of the holders of
such Senior Indebtedness, on the one hand, and the Note Holders' Agent, on the
other hand.
6.5 Obligations of the Corporation Unconditional. Nothing contained in this
--------------------------------------------
Note is intended to or shall impair, as between the Corporation and the Holders
and the Note Holders' Agent, the obligation of the Corporation, which is
absolute and unconditional, to pay to the Note Holders' Agent all Amounts
Payable, as and when the same shall become due and payable in accordance with
their terms, or to affect the relative rights of the Holders and the Note
Holders' Agent and other creditors of the Corporation (other than the holders of
Senior Indebtedness), except as provided in Section 6.2(b)
6.6 Section 6 Not To Prevent Events of Default. The failure to make a
------------------------------------------
payment of any Amount Payable by reason of any provision of this Section 6 shall
not be construed as preventing the occurrence of an Event of Default under
Section 5.1 hereof, except as provided in Section 6.2(b).
6.7 Additional Riqhts of Holders of the Senior Indebtedness. If the Senior
-------------------------------------------------------
Indebtedness has not been paid in full, in cash or cash equivalents satisfactory
to the holders of the Senior Indebtedness, at a time in which the Corporation is
subject to an Insolvency Event, (a) the holders of the Senior Indebtedness are
hereby irrevocably authorized, but shall have no obligation, to
- 10 -
<PAGE>
demand, sue for, collect and receive every payment or distribution received in
respect of any such Insolvency Proceeding and give acquittance therefor and to
file claims and proofs of claim, as their interests may appear, and (b) the Note
Holders' Agent shall duly and promptly take, for the account of the holders of
the Senior Indebtedness, as their interests may appear, such actions as the
holders of the Senior Indebtedness may request to collect and receive all
Amounts Payable by the Corporation in respect of this Note and to file
appropriate claims or proofs of claim in respect of this Note. Upon request by
the Corporation, the Note Holders' Agent of this Note shall deliver to the
holders of Senior Indebtedness or parties contemplating becoming holders of
Senior Indebtedness a written statement confirming that (i) the provisions
(including the subordination provisions) of this Note are in full force and
effect; and (ii) that such party is or will be entitled to rely upon and enjoy
the benefits of the provisions (including the subordination provisions) of this
Note as a holder of Senior Indebtedness.
6.8 Senior Indebtedness Changes. By virtue of appointing the Note Holders'
---------------------------
Agent to accept this Note and the benefits hereof, the Holders hereby waive any
and all notice of renewal, extension or accrual of any of the Senior
Indebtedness, present or future, and agree and consent that without notice to or
consent of the Note Holders' Agent: (a) the obligations and liabilities of the
Corporation or any other party or parties under the Senior Indebtedness may,
from time to time, in whole or in part, be renewed, refinanced, replaced,
extended, refunded, modified, amended, accelerated, compromised, supplemented,
terminated, increased, decreased, sold, exchanged, waived or released; (b) the
holders of Senior Indebtedness and their representatives may exercise or refrain
from exercising any right, remedy or power granted by any document creating,
evidencing or otherwise related to the Senior Indebtedness or at law, in equity,
or otherwise, with respect to the Senior Indebtedness or in connection with any
collateral security or lien (legal or equitable) held, given or intended to be
given therefor (including, without limitation, the right to perfect any lien or
security interest created in connection therewith); (c) any and all collateral
security and/or liens (legal or equitable) at any time, present or future, held,
given or intended to be given for the Senior Indebtedness, and any rights or
remedies of the holders of Senior Indebtedness and their representatives in
respect thereof, may, from time to time, in whole or in part, be exchanged,
sold, surrendered, released, modified, perfected, unperfected, waived or
extended by the holders of Senior Indebtedness and their representatives; (d)
any balance or balances of funds with any holder of Senior Indebtedness at any
time standing to the credit of the Corporation or any guarantor of any of the
Senior Indebtedness may, from time to time, in whole or in part, be surrendered
or released; all as the holders of Senior Indebtedness, their representatives or
any of them may deem advisable and all without impairing, abridging,
diminishing,
- 11 -
<PAGE>
releasing or affecting the subordination to the Senior Indebtedness provided for
herein; and (e) the Corporation may incur any amount or type of Senior
Indebtedness (including Senior Indebtedness owed to Affiliates), or modify,
restate, refinance, replace or amend any Senior Indebtedness from time to time,
on terms and conditions acceptable to the Corporation, without notice to or
approval by the Note Holders' Agent. Notwithstanding anything to the contrary
contained in this Note, the Corporation shall provide the Note Holders' Agent
with the names, addresses and contact persons of the holders of original Senior
Indebtedness as of the date of this Note and the names, addresses and contact
person(s) of all additional and/or substitute holders of Senior Indebtedness
from time to time until this Note is paid in full. Any notices required to be
given to holders of Senior Indebtedness under this Note by the Note Holders'
Agent shall be sufficient if given to the holders of Senior Indebtedness as last
communicated to the Note Holders' Agent by the Corporation.
6.9 Waivers. In the event the holders of Senior Indebtedness elect to
-------
exercise their remedies to liquidate any collateral given to secure the Senior
Indebtedness, the Note Holders' Agent hereby waives any right it may have to
contest the validity of or the value obtained as a result of the exercise of
remedies by the holders of Senior Indebtedness, including, but not limited to, a
foreclosure, a sale pursuant to the Uniform Commercial Code or the acceptance by
the holders of Senior Indebtedness in lieu of foreclosure. The Note Holders'
Agent further waives any right it may have either in or out of any bankruptcy
or similar proceeding to challenge any action taken by the holders of Senior
Indebtedness as either a preference or fraudulent conveyance and further agrees
not to take any active role in such a proceeding other than the filing of a
claim in any such proceeding, which claim shall be subordinate (to the extent
set forth above) to the claims of the holders of Senior Indebtedness.
6.10 Reinstatement. To the extent any payment of any Senior Indebtedness
-------------
(whether by or on behalf of the Corporation, as proceeds of security or
enforcement of any right of set-off or otherwise) is declared to be fraudulent
or preferential, set aside or required to be paid to any receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar person under any
bankruptcy, insolvency, receivership, fraudulent conveyance or similar law,
then, if such payment is recovered by, or paid over to, such receiver, trustee
in bankruptcy, liquidating trustee, agent or other similar person, the Senior
Indebtedness or part thereof originally intended to be satisfied shall be deemed
to be reinstated and outstanding as if such payment had not occurred, and the
terms of this Article 6 shall continue to be effective or be reinstated, as the
case may be, and any payments of cash, property or securities received by the
Note Holders' Agent or any Holder of this Note in the interim shall be fully
subject to the terms of
- 12 -
<PAGE>
this Section 6, all as though such payment of Senior Indebtedness had not been
made.
Section 7. Definitions. For purposes of this Note, the following terms have
-----------
the meanings set forth below:
"Affiliate" means Jordan Industries, Inc. and its respective direct and
---------
indirect Subsidiaries, and any other person that directly, or indirectly through
one or more intermediaries, controls or is controlled by or is under common
control with them.
"Amounts Payable" means all principal of, interest on, premium, if any,
---------------
fees, costs, expenses, indemnities or any other amounts due from the Corporation
under this Note, and all claims against or liabilities of the Corporation in
respect of this Note.
"Bank Credit Agreement" shall mean the Credit Agreement, dated as of
---------------------
September 22, 1995, among MK Group, Inc., the Corporation, the lenders party
thereto in their capacities as lenders thereunder and Bankers Trust Company, as
agent (and any successor agent thereunder), together with the related documents
thereto (including, without limitation, any guarantee agreements and security
documents), in each case as such agreements may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified from time
to time, including any agreement extending the maturity of, refinancing,
refunding, replacing or otherwise restructuring (including, without limitation,
increasing the amount of available borrowings thereunder or adding subsidiaries
of the Corporation as additional borrowers or guarantors thereunder) all or any
portion of the indebtedness under such agreement or any successor or replacement
agreement and whether by the same or any other agent, lender or group of
lenders.
"Business Days" means any day except a Saturday, Sunday or other days on
-------------
which commercial banks in New York City are required or authorized by law to
close.
"Default" means any condition or event that constitutes an Event of Default
-------
or that with notice or lapse of time or both would, unless cured or waived,
become an Event of Default.
"Employment and Noncompetition Agreements" means any one of the Employment
----------------------------------------
and Noncompetition Agreements between the Corporation and any Holder dated as of
September 22, 1995.
"Indebtedness" means any indebtedness, including (without limitation, Senior
------------
Indebtedness) whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or representing the
deferred and unpaid balance of the purchase price of any property (including
pursuant to capital leases), and any financial hedging obligations,
- 13 -
<PAGE>
if and to the extent such indebtedness (other than a financial hedging
obligation) would appear as a liability upon a balance sheet of such person
prepared on a consolidated basis in accordance with generally accepted
accounting principles, other than a trade payable or accrued expense, and also
includes, to the extent not otherwise included, the guarantee of items that
would be included within this definition. Notwithstanding anything herein to the
contrary, Senior Indebtedness shall include any fees due to Jordan Industries,
Inc., its Affiliates, or The Jordan Company. Indebtedness owed to Affiliates
will be Indebtedness for purposes of this Note.
"Interest Rate Protection Agreements or Other Hedqinq Agreements" shall mean
---------------------------------------------------------------
and include each of (i) interest rate protection agreements (including, without
limitation, interest rate swaps, caps, floors, collars and similar agreements),
(ii) foreign exchange contracts, currency swap agreements or other similar
agreements or arrangements designed to protect against the fluctuations in
currency values and/or (iii) other types of hedging agreements, in each case
from time to time entered into with one or more Other Creditors.
"Letter of Credit Reimbursement Agreement" shall mean the Letter of Credit
----------------------------------------
Agreement, dated as of September 22, 1995, between the Corporation, MK Group,
Inc. and Bankers Trust Company, together with the related documents thereto
(including, without limitation, any guaranty or security documents), in each
case as such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, refunding, replacing or
otherwise restructuring all or any portion of any indebtedness under such
agreement or any successor or replacement agreement and whether by the same or
any other issuer.
"Note" means this Non-Negotiable Subordinated Note due December 31, 2003.
----
"Obligation" shall mean any principal, interest, reimbursement obligations
----------
under letters of credit, premium, penalties, fees, expenses, indemnities and
other liabilities and obligations of every nature payable under the
documentation governing any Senior Indebtedness (including, without limitation,
all interest after the commencement of any bankruptcy, insolvency, receivership
or similar proceeding at the rate provided in the governing documentation
(including any rate applicable upon any default or event of default), whether or
not such interest is an allowed claim in such proceeding under applicable law).
"Other Creditors" shall mean each of Bankers Trust Company, in its
---------------
individual capacity, the lenders party from time to time to the Bank Credit
Agreement, and their affiliates and their respective
- 14 -
<PAGE>
subsequent successors and assigns, if any, and any other institution which
participates with Bankers Trust Company, such lenders or affiliates in the
extension of Interest Rate Protection Agreements or Other Hedging Agreements and
their subsequent successors and assigns, if any, in all such cases in their
capacity as creditors with respect to Interest Rate Protection Agreements or
Other Hedqing Agreements.
"Purchase Agreement" means the Agreement for Purchase and Sale of Stock of
------------------
Merkle-Korff Industries, Inc., Mercury Industries, Inc. and Elmco Industries,
Inc. dated as of May 26, 1995, among the Corporation and the Sellers, as the
same has been or may be amended or restated from time to time.
"Representative" shall mean the agent under the Bank Credit Agreement, or if
--------------
there is no such agent or similar representative, the holders of more than 50%
of the Obligations outstanding from time to time under the Letter of Credit
Reimbursement Agreement and the Interest Rate Protection Agreements or Other
Hedging Agreements.
"Senior Indebtedness" shall mean and include each of (i) the principal,
-------------------
interest (including any interest accruing subsequent to any bankruptcy,
insolvency, receivership or similar proceeding at the rate provided in the
governing documentation (including any rate applicable upon any default or event
of default), whether or not such interest is an allowed claim in such proceeding
under applicable law), premium, if any, fees (including, without limitation, any
commitment, agency, facility, structuring, restructuring or other fee), costs,
expenses, indemnities, and other amounts due on or in connection with any
Indebtedness of the Corporation incurred by the Corporation (including, without
limitation, intercompany Indebtedness), now or hereafter incurred, or any
documents executed under or in connection therewith, and any amendments,
modifications, deferrals, renewals or extensions of such Indebtedness, and any
amounts owed in respect of any Indebtedness incurred in refinancing, replacing
or refunding the foregoing (including any refinancing, replacing or refunding
with new lenders), unless the terms of such Indebtedness expressly provide that
such Indebtedness is not Senior Indebtedness with respect to this Note, (ii) all
Obligations under the Bank Credit Agreement, (iii) all Obligations under the
Letter of Credit Reimbursement Agreement, and (iv) all Obligations under all
Interest Rate Protection Agreements or Other Hedging Agreements, in each case
whether now existing or hereafter incurred and whether fixed or contingent.
Nothing in this Note shall restrict an Affiliate of the Corporation from being a
holder of Senior Indebtedness. Senior Indebtedness for purposes of the
subordination provisions of this Note shall not include any indebtedness
constituting principal in excess of the following amounts for the following
categories of Indebtedness:
- 15 -
<PAGE>
(A) with respect to Senior Indebtedness under clause (i) of the first
sentence of this definition, the principal amount to the extent in excess of
the remainder of (x) $102,000,000 minus (y) the principal amount of Senior
Indebtedness outstanding under clause (ii) of the first sentence of this
definition,
(B) with respect to Senior Indebtedness under clause (ii) of the first
sentence of this definition, the principal amount to the extent in excess of
$102,000,000,
(C) with respect to Senior Indebtedness under clause (iii) of the
first sentence of this definition, the principal amount to the extent in
excess of $95,600,000, and
(D) with respect to Senior Indebtedness under clause (iv) of the first
sentence of this definition, any amount in excess of $22,500,000.
"Subsidiary" of a person means any corporation or other entity of which
----------
securities or other ownership interests having ordinary voting power to elect a
majority of the Board of Directors or other persons performing similar functions
are at the time directly or indirectly owned by such person.
Section 8. Miscellaneous.
-------------
8.1 Notices. All notices, requests and other communications to any party
-------
hereunder shall be in writing and shall be delivered personally, sent by
facsimile transmission or sent by certified, registered or express mail, postage
prepaid, and shall be deemed given when so delivered personally, or sent by
facsimile transmission, or if mailed or sent by overnight courier, upon receipt
thereof, as follows:
If to the Corporation to:
Thomas H. Quinn, President
Jordan Industries, Inc.
ArborLake Centre
Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60015
Telephone: 708-945-5591
Telecopier: 708-945-5698
- 16 -
<PAGE>
with a copy to:
G. Robert Fisher, Esq.
Michael J. Van Dyke, Esq.
Bryan Cave LLP
1200 Main Street
Suite 3500
Kansas City, Missouri 64105
Telephone: 816-474-7400
Telecopier: 816-391-7600
If to the Note Holders' Agent, to:
c/o John D. Simms
611 Edgemont Lane
Park Ridge, Illinois 60068
with a copy to:
John L. Eisel, Esq.
Mark W. Hianik, Esq.
Wildman, Harrold, Allen & Dixon
225 West Wacker Drive
Chicago, Illinois 60606-1229
Telephone: 312-201-2000
Telecopier: 312-201-2555
Each party may, by notice given in accordance with this Section to the other
party, designate another address or person for receipt of notices hereunder.
8.2 No Waivers. No failure or delay by the Note Holders' Agent in exercising
----------
any right, power or privilege hereunder or under this Note shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law. No notice to or demand on
the Corporation in any case shall entitle the Corporation to any other or
further notice or demand in or related to similar circumstances requiring such
notice.
8.3 Amendments and Waivers. Subject to Section 6.3(b), any provision of this
----------------------
Note may be amended or waived if, but only if, such amendment or waiver is in
writing, signed by the Corporation and the Note Holders' Agent.
8.4 Successors and Assigns. The provisions of this Note shall be binding
upon and inure to the benefit of the Holders and the Note Holders' Agent and
their respective successors and permitted assigns. Without the prior written
consent of the Corporation and the holders of Senior Indebtedness, the Holders
and
- 17 -
<PAGE>
the Note Holders' Agent agree not to, prior to December 31, 200O, (a) sell,
assign, pledge or otherwise transfer, in whole or in part, directly or
indirectly, this Note or any interest therein (hereinafter an "Assignment") or
(b) create, incur or suffer to exist any security interest, lien, charge or
other encumbrance whatsoever upon this Note (hereinafter an "Encumbrance").
With respect to any Assignment or Encumbrance of this Note, the Holders and
Note Holders Agent agree to offer in writing to the Corporation, for a period of
thirty days prior to consummating the Assignment or Encumbrance, the opportunity
to acquire or encumber the Note on the same terms and conditions as the
requested Assignment or Encumbrance. If the Corporation fails to elect to
acquire or encumber said Note during such thirty days, such right to do so shall
expire. If the Corporation so elects, it shall have twenty days to consummate
such Assignment or Encumbrance. Said consent of the Corporation and the holders
of Senior Indebtedness with respect to said acts shall not be withheld
unreasonably in the case of a transfer or assignment to a beneficiary, trust
share or trust subshare of a trust which is a Holder hereof, in which case the
right of first refusal set forth above shall not apply to such transfer or
assignment. As part of any Assignment, the assignee or transferee of any Holder
shall agree in writing to be bound by all of the terms of this Note. The Holders
hereby waive proof of reliance hereon by the holders of Senior Indebtedness.
8.5 Replacement Note. Upon receipt of evidence reasonably satisfactory to
----------------
the Corporation of the loss, theft, destruction or mutilation of this Note and
of a letter of indemnity reasonably satisfactory to the Corporation from the
Note Holders' Agent and upon reimbursement to the Corporation of all reasonable
expenses incident thereto, and upon surrender or cancellation of this Note, if
mutilated, the Corporation will make and deliver a new Note of like tenor in
lieu of such lost, stolen, destroyed or mutilated Note.
8.6 Company Obligations. The Holders agree and acknowledge that this Note
-------------------
and the Corporation's obligations hereunder and for all Amounts Payable are
solely obligations and liabilities of the Corporation. None of the Corporation's
directors, officers, employees, stockholders, advisors, consultants and
affiliates or any other persons shall be obligated or liable in respect of this
Note or any Amounts Payable, and Holders hereby release them from any such
obligation of liability.
8.7 LITIGATION. THIS NOTE SHALL BE GOVERNED BY, CONSTRUED, APPLIED AND
----------
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS, AND NO
OF CHOICE OF LAW PROVISION SHALL BE USED TO APPLY ANY LAW OTHER THAN THAT OF
ILLINOIS, AND NO DEFENSE, COUNTERCLAIM OR RIGHT OF SET-OFF GIVEN OR ALLOWED BY
THE LAWS OF ANY STATE OR JURISDICTION, OR ARISING OUT OF THE ENACTMENT,
MODIFICATION OR REPEAL OF ANY LAW, REGULATION, ORDINANCE OR DECREE OF ANY
FOREIGN JURISDICTION, SHALL BE INTERPOSED IN ANY ACTION
- 18 -
<PAGE>
HEREON. SUBJECT TO SECTION 8.8, THE PARTIES AGREE THAT ANY ACTION OR PROCEEDING
TO ENFORCE OR ARISING OUT OF THIS NOTE MAY BE COMMENCED IN THE STATE COURTS, OR
IN THE UNITED STATES DISTRICT COURTS IN CHICAGO, ILLINOIS. THE PARTIES CONSENT
TO SUCH JURISDICTION, AGREE THAT VENUE WILL BE PROPER IN SUCH COURTS AND WAIVE
ANY OBJECTIONS BASED UPON FORUM NON CONVENIENS. THE CHOICE OF FORUM SET FORTH IN
----- --- ----------
THIS SECTION 8.7 SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY ACTION
UNDER THIS AGREEMENT IN ANY JURISDICTION.
8.8 ARBITRATION. THE HOLDERS HEREBY WAIVE AND SHALL NOT SEEK JURY TRIAL IN
-----------
ANY LAWSUIT, PROCEEDING, CLAIM, COUNTERCLAIM, DEFENSE OR OTHER LITIGATION OR
DISPUTE UNDER OR IN RESPECT OF THIS NOTE. THE HOLDERS AGREE THAT ANY SUCH
DISPUTE RELATING TO OR IN RESPECT OF THIS NOTE, ITS NEGOTIATION, EXECUTION,
PERFORMANCE, SUBJECT MATTER, OR ANY COURSE OF CONDUCT OR DEALING OR ACTIONS
UNDER OR IN RESPECT OF THIS NOTE, SHALL BE SUBMITTED TO, AND RESOLVED
EXCLUSIVELY PURSUANT TO ARBITRATION IN ACCORDANCE WITH THE COMMERCIAL
ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION. SUCH ARBITRATION
SHALL TAKE PLACE IN CHICAGO, ILLINOIS AND SHALL BE SUBJECT TO THE SUBSTANTIVE
LAW OF THE STATE OF ILLINOIS. DECISIONS PURSUANT TO SUCH ARBITRATION SHALL BE
FINAL, CONCLUSIVE AND BINDING ON THE PARTIES. UPON THE CONCLUSION OF
ARBITRATION, THE PARTIES MAY APPLY TO ANY COURT OF THE TYPE DESCRIBED IN SECTION
8.7 TO ENFORCE THE DECISION PURSUANT TO SUCH ARBITRATION.
MK HOLDINGS, INC.
By /s/ Jonathan F. Boucher
-------------------------------
Name: /s/ Jonathan F. Boucher
----------------------------
Title: Vice-President
---------------------------
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<PAGE>
EXHIBIT 10.10
INTERCOMPANY NOTE
-----------------
New York, New York
November 7, 1996
FOR VALUE RECEIVED, BCM HOLDINGS, INC., an Illinois corporation (the "Payor"),
hereby promises to pay on demand to the order of MERKLE-KORFF INDUSTRIES, INC.,
or its assigns (the "Payee"), in lawful money in the United States of America in
immediately available funds, at such location in the United States of America as
the Payee shall from time to time designate, the unpaid principal amount of all
loans and advances made by the Payee to the Payor.
The Payor promises to pay interest on the unpaid principal amount hereof in
like money at said office from the date hereof until paid at such rate per annum
as shall be agreed upon from time to time by the Payor and the Payee.
Upon the earlier to occur of (x) the commencement of any bankruptcy,
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar proceeding of any jurisdiction relating to
the Payor or (y) any exercise of remedies (including any acceleration of Loans
or the termination of Commitments) pursuant to Section 10 of the Credit
Agreement referred to below, the unpaid principal amount hereof shall become
immediately due and payable without presentment, demand, protest or notice of
any kind in connection with this Note.
This Note is one of the Intercompany Notes referred to in the Credit
Agreement, dated as of November 7, 1996, among Motors and Gears Industries,
Inc., the financial institutions from time to time party thereto and Bankers
Trust Company, as Agent (as amended, modified or supplemented from time to time,
the "Credit Agreement") and is subject to the terms thereof, and shall be
pledged by the Payee pursuant to the Pledge Agreement (as defined in the Credit
Agreement). The Payor hereby acknowledges and agrees that the Collateral Agent
(as defined in the Pledge Agreement) may, pursuant to the Pledge Agreement as in
effect from time to time, exercise all rights provided therein with respect to
this Note.
The Payee is hereby authorized (but shall not be required) to record all loans
and advances made by it to the Payor (all of which shall be evidence by this
Note), and all repayments or prepayments thereof, in its books and records, such
books and records constituting prima facie evidence of the accuracy of the
----- -----
information contained therein.
<PAGE>
This Note amends and replaces the prior $20,000,000 BCM Intercompany Note,
dated as of March 8, 1996, between the Payor and the Payee, a copy of which is
attached hereto as Annex A (the "Prior Note"). Both the Payor and the Payee
-------
agree that the Prior Note is terminated and all liabilities and obligations
under such Prior Note are hereby transferred in full to this Note (including all
principal and accrued interest thereof).
All payments under this Note shall be made without offset, counterclaim or
deduction of any kind.
The Payor hereby waives presentment, demand, protest or notice of any kind
in connection with this Note.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE W1TH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
BCM HOLDINGS, INC.
By: /s/ Jonathan F. Boucher
----------------------------
Name: Jonathan F. Boucher
Title: Vice President
Pay to the order of
- ---------------------------
MERKLE-KORFF INDUSTRIES, INC.
By: /s/ Jonathan F. Boucher
------------------------
Name: Jonathan F. Boucher
Title: Vice President
<PAGE>
EXHIBIT 10.11
PARENT SUBORDINATED INTERCOMPANY NOTE
-------------------------------------
New York, New York
November 7, 1996
FOR VALUE RECEIVED, MOTORS AND GEARS INDUSTRIES, INC., a Delaware
corporation (the "Payor"), hereby promises to pay to the order of MOTORS AND
GEARS, INC. (the "Payee"), in lawful money of the United States of America in
immediately available funds, at such location in the United States of America
as the Payee shall from time to time designate, the unpaid principal sum of
ONE HUNDRED SEVENTY MILLION DOLLARS, which amount shall be payable on
November 15, 2006. Unless otherwise defined herein, all capitalized terms
used herein or in Annex A attached hereto and defined in the Credit Agreement
referred to below shall have the meaning assigned to such term in the Credit
Agreement.
The Payor promises also to pay interest on the unpaid principal
amount hereof in like money at said office from the date hereof until paid at
a rate of 10-3/4% per annum, such interest to be paid semi-annually on each
May 15 and November 15 of each year, commencing May 15, 1997, and at maturity
hereof. In addition, the Payor promises to pay as additional interest in
like money at said office on each Damages Payment Date (as defined in the
Senior Unsecured Note Indenture) an amount equal to all accrued Liquidated
Damages (as defined in the Senior Unsecured Note Indenture) required to be
paid on such date pursuant to the terms of the Senior Unsecured Note
Documents.
This Note is subject to voluntary prepayment, in whole or in part,
at the option of the Payor, without premium or penalty, except that any
voluntary prepayment of this Note to be used by Payee to repay the
outstanding principal of its Senior Unsecured Notes shall be accompanied by
the amount of premium to be used by Payee in connection with such repayment
of principal of outstanding Senior Unsecured Notes. This Note is not subject
to mandatory repayment or acceleration.
This Note is the Parent Subordinated Intercompany Note referred to
in the Credit Agreement, dated as of November 7, 1996, among the Payor, the
lenders from time to time party thereto and Bankers Trust Company, as Agent
(as amended, modified or supplemented from time to time, the "Credit
Agreement") and shall be subject to the provisions thereof.
<PAGE>
Notwithstanding anything to the contrary contained in this Note,
the Payee understands and agrees that the Payor shall not be required to
make, and shall not make, any payment of principal or interest on this Note
to the extent that such payment is prohibited by the terms of any Senior
Indebtedness (as defined in Section 1.07 of Annex A attached hereto),
including, but not limited to, Sections 9.03 and 9.10 of the Credit
Agreement.
This Note, and the Payor's obligations hereunder, shall be
subordinate and junior to all indebtedness of the Payor constituting Senior
Indebtedness on the terms and conditions set forth in Annex A attached
hereto, which Annex A is herein incorporated by reference and made a part
hereof as if set forth herein in its entirety.
The Payee is hereby authorized (but shall not be required) to
record repayments or prepayments made in respect of this Note, in its books
and records, such books and records constituting prima facie evidence of the
----- -----
accuracy of the information contained therein.
All payments under this Note shall be made without offset,
counterclaim or deduction of any kind. Neither this Note nor any right to
receive payments hereunder may be assigned by the Payee.
- 2 -
<PAGE>
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAW OF THE STATE OF NEW YORK.
MOTORS AND GEARS INDUSTRIES, INC.
By: /s/ Jonathan F. Boucher
---------------------------
Title: Vice President
<PAGE>
ANNEX A
-------
Section 1.01. Subordination of Liabilities. Motors and Gears
----------------------------
Industries, Inc. (the "Payor"), for itself, its successors and assigns,
covenants and agrees, and each holder of the promissory note to which this
Annex A is attached (the "Note") by its acceptance thereof likewise covenants
and agrees, that the payment of the principal of, interest on, and all other
amounts owing in respect of, the Note (the "Subordinated Indebtedness") is
hereby expressly subordinated, to the extent and in the manner hereinafter
set forth, to the prior payment in full in cash of all Senior Indebtedness
(as defined in Section 1.07 of this Annex A). The provisions of this Annex A
shall constitute a continuing offer to all persons who, in reliance upon such
provisions, become holders of, or continue to hold, Senior Indebtedness, and
such provisions are made for the benefit of the holders of Senior
Indebtedness, and such holders are hereby made obligees hereunder the same as
if their names were written herein as such, and they and/or each of them may
proceed to enforce such provisions.
Section 1.02. Payor Not to Make Payments with Respect to
------------------------------------------
Subordinated Indebtedness in Certain Circumstances. (a) Upon the maturity
--------------------------------------------------
of any Senior Indebtedness (including interest thereon or fees or any other
amounts owing in respect thereof), whether at stated maturity, by
acceleration or otherwise, all Obligations (as defined in Section 1.07 of
this Annex A) owing in respect thereof, in each case to the extent due and
owing, shall first be paid in full in cash, before any payment, whether in
cash, property, securities or otherwise, is made on account of the
Subordinated Indebtedness.
(b) Until all Senior Indebtedness has been paid in full in cash and
all commitments in respect of such Senior Indebtedness have been terminated,
the sum of all payments in respect of the Note (including principal and
interest) shall not exceed at any time that amount permitted by the terms of
the respective issue of Senior Indebtedness (including without limitation
after giving effect to the limitations contained in Section 9.03 of the
Credit Agreement).
(c) The Payor may not, directly or indirectly, make any payment of
any Subordinated Indebtedness and may not acquire any Subordinated
Indebtedness for cash or property until all Senior Indebtedness has been paid
in full in cash if any Event of Default under Section 10.01, 10.03 (due to a
breach of Section 9.03, 9.08 or 9.09), 10.04, 10.05, 10.09 or 10.10 of the
Credit Agreement (as defined in Section 1.07 of this Annex A) or any
corresponding event of default under any other issue of Senior Indebtedness
would result therefrom. Each holder of the Note hereby agrees that, so long
as any such event of default in respect of any issue of Senior Indebtedness
exists, it will not demand, sue for, or otherwise take any action to enforce
the Payor's obligations
<PAGE>
ANNEX A
Page 2
to pay, amounts owing in respect of the Note. Each holder of the Note
understands and agrees that to the extent that clause (b) or this clause (c)
of this Section 1.02 reduces the payment of interest and/or principal which
would otherwise be payable under the Note but for the limitations set forth
in such clause (b) or (c), such unpaid amount shall not constitute a payment
default under the Note and the holder of the Note may not sue for, or
otherwise take action to enforce the Payor's obligation to pay such amount,
provided that such unpaid principal or interest shall remain an obligation of
--------
the Payor to the holder of the Note pursuant to the terms of the Note.
(d) In the event that notwithstanding the provisions of the
preceding subsections (a), (b) and (c) of this Section 1.02, the Payor shall
make any payment on account of the Subordinated Indebtedness at a time when
payment is not permitted by said subsection (a), (b) or (c), such payment
shall be held by the holder of the Note, in trust for the benefit of, and
shall be paid forthwith over and delivered to, the holders of Senior
Indebtedness or their representative or the trustee under the indenture or
other agreement pursuant to which any instruments evidencing any Senior
Indebtedness may have been issued, as their respective interests may appear,
for application pro rata to the payment of all Senior Indebtedness remaining
--- ----
unpaid to the extent necessary to pay all Senior Indebtedness in full in cash
in accordance with the terms of such Senior Indebtedness, after giving effect
to any concurrent payment or distribution to or for the holders of Senior
Indebtedness. Without in any way modifying the provisions of this Annex A or
affecting the subordination effected hereby if the hereafter referenced
notice is not given, the Payor shall give the holder of the Note prompt
written notice of any event which would prevent payments under Section
1.02(a), (b) or (c) hereof.
(e) All amounts required to be delivered to the holders of Senior
indebtedness pursuant to clause (d) of this Section 1.02, Section 1.03 hereof
or elsewhere in this Annex A shall take into account the relative priorities
and subordination provisions of such Senior Indebtedness.
Section 1.03. Subordination to Prior Payment of All Senior
--------------------------------------------
Indebtedness on Dissolution, Liquidation or Reorganization of Payor. Upon
-------------------------------------------------------------------
any distribution of assets of the Payor upon any dissolution, winding up,
liquidation or reorganization of the Payor (whether in bankruptcy, insolvency
or receivership proceedings or upon an assignment for the benefit of
creditors or otherwise):
(a) the holders of all Senior Indebtedness shall first be entitled
to receive payment in full in cash of all Senior Indebtedness
(including, without limitation, post-petition interest at the rate
provided in the documentation with respect to such Senior Indebtedness,
whether or not such post-petition interest is
<PAGE>
ANNEX A
Page 3
an allowed claim against the debtor in any bankruptcy or similar
proceeding) before the holder of the Note is entitled to receive any
payment of any kind or character on account of the Subordinated
Indebtedness;
(b) any payment or distributions of assets of the Payor of any kind
or character, whether in cash, property or securities to which the
holder of the Note would be entitled except for the provisions of this
Annex A, shall be paid by the liquidating trustee or agent or other
person making such payment or distribution, whether a trustee in
bankruptcy, a receiver or liquidating trustee or other trustee or agent,
directly to the holders of Senior Indebtedness or their representative
or representatives, or to the trustee or trustees under any indenture
under which any instruments evidencing any such Senior Indebtedness may
have been issued, to the extent necessary to make payment in full in
cash of all Senior Indebtedness remaining unpaid, after giving effect to
any concurrent payment or distribution to the holders of such Senior
Indebtedness; and
(c) in the event that, notwithstanding the foregoing provisions of
this Section 1.03, any payment or distribution of assets of the Payor of
any kind or character, whether in cash, property or securities, shall be
received by the holder of the Note on account of Subordinated
Indebtedness before all Senior Indebtedness is paid in full in cash,
such payment or distribution shall be received and held in trust for and
shall be paid over to the holders of the Senior Indebtedness remaining
unpaid or unprovided for or their representative or representatives, or
to the trustee or trustees under any indenture under which any
instruments evidencing any of such Senior Indebtedness may have been
issued, for application to the payment of such Senior Indebtedness until
all such Senior Indebtedness shall have been paid in full in cash, after
giving effect to any concurrent payment or distribution to the holders
of such Senior Indebtedness.
Without in any way modifying the provisions of this Annex A or
affecting the subordination effected hereby if the hereafter referenced
notice is not given, the Payor shall give prompt written notice to the holder
of the Note of any dissolution, winding up, liquidation or reorganization of
the Payor (whether in bankruptcy, insolvency or receivership proceedings or
upon assignment for the benefit of creditors or otherwise).
Section 1.04. Subrogation. Subject to the prior payment in full
-----------
in cash of all Senior Indebtedness, the holder of the Note shall be
subrogated to the rights of the holders of Senior Indebtedness to receive
payments or distributions of assets of the Payor applicable to the Senior
Indebtedness until all amounts owing on the Note shall be
<PAGE>
ANNEX A
Page 4
paid in full, and for the purpose of such subrogation no payments or
distributions to the holders of the Senior Indebtedness by or on behalf of
the Payor or by or on behalf of the holder of the Note by virtue of this
Annex A which otherwise would have been made to the holder of the Note shall,
as between the Payor, its creditors other than the holders of Senior
Indebtedness, and the holder of the Note, be deemed to be payment by the
Payor to or on account of the Senior Indebtedness, it being understood that
the provisions of this Annex A are and are intended solely or the purpose of
defining the relative rights of the holder of the Note, on the one hand, and
the holders of the Senior Indebtedness, on the other hand.
Section 1.05. Obligation of Payor Unconditional. Nothing
---------------------------------
contained in this Annex A or in the Note is intended to or shall impair, as
between the Payor and the holder of the Note, the obligation of the Payor,
which is absolute and unconditional, to pay to the holder of the Note the
principal of and interest on the Note as and when the same shall become due
and payable in accordance with their terms, or is intended to or shall affect
the relative rights of the holder of the Note and creditors of the Payor
other than the holders of the Senior Indebtedness, nor shall anything herein
or therein prevent the holder of the Note from exercising all remedies
otherwise permitted by applicable law upon an event of default under the
Note, subject to the rights under this Annex A of the holders of Senior
Indebtedness. Upon any distribution of assets of the Payor referred to in
this Annex A, the holder of the Note shall be entitled to rely upon any order
or decree made by any court of competent jurisdiction in which such
dissolution, winding up, liquidation or reorganization proceedings are
pending, or a certificate of the liquidating trustee or agent or other person
making any distribution to the holder of the Note, for the purpose of
ascertaining the persons entitled to participate in such distribution, the
holders of the Senior Indebtedness and other indebtedness of the Payor, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Annex A.
Section 1.06. Subordination Rights Not Impaired by Acts or
--------------------------------------------
Omissions of Payor or Holders of Senior Indebtedness. No right of any
----------------------------------------------------
present or future holders of any Senior Indebtedness to enforce subordination
as herein provided shall at any time in any way be prejudiced or impaired by
any act or failure to act on the part of the Payor or by any act or failure
to act in good faith by any such holder, or by any noncompliance by the Payor
with the terms and provisions of the Note, regardless of any knowledge
thereof which any such holder may have or be otherwise charged with. The
holders of the Senior Indebtedness may, without in any way affecting the
obligations of the holder of the Note with respect hereto, at any time or
from time to time and in their absolute discretion, change the manner, place
or terms of payment of, change or extend the time of payment of, or renew or
alter, any Senior Indebtedness or
<PAGE>
ANNEX A
Page 5
amend, modify or supplement any agreement or instrument governing or
evidencing such Senior Indebtedness or any other document referred to
therein, or exercise or refrain from exercising any other of their rights
under the Senior Indebtedness including, without limitation, the waiver of
default thereunder and the release of any collateral securing such Senior
Indebtedness, all without notice to or assent from the holder of the Note.
Section 1.07. Senior Indebtedness. The term "Senior Indebtedness"
-------------------
shall mean all Obligations (as defined below) (i) of the Payor under the
Credit Agreement (as amended, modified, supplemented, extended, restated,
refinanced, replaced or refunded from time to time, the "Credit Agreement"),
dated as of November 7, 1996, by and among the Payor, the lenders from time
to time party thereto (the "Banks") and Bankers Trust Company, as Agent, and
any renewal, extension, restatement, refinancing or refunding thereof and
(ii) of the Payor in respect of any Interest Rate Protection Agreement or
Other Hedging Agreement. As used herein, the term "Obligation" shall mean
any principal, interest, premium, penalties, fees, expenses, indemnities and
other liabilities and obligations payable under the documentation governing
any Senior Indebtedness (including interest after the commencement of any
bankruptcy, insolvency, receivership or similar proceeding, whether or not
such interest is an allowed claim against the debtor in any such proceeding).
Section 1.08. Miscellaneous. If, at any time, all or part of any
-------------
payment with respect to Senior Indebtedness theretofore made by the Payor or
any other person is rescinded or must otherwise be returned by the holders of
Senior Indebtedness for any reason whatsoever including, without limitation,
the insolvency, bankruptcy or reorganization of the Payor or such other
person), the subordination provisions set forth herein shall continue to be
effective or be reinstated, as the case may be, all as though such payment
had not been made.
<PAGE>
EXHIBIT 10.12
INTERCOMPANY NOTE
-----------------
New York, New York
November 7, 1996
FOR VALUE RECEIVED, THE NEW SCOTT MOTORS COMPANY, a Delaware corporation
(the "Payor"), hereby promises to pay on demand to the order of Motors and Gears
Industries, Inc., or its assigns (the "Payee"), in lawful money of the United
States of America in immediately available funds, at such location in the United
States of America as the Payee shall from time to time designate, the unpaid
principal amount of all loans and advances made by the Payee to the Payor.
The Payor promises also to pay interest on the unpaid principal amount
hereof in like money at said office from the date hereof until paid at such rate
per annum as shall be agreed upon from time to time by the Payor and Payee.
Upon the earlier to occur of (x) the commencement of any bankruptcy,
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar proceeding of any jurisdiction relating to
the Payor or (y) any exercise of remedies (including any acceleration of Loans
or the termination of Commitments) pursuant to Section 10 of the Credit
Agreement referred to below, the unpaid principal amount hereof shall become
immediately due and payable without presentment, demand, protest or notice of
any kind in connection with this Note.
This Note is one of the Intercompany Notes referred to in the Credit
Agreement, dated as of November 7, 1996, among Motors and Gears Industries,
Inc., the financial institutions from time to time party thereto and Bankers
Trust Company, as Agent (as amended, modified or supplemented from time to time,
the "Credit Agreement") and is subject to the terms thereof, and shall be
pledged by the Payee pursuant to the Pledge Agreement (as defined in the Credit
Agreement). The Payor hereby acknowledges and agrees that the Collateral Agent
(as defined in the Pledge Agreement) may, pursuant to the Pledge Agreement as in
effect from time to time, exercise all rights provided therein with respect to
this Note.
The Payee is hereby authorized (but shall not be required) to record all
loans and advances made by it to the Payor (all of which shall be evidenced by
this Note), and all repayments or prepayments thereof, in its books and records,
such books and records constituting prima facie evidence of the accuracy of
----- -----
the information contained therein.
All payments under this Note shall be made without offset, counterclaim
or deduction of any kind.
<PAGE>
The Payor hereby waives presentment, demand, protest or notice of any
kind in connection with this Note.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW
OF THE STATE OF NEW YORK.
THE NEW SCOTT MOTORS COMPANY
By /s/
---------------------------
Title:
Pay to the order of
- ---------------------------------
THE NEW IMPERIAL ELECTRIC COMPANY
By /s/
------------------------------
Title:
<PAGE>
EXHIBIT 10.13
INTERCOMPANY NOTE
-----------------
New York, New York
November 7, 1996
FOR VALUE RECEIVED, NEW GEAR RESEARCH, INC., a Delaware corporation (the
"Payor"), hereby promises to pay on demand to the order of Motors and Gears
Industries, Inc., or its assigns (the "Payee"), in lawful money of the United
States of America in immediately available funds, at such location in the United
States of America as the Payee shall from time to time designate, the unpaid
principal amount of all loans and advances made by the Payee to the Payor.
The Payor promises also to pay interest on the unpaid principal amount
hereof in like money at said office from the date hereof until paid at such rate
per annum as shall be agreed upon from time to time by the Payor and Payee.
Upon the earlier to occur of (x) the commencement of any bankruptcy,
reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar proceeding of any jurisdiction
relating to the Payor or (y) any exercise of remedies (including any
acceleration of Loans or the termination of Commitments) pursuant to Section 10
of the Credit Agreement referred to below, the unpaid principal amount hereof
shall become immediately due and payable without presentment, demand, protest or
notice of any kind in connection with this Note.
This Note is one of the Intercompany Notes referred to in the Credit
Agreement, dated as of November 7, 1996, among Motors and Gears Industries,
Inc., the financial institutions from time to time party thereto and Bankers
Trust Company, as Agent (as amended, modified or supplemented from time to time,
the "Credit Agreement") and is subject to the terms thereof, and shall be
pledged by the Payee pursuant to the Pledge Agreement (as defined in the Credit
Agreement). The Payor hereby acknowledges and agrees that the Collateral Agent
(as defined in the Pledge Agreement) may, pursuant to the Pledge Agreement as in
effect from time to time, exercise all rights provided therein with respect to
this Note.
The Payee is hereby authorized (but shall not be required) to record all
loans and advances made by it to the Payor (all of which shall be evidenced by
this Note), and all repayments or prepayments thereof, in its books and records,
such books and records constituting prima facie evidence of the accuracy of the
----- -----
information contained therein.
All payments under this Note shall be made without offset, counterclaim or
deduction of any kind.
<PAGE>
The Payor hereby waives presentment, demand, protest or notice of any kind
in connection with this Note.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF
THE STATE OF NEW YORK.
NEW GEAR RESEARCH, INC.
By
---------------------------
Title:
Pay to the order of
- ---------------------------
THE NEW IMPERIAL ELECTRIC COMPANY
By
-------------------------
Title:
<PAGE>
EXHIBIT 10.14
INTERCOMPANY NOTE
-----------------
New York, New York
November 7, 1996
FOR VALUE RECEIVED, THE NEW IMPERIAL ELECTRIC COMPANY, a Delaware corporation
(the "Payor"), hereby promises to pay on demand to the order of Motors and Gears
Industries, Inc., or its assigns (the "Payee"), in lawful money of the United
States of America in immediately available funds, at such location in the United
States of America as the Payee shall from time to time designate, the unpaid
principal amount of all loans and advances made by the Payee to the Payor.
The Payor promises also to pay interest on the unpaid principal amount hereof
in like money at said office from the date hereof until paid at such rate per
annum as shall be agreed upon from time to time by the Payor and Payee.
Upon the earlier to occur of (x) the commencement of any bankruptcy,
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution
insolvency or liquidation or similar proceeding of any jurisdiction relating to
the Payor or (y) any exercise of remedies (including any acceleration of Loans
or the termination of Commitments) pursuant to Section 10 of the Credit
Agreement referred to below, the unpaid principal amount hereof shall become
immediately due and payable without presentment, demand, protest or notice of
any kind in connection with this Note.
This Note is one of the Intercompany Notes referred to in the Credit
Agreement, dated as of November 7, 1996, among Motors and Gears Industries,
Inc., the financial institutions from time to time party thereto and Bankers
Trust Company, as Agent (as amended, modified or supplemented from time to time,
the "Credit Agreement") and is subject to the terms thereof, and shall be
pledged by the Payee pursuant to the Pledge Agreement (as defined in the Credit
Agreement). The Payor hereby acknowledges and agrees that the Collateral Agent
(as defined in Pledge Agreement) may, pursuant to the Pledge Agreement as in
effect from time to time, exercise all rights provided therein with respect to
this Note.
The Payee is hereby authorized (but shall not be required) to record all loans
and advances made by it to the Payor (all of which shall be evidenced by this
Note), and all repayments or prepayments thereof, in its books and records,
such books and records constituting prima facie evidence of the accuracy of
----- -----
the information contained therein.
All payments under this Note shall be made without offset, counterclaim
or deduction of any kind.
<PAGE>
The Payor hereby waives presentment, demand, protest or notice of any kind in
connection with this Note.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
THE NEW IMPERIAL ELECTRIC
COMPANY
BY /s/ Jonathan F. Boucher
------------------------------
Title:
Pay to the order of
- ------------------------------
MOTORS AND GEARS INDUSTRIES, INC.
By /s/ Jonathan F. Boucher
------------------------------
Title:
<PAGE>
EXHIBIT 10.15
INTERCOMPANY NOTE
-----------------
New York, New York
November 7, 1996
FOR VALUE RECEIVED, MERKLE-KORFF INDUSTRIES, INC., an Illinois corporation
(the "Payor"), hereby promises to pay on demand to the order of Motors and Gears
Industries, Inc., or its assigns (the "Payee"), in lawful money of the United
States of America in immediately available funds, at such location in the United
States of America as the Payee shall from time to time designate, the unpaid
principal amount of all loans and advances made by the Payee to the Payor.
The Payor promises also to pay interest on the unpaid principal amount
hereof in like money at said office from the date hereof until paid at such rate
per annum as shall be agreed upon from time to time by the Payor and Payee.
Upon the earlier to occur of (x) the commencement of any bankruptcy,
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar proceeding of any jurisdiction relating to
the Payor or (y) any exercise of remedies (including any acceleration of Loans
or the termination of Commitments) pursuant to Section 10 of the Credit
Agreement referred to below, the unpaid principal amount hereof shall become
immediately due and payable without presentment, demand, protest or notice of
any kind in connection with this Note.
This Note is one of the Intercompany Notes referred to in the Credit
Agreement, dated as of November 7, 1996, among Motors and Gears Industries,
Inc., the financial institutions from time to time party thereto and Bankers
Trust Company, as Agent (as amended, modified or supplemented from time to time,
the "Credit Agreement") and is subject to the terms thereof, and shall be
pledged by the Payee pursuant to the Pledge Agreement (as defined in the Credit
Agreement). The Payor hereby acknowledges and agrees that the Collateral Agent
(as defined in the Pledge Agreement) may, pursuant to the Pledge Agreement as in
effect from time to time, exercise all rights provided therein with respect to
this Note.
The Payee is hereby authorized (but shall not be required) to record all
loans and advances made by it to the Payor (all of which shall be evidenced by
this Note), and all repayments or prepayments thereof, in its books and records,
such books and records constituting prima facie evidence of the accuracy of
----- -----
the information contained therein.
All payments under this Note shall be made without offset, counterclaim or
deduction of any kind.
<PAGE>
The Payor hereby waives presentment, demand, protest or notice of any kind
in connection with this Note.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF
THE STATE OF NEW YORK.
MERKLE-KORFF INDUSTRIES, INC.
By /s/
----------------------------
Title:
Pay to the order of
- ---------------------------
MOTORS AND GEARS INDUSTRIES, INC.
By /s/
- ---------------------------------
Title:
<PAGE>
EXHIBIT 10.16
INDUSTRIAL BUILDING LEASE
--------------------------
This Industrial Building Lease (the "Lease") is made as of the 22nd day of
September, 1995, by and between RIDGE INDUSTRIES, an Illinois corporation
(hereafter referred to as "Landlord"), and MERKLE-KORFF INDUSTRIES, INC., an
Illinois corporation formerly known as MK Holdings, Inc. (successor by merger to
Mercury Industries, Inc.) (hereafter referred to as "Tenant").
1. LEASED PREMISES. Upon and subject to the terms and conditions of this
Lease, Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord,
the real property commonly known as 1300 Peebles Drive, Richland Center,
Wisconsin, and legally described in Exhibit A, attached hereto and incorporated
herein, together with all easements appurtenant thereto and all buildings,
improvements and fixtures located thereon (collectively, the "Leased Premises").
2. USE. The Leased Premises shall be used and occupied for the manufacture of
low voltage motors and warehouse and office uses related thereto and for no
other purposes.
3. LEASE TERM; RENEWAL OPTION. This Lease shall commence on the date first
above written (the "Commencement Date") and shall continue through September 30,
2000 (the "Initial Term"). Provided Tenant is not then in default under this
Lease, Tenant shall have the option, exercisable by delivery of written notice
to Landlord at any time prior to the date which is six (6) months prior to the
expiration of the Initial Term or the first Renewal Term (as hereinafter
defined), as appropriate, to renew this Lease and extend the Initial Term hereof
for two additional periods of five (5) years (each of such five-year periods
being a "Renewal Term"), all upon the same terms and conditions as govern the
initial Term (including without limitation, the provisions regarding rent set
forth in Paragraph 4 below). Any reference in this Lease to the phrase "Lease
Term" shall mean both the Initial Term and, if exercised, any Renewal Term. As
used herein, the term "Lease Year" shall mean each twelve (12) month period
during the Lease Term hereof commencing on October 1 in each year; provided,
however, that the first Lease Year shall consist of a period of twelve (12)
months and eight (8) days commencing on September 23, 1995.
4. BASE RENT.
(a) Tenant shall pay to Landlord as annual base rent for the Leased Premises
the following amounts:
Lease Year Base Rent
---------- ---------
1 $174,600.00
2 178,092.00
3 181,654.00
4 185,287.00
5 188,993.00
6 192,773.00
7 196,628.00
8 200,561.00
9 204,572.00
10 208,663.00
11 212,836.00
12 217,093.00
13 221,435.00
14 225,864.00
15 230.381.00
(b) All base rent payments, and all other payments due to Landlord under this
Lease, shall be deemed to be rent and shall be made to Landlord at Landlord's
address set forth in Paragraph 29 or at such other address as Landlord may
designate. Landlord acknowledges receipt of Three Thousand Eight Hundred Eighty
and No/100 Dollars ($3,880.00) as base rent
<PAGE>
for the last eight (8) days of September. All other installments of base rent
shall be payable in advance on the first day of each month of the Term in lawful
money of the United States.
5. [INTENTIONALLY OMITTED]
6. TAXES AND ASSESSMENTS. Throughout the Lease Term, Tenant shall pay, as and
when due, all real property taxes, assessments, special or otherwise, water and
sewer rents and charges, and all other charges of every kind and description
that may be levied against the Leased Premises, any building or improvement
thereon or any use or enjoyment thereof, by any governmental authority. Tenant
also shall pay, as and when due, all taxes, license fees and all other charges
of every kind and description that may be imposed by any governmental authority
on the Tenant's leasehold interest or on any fixtures, equipment, appliances,
goods, inventory and any other personal property placed upon the Leased Premises
by Tenant. Landlord shall cause all bills relating to the real property taxes to
be forwarded to Tenant upon receipt. Tenant shall, upon Landlord's request,
deliver to Landlord sufficient receipts or other evidence of payment. If any
such taxes paid by Tenant shall cover any period of time prior to or after the
expiration of the Term, Tenant's share of such taxes shall be equitably prorated
to cover only the period of time within the tax fiscal year during which this
Lease shall be in effect, and Landlord shall reimburse Tenant to the extent
required. If Tenant shall fail to pay any such taxes, Landlord shall have the
right to pay the same, in which case Tenant shall repay such amount to Landlord
with Tenant's next rent installment together with interest as provided in
Paragraph 35.
It is expressly agreed, however, that Tenant shall not be required to pay or
discharge any real estate taxes or assessments, either general or special, or
other charges for which Tenant, pursuant to the above, may be liable, so long as
Tenant shall in good faith contest the same, or the validity thereof, by
appropriate legal proceedings that shall operate to prevent the collection of
the tax or assessment and the sale of the Leased Premises or any part thereof to
satisfy the same. Pending any such legal proceedings Landlord shall not have the
right to pay, discharge or remove the tax or assessments thereby contested,
provided Tenant shall, prior to the date such tax or assessment is due and
payable, have given such reasonable security as may be demanded in writing by
Landlord to insure such payment and to prevent any sale or forfeiture of the
Leased Premises by reason of such nonpayment, not to exceed, however, one and
one-half times the amount of any such tax or assessment, including any penalties
and/or interest charges thereon imposed by law.
7. UTILITIES. Tenant shall pay, as and when due, all water, sewage, power, heat,
gas, electricity, oil and all other utility services used or consumed on the
Leased Premises during the Lease Term, such payment to be made directly to the
billing utility company.
8. MAINTENANCE, REPAIRS AND ALTERATIONS.
8.1 CONDITION OF PREMISES. Tenant has accepted the Leased Premises in their
physical condition existing as of the Commencement Date and subject to all
applicable municipal, county and state laws, ordinances and regulations
governing and regulating the use of the Leased Premises, and any covenants or
restrictions of record, and accepts this Lease subject thereto and to all
matters disclosed thereby and by any exhibits attached hereto.
8.2 TENANT'S OBLIGATIONS. Tenant shall keep in good order, condition and
repair the Leased Premises and every part thereof (whether or not the need for
such repairs occurs as a result of Tenant's use, any prior use, the elements or
the age of the Leased Premises) including, without limiting the generality of
the foregoing, the roof, foundation and structural components of the Leased
Premises, all plumbing, heating, ventilating, air conditioning, electrical, fire
protection, emergency power supply, lighting facilities and equipment within the
Leased Premises, fixtures, walls (interior and exterior), ceilings, floors,
windows, doors, plate glass and skylights located within the Leased Premises,
signs and all landscaping, driveways, parking lots, fences, sidewalks and
parkways located on and/or adjacent to the Leased Premises. Tenant shall procure
and maintain, at Tenant's expense, a heating, ventilating and air conditioning
system maintenance contract and shall provide Landlord, upon request, with
copies of all service reports
2
<PAGE>
issued by the contractors who perform such maintenance. Tenant shall also
procure and maintain, at Tenant's expense, a fire protection and security
system.
8.3 SURRENDER. On the last day of the term hereof, or on any sooner
termination, Tenant shall surrender the Leased Premises to Landlord in the same
condition as when received, damage from the elements pursuant to Paragraph 12,
or condemnation pursuant to Paragraph 15, alterations, improvements and
additions made by Tenant to the Leased Premises pursuant to Paragraph 9, or
normal wear and tear excepted, clean and free of debris. Tenant shall repair any
damage to the Leased Premises occasioned by the installation or removal of
Tenant's trade fixtures, furnishings and equipment.
8.4 LANDLORD'S RIGHTS. If Tenant fails to perform Tenant's obligations under
this Paragraph 8, or under any other paragraph of this Lease, Landlord may at
its option (but shall not be required to) enter upon the Leased Premises after
ten (10) days prior written notice to Tenant (except in the case of an
emergency, in which case no notice shall be required), perform such obligations
on Tenant's behalf and put the same in good order, condition and repair, and the
cost thereof together with interest thereon at the rate of eighteen percent
(18%) per annum (or the maximum rate then allowable by law) shall become due and
payable as additional rental to Landlord together with Tenant's next rental
installment.
8.5 LANDLORD'S OBLIGATION. It is intended by the parties hereto that Landlord
have no obligation, in any manner whatsoever, to repair and maintain the Leased
Premises nor the buildings located thereon nor the equipment therein, all of
which obligations are intended to be that of the Tenant under Paragraph 8.2
hereof.
9. ALTERATIONS, IMPROVEMENTS, ADDITIONS AND REPAIRS.
(a) Tenant shall, at its sole cost and expense, perform all necessary or
desired alterations, improvements, additions and repairs (pursuant to Paragraph
12.2 or Paragraph 12.3) to the Leased Premises (collectively, "Changes"),
provided Landlord shall reimburse Tenant for repairs in accordance with
Paragraph 12.2 or Paragraph 12.3, as appropriate. Notwithstanding the foregoing,
no structural alterations, improvements or additions, which cost individually
and in the aggregate in excess of Ten Thousand and No/100 Dollars ($10,000.00)
shall be made to the Leased Premises without the prior written consent of
Landlord, which consent shall not be unreasonably withheld. All work performed
by Tenant shall be performed in a first-class and workmanlike manner (and
materials furnished shall be of like quality to those in the Leased Premises) at
the sole expense of Tenant. Landlord may require that Tenant remove any or all
alterations, improvements or additions at the expiration of the Lease Term, and
restore the Leased Premises to their prior condition, provided that Landlord
conditions its consent to such alterations, improvements or additions on such
removal at the end of the Term. Landlord may require Tenant to provide Landlord,
at Tenant's sole cost and expense, a lien and completion bond in an amount equal
to one and one-half times the estimated cost of such Changes, to insure Landlord
against any liability for mechanic's and materialmen's liens and to insure
completion of the work. Should Tenant make any alterations, improvements or
additions without the prior approval of Landlord, Landlord may require that
Tenant remove any or all of the same.
(b) Any alterations, improvements or additions in, or about the Leased
Premises that Tenant shall desire to make and which require the consent of
Landlord or any repairs which Tenant is either required to make pursuant to
Paragraph 12.2 or elects to make pursuant to Paragraph 12.3 shall be presented
to Landlord in written form, with proposed detailed plans. If Landlord shall
give its consent, the consent shall be deemed conditioned upon Tenant furnishing
Landlord, prior to the commencement of Tenant's work (including any repairs) on
or delivery of any materials to the Leased Premises, with (i) all necessary
permits, licenses, approvals, certificates and authorizations for prosecution
and completion of Tenant's work, (ii) sworn Tenant (Owner), contractor and
subcontractor affidavits listing all subcontractors and suppliers of materials
or labor, (iii) certificates of insurance from all contractors and
subcontractors, insuring against any and all claims, costs, liabilities and
expenses which may arise in connection with work, and (iv) such other documents
as may be reasonably requested by Landlord.
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(c) Landlord reserves the right to inspect and check for liens upon completion
of all work. Tenant shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Tenant at or for use in
the Leased Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Leased Premises or any interest therein. Tenant
shall give Landlord not less than ten (10) days notice prior to the
commencement of any work in the Leased Premises, and Landlord shall have the
right to post notices of non-responsibility in or on the Leased Premises as
provided by law. If Tenant shall, in good faith, contest the validity of any
such lien, claim or demand, then Tenant shall, at its sole expense defend itself
and Landlord against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against the
Landlord or the Leased Premises, upon the condition that Landlord may require
Tenant to furnish to Landlord a surety bond satisfactory to Landlord in an
amount equal to such contested lien claim or demand indemnifying Landlord
against liability for the same and holding the Leased Premises free from the
effect of such claim. In addition, Landlord may require Tenant to pay Landlord's
reasonable attorneys' fees and costs in participating in such action if Landlord
shall decide it is to its best interest to do so.
(d) Unless Landlord requires their removal, all alterations, improvements or
additions, which may be made to the Leased Premises, shall become the property
of Landlord and remain upon and be surrendered with the Leased Premises at the
expiration of the term. Notwithstanding the foregoing sentence, Tenant's trade
fixtures, furnishings and equipment, other than that which is affixed to the
Leased Premises so that it cannot be removed without material damage to the
Leased Premises, shall remain the property of Tenant and may be removed by
Tenant subject to the provisions.of Paragraph 8.3.
10. ASSIGNMENT AND SUBLETTING.
10.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not voluntarily or by operation
of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all
or any part of Tenant's interest in this Lease or in the Leased Premises,
without Landlord's prior written consent, which consent may be withheld in
Landlord's sole and absolute discretion. Any attempted assignment, transfer,
mortgage, encumbrance or subletting without such consent shall be void, and
shall constitute an immediate material default and breach of this Lease.
10.2 TENANT AFFILIATE. Notwithstanding the provisions of Paragraph 10.1
hereof, Tenant may assign or sublet the Leased Premises, or any portion thereof,
without Landlord's consent, to any corporation which controls, is controlled by
or is under common control with Tenant, provided that said assignee assumes, in
full, the obligations of Tenant under this Lease.
10.3 NO RELEASE OF TENANT. Regardless of Landlord's consent, no subletting or
assignment shall release Tenant of Tenant's obligation or alter the primary
liability of Tenant to pay the rent and to perform all other obligations to be
performed by Tenant hereunder. The acceptance of rent by Landlord from any other
person shall not be deemed to be a waiver by Landlord of any provision hereof.
Consent to one assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default by any assignee of
Tenant or any successor of Tenant in the performance of any of the terms hereof,
Landlord may proceed directly against Tenant without the necessity of exhausting
remedies against said assignee. Landlord may consent to subsequent assignments
or subletting of this Lease or amendments or modifications to this Lease with
assignees of Tenant, without notifying Tenant, or any successor of Tenant, and
without obtaining its or their consent hereto and such action shall not
relieve Tenant of liability under this Lease.
10.4 ATTORNEYS' FEES FOR CONSENTS. In the event Tenant shall assign or sublet
the Leased Premises or request the consent of Landlord to any assignment or
subletting or if Tenant shall request the consent of Landlord for any act Tenant
proposes to do, then Tenant shall pay Landlord's reasonable attorneys' fees
incurred in connection therewith.
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11. INSURANCE AND INDEMNITY.
11.1 LIABILITY INSURANCE. Tenant shall, at Tenant's expense, obtain and keep
in force during the term of this Lease a policy of comprehensive public
liability insurance insuring Landlord and Tenant against any liability arising
out of Tenant's negligent acts or omissions arising out of its use, occupancy or
maintenance of the Leased Premises and all areas appurtenant thereto. Such
insurance shall be in an amount of not less than Five Million Dollars
($5,000,000) for injury to or death of one person in any one accident or
occurrence and in an amount of not less than Five Million Dollars ($5,000,000)
for injury to or death of more than one person in any one accident or
occurrence. Such insurance shall further insure Landlord and Tenant against
liability for property damage of at least One Million Dollars ($1,000,000). If
Tenant shall fail to procure and maintain said insurance, Landlord may, but
shall not be required to, procure and maintain the same, but at the expense of
Tenant. The policy required by this Paragraph 11.1 shall insure performance by
Tenant of the indemnity provisions of this Paragraph 11. The limits of said
insurance may be increased from time to time to such greater amounts as Landlord
may reasonably hereafter advise Tenant in writing. The limits of said insurance
shall not, however, limit the liability of Tenant hereunder.
11.2 PROPERTY INSURANCE. Tenant shall, at Tenant's expense, obtain and keep in
force during the term of this Lease a commercially reasonable policy or policies
of insurance covering loss or damage to the Leased Premises, in the amount of
the full replacement value thereof, as the same shall be determined by
Landlord, in its sole and absolute discretion, against all perils included
within the classification of fire, extended coverage, vandalism, malicious
mischief, earthquake, flood (in the event same is required by a lender having a
lien on the Leased Premises), and special extended perils ("all risks" as such
term is used in the insurance industry). Said insurance shall provide for
payment of loss thereunder to Landlord or to the holders of mortgages or deeds
of trust on the Leased Premises subject to Landlord's obligations pursuant to
Paragraph 12 below. Tenant shall obtain and keep in full force during the term
of this Lease similar coverage on Tenant's improvements, trade fixtures and
equipment to the extent they are not deemed to be part of the Leased Premises
under Paragraph 9 hereof. A stipulated value or agreed amount endorsement
deleting the coinsurance provision of the policy shall be procured with said
insurance as well as an automatic increase in insurance endorsement causing the
increase in annual property insurance coverage by two percent (2%) per quarter.
11.3 INSURANCE POLICIES. Insurance required hereunder shall be in companies
holding a "General Policyholders Rating" of at least A+ or AAA, or such other
rating as may be required by a lender having a lien on the Leased Premises, as
set forth in the most current issue of "Best's Insurance Guide". Tenant has
delivered to Landlord a certificate evidencing the existence and amounts of such
insurance with loss payable clauses as required by this Paragraph 11. No such
policy shall be cancelable or subject to reduction of coverage or other
modification except after thirty (30) days prior written notice to Landlord.
Tenant shall, within thirty (30) days prior to expiration of such policies
furnish Landlord with renewals thereof, or Landlord may order such insurance and
charge the cost thereof to Tenant, which amount shall be payable by Tenant upon
demand. Tenant shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 11.
11.4 WAIVER OF SUBROGATION. Notwithstanding anything to the contrary contained
in this Lease, Tenant and Landlord each waives any and all rights of recovery
against the other, or against the officers, employees, agents and
representatives of the other, for loss of or damage to such waiving party or its
property or the property of others under its control, where such loss or damage
is insured against under any insurance policy in force at the time of such loss
or damage. Tenant and Landlord shall, upon obtaining the policies of insurance
required hereunder, give notice to the insurance carrier or carriers that the
foregoing mutual waiver of subrogation is contained in this Lease.
11.5 INDEMNITY. Tenant shall indemnify, defend and hold Landlord harmless from
and against any and all losses, claims, liabilities, damages, demands, fines,
costs and expenses (including reasonable attorneys' fees and expenses) of
whatever kind and nature arising from Tenant's use of the Leased Premises, or
from the conduct of Tenant's business or from any
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activity, work or things done by Tenant, its agents, invitees, contractors
and/or employees in or about the Leased Premises or elsewhere, including,
without limitation, those relating to violations or alleged violations of
Environmental Laws (as hereinafter defined), and shall further indemnify, defend
and hold harmless Landlord from and against any and all claims arising from any
breach or default in the performance of any obligation on Tenant's part to be
performed under the terms of this Lease, or arising from any negligence of
Tenant, or any of Tenant's agents, invitees, contractors, or employees, and from
and against all costs, attorneys' fees, expenses and liabilities incurred in
the defense of any such claim or any action or proceeding brought thereon; and
in case any action or proceeding be brought against Landlord by reason of any
such claim, Tenant upon notice from Landlord shall defend the same at Tenant's
expense by counsel reasonably satisfactory to Landlord. Tenant, as a material
part of the consideration to Landlord, hereby assumes all risk of damage to
property or injury to persons, in, upon or about the Leased Premises arising
from any cause, except for such damage to property or injury to persons as may
be caused by the gross negligence or other wilful tortious conduct of Landlord
or its agents or employees, and Tenant hereby waives all claims in respect
thereof against Landlord. Nothing herein shall be deemed to require Tenant to
indemnify Landlord over, from and against claims arising out of Landlord's gross
negligence or wilful act or omission. As used in this Paragraph 1/1.5 and
elsewhere in this Lease, the term "Environmental Laws" shall mean any laws,
regulations, rules or directives of any federal, state or local governmental
authority presently having jurisdiction over the Leased Premises, including,
without limitation, all requirements pursuant to environmental protection laws
and regulations (including those relating to the disposal of hazardous
substances, solid wastes or liquid wastes and those governing emissions of
gaseous matters).
11.6 EXEMPTION OF LANDLORD FROM LIABILITY. Tenant hereby agrees that Landlord
shall not be liable for injury to Tenant's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Tenant, Tenant's employees, invitees, customers, or any other person in or about
the Leased Premises unless caused by the gross negligence or other wilful
tortious conduct of Landlord or its agents or employees, nor, unless through its
gross negligence or wilful misconduct, shall Landlord be liable for injury to
the person of Tenant, Tenant's employees, invitees, agents or contractors,
whether such damage or injury is caused by or results from fire, steam,
electricity, gas, water or rain, or from the breakage, leakage, obstruction or
other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures, or from any other cause, whether the said
damage or injury results from conditions arising upon the Leased Premises or
upon other portions of the building of which the Leased Premises are a part, or
from other sources or places and regardless of whether the cause of such damage
or injury or the means of repairing the same is inaccessible to Landlord or
Tenant. Landlord shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the buildings location on the Leased
Premises.
12. DAMAGE OR DESTRUCTION.
12.1 DEFINITIONS.
(a) "Leased Premises Partial Damage" shall herein mean damage or destruction
to the Leased Premises to the extent that the cost of repair is less than 50% of
the then replacement cost of the Leased Premises.
(b) "Leased Premises Total Destruction" shall herein mean damage or
destruction to the Leased Premises to the extent that the cost of repair is 50%
or more of the then replacement cost of the Leased Premises.
(c) "Insured Loss" shall herein mean damage or destruction which was caused by
an event covered by the insurance described in Paragraph 11.
12.2 PARTIAL DAMAGE -- INSURED LOSS. Subject to the provisions of Paragraphs
12.4 and 12.5, if at any time during the term of this Lease there is damage
which is an Insured Loss and which falls into the classification of Leased
Premises Partial Damage, then Landlord may at Landlord's option either (i) at
Landlord's expense, repair such damage, but not Tenant's
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fixtures, equipment or tenant improvements unless the same have become a part of
the Leased Premises pursuant to Paragraph 8 hereof as soon as reasonably
possible, or (ii) require Tenant to repair such damage, provided Landlord pays
to Tenant all insurance proceeds payable on account of such Insured Loss and, in
either case, this Lease shall continue in full force and effect
12.3 TOTAL DESTRUCTION; PARTIAL DAMAGE - UNINSURED LOSS. Subject to the
provisions of Paragraphs 12.4 and 12.5, if at any time during the term of this
Lease there is damage which either (a) falls within the classification of Leased
Premises Total Destruction or (b) is not an Insured Loss and which falls within
the classification of Leased Premises Partial Damage, unless caused by a
negligent or willful act of Tenant (in which event Tenant shall make the repairs
at Tenant's expense), Landlord may at Landlord's option either (i) repair such
damage as soon as reasonably possible at Landlord's expense, in which event this
Lease shall continue in full force and effect, or (ii) give written notice to
Tenant within thirty (30) days after the date of the occurrence of such damage
of Landlord's intention to cancel and terminate this Lease as of the date of
the occurrence of such damage. In the event Landlord elects to give such notice
of Landlord's intention to cancel and terminate this Lease, Tenant shall have
the right within ten (10) days after the receipt of such notice to notify
Landlord in writing of Tenant's intention to repair such damage at Tenant's
expense, without reimbursement from Landlord except for the payment by Landlord
to Tenant of any insurance proceeds payable to Landlord on account of any
Insured Loss, in which event this Lease shall continue in full force and effect,
and Tenant shall proceed to make such repairs as soon as possible. If Tenant
does not give such notice within such ten-day period this Lease shall be
cancelled and terminated as of the date of the occurrence of such damage.
12.4 DAMAGE NEAR END OF LEASE TERM. If at any time during the last twelve
months of the Lease Term there is damage, whether or not an Insured Loss, which
falls within the classification of Leased Premises Partial Damage, Landlord or
Tenant may at either party's option cancel and terminate this Lease as of the
date of occurrence of such damage by giving written notice to the other of its
election to do so within thirty (30) days after the date of occurrence of such
damage.
12.5 ABATEMENT OF BASE RENT; TENANT'S REMEDIES.
(a) In the event of damage described in Paragraphs 12.2 or 12.3, and Landlord
or Tenant repairs or restores the Leased Premises pursuant to the provision of
this Paragraph 12, the base rent payable hereunder for the period during which
such damage, repair or restoration continues shall be abated in proportion to
the degree to which Tenant's use of the Leased Premises is impaired which shall
be no less than the square footage of the Leased Premises damaged. Except for
abatement of base rent, if any, Tenant shall have no claim against Landlord for
any damage suffered by reason of any such damage, destruction, repair or
restoration.
(b) If Landlord shall be obligated to repair or restore the Leased Premises
under the provisions of this Paragraph 12 and shall not commence such repair or
restoration within sixty (60) days after such obligation shall accrue, Tenant
may at Tenant's option cancel and terminate this Lease by giving Landlord
written notice of Tenant's election to do so at any time prior to the
commencement of such repair or restoration. In such event this Lease shall
terminate as of the date of such notice.
(c) Notwithstanding the foregoing, provided Tenant has not caused such
destruction whether partial or in total and Tenant is not able to utilize any
portion of the Leased Premises, base rent shall abate until the Leased Premises
can be restored and Tenant regains occupancy. In the event of partial
destruction, provided insurance proceeds are sufficient therefor, the Leased
Premises shall be restored to Tenant within nine (9) months from the date of
occurrence or Tenant, within thirty (30) days after the end of such nine (9)
month period may give written notice to Landlord to terminate this Lease.
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12.6 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 12, any advance rent and any advance payments made by
Tenant to Landlord shall be reimbursed to Tenant. Landlord shall, in addition,
return to Tenant so much of Tenant's security deposit as not theretofore been
applied by Landlord.
12.7 WAIVER. Landlord and Tenant waive the provisions of any statutes which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
13. RIGHT OF FIRST REFUSAL. At all times during the Term, Tenant shall have a
right of first refusal to purchase the Leased Premises on the following terms
and conditions:
(a) In the event Landlord receives a third party offer to purchase the Leased
Premises and Landlord is willing to accept the offer on the terms and conditions
contained therein, it shall, in turn, submit such offer to Tenant in writing
prior to accepting such offer. Provided Tenant is not then in default under the
Lease, Tenant shall have three (3) business days to elect to purchase the Leased
Premises upon the same terms and conditions as stated in the third party offer.
In the event Tenant desires to exercise its first right to purchase the Leased
Premises, it shall do so by delivering written notice to Landlord of such
intention within such three (3) business day period. In the event that the
terms and conditions in such offer change, Landlord shall resubmit such offer to
Tenant, who shall then have an additional three (3) business days to exercise
this right to purchase the Leased Premises upon the new terms and conditions set
forth in the revised offer. In the event Tenant elects not to exercise its first
right to purchase the Leased Premises, Landlord shall be free to proceed with
the sale of the Leased Premises to the third party offeree.
(b) Title to the Leased Premises shall be conveyed to Tenant by general
warranty deed warranting that fee simple indefeasible title to the Leased
Premises is good and marketable and free and clear of all liens and encumbrances
except (i) taxes and assessments, both general and special, that are a lien but
are not then due and payable (ii) zoning ordinances, if any, (iii) reasonable
easements, covenants and restrictions of record as may be approved in writing by
Tenant. In addition, Landlord shall at its sole cost and expense, deliver to
Tenant as of the date of transfer of title an ALTA Owner's Fee Policy of Title
Insurance (the "Title Policy") in the amount of the purchase price and issued by
a title company specified by Tenant (the "Title Company") insuring fee simple
indefeasible and marketable title to be vested in Tenant subject only to the
matters set forth in items (i) through (iii) of this subparagraph (b).
(c} If the right of first refusal is so exercised, all funds and documents
necessary to convey title to the Leased Premises shall be deposited in escrow
with the Title Company within ninety (90) days of receipt of Tenant's written
notice of its desire to exercise such right (the "Closing Date"). On the
condition that the Title Company can and will issue the Title Policy as
specified above, the Title Company shall complete the transaction on the Closing
Date upon receipt of all funds and documents. If a defect in title appears which
is not permitted hereunder, Landlord shall have sixty (60) days after actual
notice of such defect to cause such defect to be removed. If the defect is not
removed, Tenant shall have the right, at its option, to revoke the exercise of
its right of first refusal, whereupon all funds and documents deposited in
escrow shall be returned to the depositing party, all escrow fees and other
charges incurred in anticipation of transfer of title to Tenant shall be paid or
satisfied by Landlord, and this Lease shall continue in accordance with its
terms, including the right of first refusal, which may be thereafter re-
exercised in anticipation of the defect in title being removed. Notwithstanding
anything herein to the contrary, Landlord shall have the unconditional
obligation (without necessity of notice from Tenant) to cause to be released of
record any mortgage or other lien for the payment of money affecting the Leased
Premises.
(d) The Title Company shall charge Landlord and pay out of escrow the cost
of the owner's title insurance policy, any and all costs to cure title defects
and one-half of the escrow fee. The Title Company shall charge Tenant the fee
for filing the deed and any mortgage for record, the remaining one-half of
the escrow fee, the cost of any lender's title insurance po1icy and the fees
relating to any endorsements requested by Tenant and/or any lender of Tenant.
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Conveyance tax and transfer fees, if any, shall be borne by the party specified
in the applicable statute or ordinance or, in the event the applicable statute
or ordinance is silent, such tax and/or fees shall be borne equally by the
parties.
14. ESTOPPEL CERTIFICATE.
(a) Either party shall, at any time upon not less than ten (10) days' prior
written notice from the requesting party, execute, acknowledge and deliver to
the requesting party a statement in writing (i) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification and certifying that this Lease, as so modified, is in full
force and effect) and the date to which the rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are not, to such party's
knowledge, any uncured defaults on the part of the requesting party hereunder,
or specifying such defaults if any are claimed. Any such statement may be
conclusively relied upon by any prospective and permitted encumbrance of the
Leased Premises.
(b) A party's failure to deliver such statement within such time shall be
conclusive upon such party (i) that this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
that there are no uncured defaults in the requesting, party's performance, and
(iii) that not more than one month's rent has been paid in advance and such
failure may be considered by Landlord, if Landlord is the requesting party, as a
default by Tenant under this Lease.
(c) If Landlord desires to finance, refinance, or sell the Leased Premises,
or any part thereof, Tenant hereby agrees to deliver (not more than once in any
12-month period) to any lender designated by Landlord such financial statements
of Tenant as may be reasonably required by such lender. Such statements shall
include the past three years' financial statements of Tenant and be supplied at
no additional cost to Tenant. All such financial statements shall be received by
Landlord and such lender in confidence pursuant to such agreement reasonably
required by Tenant and shall be used only for the purposes herein set forth.
15. CONDEMNATION. If the whole of the Leased Premises shall be taken,
appropriated or condemned for any public or quasi-public use or purpose, or if
less than all of the Leased Premises is taken but the remaining portion is not
sufficient for the operation of Tenant's business, then the Lease Term shall
automatically cease and terminate as of the date Tenant must relinquish
possession of the Leased Premises or when title to the Leased Premises vests in
the taking authority whichever first occurs, and all rents and other charges
paid under this Lease shall be apportioned as of the date of termination.
If less than all of the Leased Premises shall be taken, appropriated or
condemned for any public or quasi-public use or purpose, and the remaining
portion not so taken is sufficient for the operation of Tenant's business,
Tenant shall continue to use the portion not so taken and there shall be a
proportionate reduction in rent.
16. SUBORDINATION.
(a) This Lease, at Landlord's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation or security now or
hereafter placed upon the real property of which the Leased Premises are a part
and to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Tenant's right to quiet possession of the
Leased Premises and any options to renew or purchase shall not be disturbed if
Tenant is not in default and so long as Tenant shall pay the rent and observe
and perform all of the provisions of this Lease, unless this Lease is otherwise
terminated pursuant to its terms. If any mortgagee, trustee or ground lessor
shall elect to have this Lease prior to the lien of its mortgage, deed of trust
or ground lease, and shall give written notice thereof to Tenant, this Lease
shall be deemed prior to such mortgage, deed of trust, or ground lease, whether
this Lease is dated prior or subsequent to the date of said mortgage, deed of
trust or ground lease or the date of recording thereof
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(b) Tenant agrees to execute any documents reasonably required to effectuate
an attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Tenant's failure to
execute such documents within ten (10) days after written demand shall entitle
Landlord to execute such documents on behalf of Tenant as Tenant's attorney-in-
fact. Tenant does hereby make, constitute and irrevocably appoint Landlord as
Tenant's attorney-in-fact and in Tenant's name, place and stead, to execute such
documents in accordance with this Paragraph 16(b).
17. DEFAULTS; REMEDIES.
17.1 DEFAULTS. The occurrence of any one or more of the following events shall
constitute a material default and breach of this Lease by Tenant:
(a) The vacating or abandonment of the Leased Premises by Tenant.
(b) The failure to make any payment of rent or any other payment required to
be made by Tenant hereunder, as and when due, where such failure shall continue
for a period of three (3) days after written notice thereof from Landlord to
Tenant. In the event that Landlord serves Tenant with a default notice pursuant
to applicable unlawful detainer statutes, such default notice shall also
constitute the notice required by this subparagraph.
(c) The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Tenant,
other than described in paragraph (b) above, where such failure shall continue,
except as otherwise specifically set forth herein, for a period of thirty (30)
days after written notice hereof from Landlord to Tenant; provided, however,
that if the nature of Tenant's default is such that more than thirty (30) days
are reasonably required for its cure, then Tenant shall not be deemed to be in
default if Tenant commenced such cure within said 30-day period and thereafter
diligently prosecutes such cure to completion.
(d) (i) The making by Tenant or any guarantor of this Lease of any general
arrangement or assignment for the benefit of creditors; (ii) in the event Tenant
or any guarantor of this Lease becomes a "debtor" as defined in 11 U.S.C.
Section 101 or any successor statute thereto (unless, in the case of a petition
filed against Tenant, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Tenant's or any guarantor's assets or of Tenant's interest in this Lease, where
possession is not restored to Tenant or any guarantor within thirty (30) days;
or (iv) the attachment, execution or other judicial seizure of substantially all
of Tenant's or any guarantor's assets or of Tenant's interest in this Lease,
where such seizure is not discharged within thirty (30) days; provided, however,
in the event that any provision of this Paragraph 17.1(d) is contrary to any
applicable law, such provision shall be of no force or effect.
(e) The discovery by Landlord that any financial statement given to Landlord
by Tenant, any assignee of Tenant, any subtenant of Tenant, any successor in
interest of Tenant or any guarantor of Tenant's obligation hereunder, and any of
them, was materially false.
17.2 REMEDIES. In the event of any such material default or breach by Tenant,
Landlord may at any time thereafter, with or without notice or demand and
without limiting Landlord in the exercise of any right or remedy which Landlord
may have by reason of such default or breach:
(a) Terminate Tenant's right to possession of the Leased Premises by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Leased Premises to Landlord. In such
event Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default including, but not limited to (i) the
cost of recovering possession of the Leased Premises, (ii) expenses of
reletting, including reasonably necessary renovation and alteration of the
Leased Premises, reasonable attorneys' fees and any leasing commission actually
paid, (iii) the worth at the time of award by the court having jurisdiction
thereof of the amount by which the unpaid rent for the
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balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Tenant proves could be reasonably avoided,
and (iv) that portion of any leasing commission paid by Landlord applicable to
the unexpired term of the Lease.
(b) Maintain Tenant's right to possession in which case this Lease shall
continue in effect whether or not Tenant shall have abandoned the Premises. In
such event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due hereunder.
(c) Pursue any other remedy now or hereafter available to Landlord under the
laws or judicial decisions of the state wherein the Leased Premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Tenant
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by law.
17.3 DEFAULT BY LANDLORD. Landlord shall not be in default unless Landlord
fails to perform obligations required of Landlord within a reasonable time, but
in no event later than thirty (30) days after written notice by Tenant to
Landlord and to the holder of any first mortgage deed of trust covering the
Leased Premises whose name and address shall have theretofore been furnished to
Tenant in writing, specifying wherein Landlord has failed to perform such
obligation; provided, however, that if the nature of Landlord's obligation is
such that more than thirty (30) days are required for performance then Landlord
shall not be in default if Landlord commences performance within such 30-day
period and thereafter diligently prosecutes the same to completion.
17.4 LATE CHARGES. Tenant hereby acknowledges that the late payment by Tenant
to Landlord of rent and other sums due hereunder will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any mortgage or trust deed covering the Leased
Premises. Accordingly, if any installment of rent or any other sum due from
Tenant shall not be received by Landlord or Landlord's designee within ten (10)
days after the same is due, Tenant shall pay to Landlord a late charge equal to
six percent (6%) of such overdue amount. The parties hereby agree that such late
charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of late payment by Tenant. Acceptance of such late charge by
Landlord shall in no event constitute a waiver of Tenant's default with respect
to such overdue amount, nor prevent Landlord from exercising any of the other
rights and remedies granted hereunder.
17.5 IMPOUNDS. In the event that a late charge is payable hereunder, whether
or not collected, for three (3) installments of rent or any other monetary
obligation of Tenant under the terms of this Lease, Tenant shall pay to
Landlord, if Landlord shall so request, in addition to any other payments
required under this Lease, a monthly advance installment, payable at the same
time as the monthly rent, as estimated by Landlord, for real property tax and
insurance expenses on the Leased Premises which are payable by Tenant under the
terms of this Lease. Such fund shall be established to insure payment when due,
before delinquency, of any or all such real property taxes and insurance
premiums. If the amounts paid to Landlord by Tenant under the provisions of this
paragraph are insufficient to discharge the obligations of Tenant to pay such
real property taxes and insurance premiums as the same become due, Tenant shall
pay to Landlord, upon Landlord's demand, such additional sums necessary to pay
such obligations. All moneys paid to Landlord under this paragraph may be
intermingled with other moneys of Landlord and shall not bear interest. In the
event of a default in the obligations of Tenant to perform under this Lease,
then any balance remaining from funds paid to Landlord under the provisions of
this paragraph may, at the option of Landlord, be applied to the payment of any
monetary default of Tenant in lieu of being applied to the payment of real
property tax and insurance premiums.
18. COMPLIANCE WITH LAW. Tenant shall comply, at its own cost and expense, with
all governmental laws, ordinances, rules, regulations, orders or other
requirements of all governmental bodies that possess or purport to possess
jurisdiction over the Leased Premises
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and/or Tenant's business at the Leased Premises, including, without limitation,
the Americans With Disabilities Act and all Environmental Laws.
19. SIGNAGE. Tenant shall have exclusive signage for the building. This signage
shall comply with all local sign ordinances and shall be at the sole cost of
Tenant. Both Tenant and Landlord shall mutually agree on signage.
20. RIGHT OF ENTRY. Landlord and its agents shall have the right, upon prior
notice and during reasonable times (except in the case of emergencies), to enter
the Leased Premises for the purpose of inspecting the same, showing the same to
prospective lenders, purchasers or tenants, and making such alterations,
improvements or additions to the Leased Premises as Landlord is required or
permitted to make pursuant to this Lease.
21. SURRENDER OF LEASED PREMISES. At the expiration of the Lease Term, or upon
any earlier termination of this Lease for any reason, Tenant shall surrender the
Leased Premises in broom-clean condition and in the same condition as the Leased
Premises were in upon delivery of possession under this Lease, taking by eminent
domain, casualty loss and normal wear and tear excepted.
22. LOSS OF AND DAMAGE TO PROPERTY OF TENANT AND OTHERS. Landlord shall not be
liable for the loss of or any damage to any property of Tenant or of others
located or stored in, upon or about the Leased Premises, whether by theft,
vandalism, malicious mischief, unlawful entry or any other cause or reason.
Landlord shall not be liable for any loss or damage caused to Tenant's property
by other tenants or persons in the Leased Premises, occupants of adjacent
property, or the public, or caused by operations in the construction of any
private, public or quasi-public work or any other cause.
23. QUIET ENJOYMENT. Landlord warrants to Tenant, that upon Tenant's paying the
rent and all other amounts and charges Tenant is required under this Lease to
pay, and upon Tenant's performing and observing all covenants, agreements and
conditions of this Lease that Tenant is required to perform and observe, Tenant
shall quietly have, hold and enjoy the Leased Premises during the Lease Term
without hindrance or interruption by Landlord or any other person or persons
lawfully or equitably claiming by, through or under the Landlord.
24. FORCE MAJEAURE. Except for any obligation to pay rent or other charges
required under this Lease, if either Landlord or Tenant shall be delayed in or
prevented from the performance of any of the terms, covenants and conditions of
this Lease, by reason of restrictive governmental laws or regulations, riots,
insurrections, war, sabotage, act of God, or any other reason of a similar or
dissimilar nature not the fault of the party delayed in or prevented from
performance, then performance shall be excused for the period of the delay or
prevention of performance and the time for performance shall be extended for an
equivalent period.
25. WAIVER. The waiver by Landlord of any breach of any term, covenant or
condition of this Lease shall not be deemed to be a waiver of such term,
covenant or condition or any subsequent breach of the same or any other term,
covenant, or condition of this Lease. Landlord's acceptance of rent shall not be
deemed to be a waiver of any preceding breach by Tenant of any term, covenant or
condition of this Lease. No term, covenant, or condition of this lease shall be
deemed to have been waived by Landlord unless such waiver be in writing by
Landlord.
26. ENTIRE AGREEMENT. This Lease contains the entire agreement of the parties in
regard to the Leased Premises. There are no oral agreements existing between the
parties hereto.
27. MODIFICATION OF LEASE. This Lease shall not be modified except in writing
signed by both Landlord and Tenant.
28. GOVERNING LAW; SEVERABILITY. This Lease and the rights and obligations of
the parties hereto shall be governed, interpreted and regulated by and in
accordance with the laws of the state where the Leased Premises are located,
without reference to the provisions governing
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conflicts of laws. If any portion of this Lease should be invalid or held
invalid, the remainder of it shall be unaffected and remain in full force and
effect.
29. NOTICES. Any notice, demand, request, consent or communication
(collectively a "Notice") required or permitted to be given under this Lease
shall be effective only if it is in writing and (i) personally delivered, (ii)
sent by certified or registered mail, return receipt requested, postage prepaid,
or (iii) sent by a nationally recognized overnight delivery service, with
delivery confirmed, addressed as follows:
(a) If to the Landlord, to:
RIDGE INDUSTRIES, INC.
c/o John D. Simms
611 Edgemont Lane
Park Ridge, Illinois 60068
in each case with a copy to:
John L. Eisel
Mark W. Hianik
WILDMAN, HARROLD, ALLEN & DIXON
225 West Wacker Drive
Chicago, Illinois 60606-1229
(b) If to Tenant, to:
MERKLE-KORFF INDUSTRIES, INC.
c/o Jordan Industries, Inc.
Thomas H. Quinn, President
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60015
with a copy to:
G. Robert Fisher
Michael Van Dyke
BRYAN CAVE LLP
3500 One Kansas City Place
1200 Main Street
Kansas City, Missouri 64105-2100
or to such other persons or addresses as shall be furnished in writing by any
party to the other party. A Notice shall be deemed to have been given as of the
date when (i) personally delivered, (ii) two (2) business days after the date
when deposited with the United States mail properly addressed, or (iii) when
receipt of a Notice sent by an overnight delivery service is confirmed by such
overnight delivery service, as the case may be, unless the sending party has
actual knowledge that a Notice was not received by the intended recipient.
30. LANDLORD'S LIABILITY. The term "Landlord" as used herein shall mean only
the owner or owners at the time in question of the fee title or a tenant's
interest in a ground lease of the Leased Premises, in the event of any transfer
of such title or interest. Landlord herein named (and in use of any subsequent
transfers then title grantor shall be relieved from and after the date of such
transfer of all liability as respects Landlord's obligations thereafter to be
performed, provided that any funds in the hands of Landlord or the grantor at
the time of such transfer, in which Tenant has an interest, shall be delivered
to the grantee. The obligations contained in this Lease to be performed by
Landlord shall, subject as aforesaid, be binding on Landlord's successors and
assigns, only during their respective periods of ownership.
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31. MEMORANDUM OF LEASE. Either Landlord or Tenant shall, upon written request
of the other, execute a "short form" or memorandum of this Lease, in recordable
form, to evidence of record the leasehold estate created by this Lease and the
right of first refusal.
32. SUCCESSORS. The provisions of this Lease shall apply to and be binding upon
the heirs, successors, assigns and legal representatives of both Tenant and
Landlord, subject to the provisions of Paragraph 10.
33. BROKER. Landlord and Tenant acknowledge and agree that no broker or other
agent dealt with or represented either of them in connection with this Lease and
each of them do hereby agree to indemnify and hold the other harmless from all
against any and all claims made by anyone claiming entitlement to a brokerage
commission or other fee on account of this Lease.
34. TIME OF ESSENCE. Time is of the essence in all matters pertaining to this
Lease.
35. INTEREST ON PAST-DUE OBLIGATION. Except as expressly herein provided, any
amount due to Landlord not paid when due shall bear interest at eighteen percent
(18%) per annum or the maximum rate then allowable by law from the date due,
whichever is less. Payment of such interest shall not excuse or cure any default
by Tenant under this Lease, provided, however, that interest shall not be
payable an late charges incurred by Tenant nor on any amounts upon which late
charges are paid by Tenant.
36. HOLDING OVER. If Tenant, without Landlord's consent, remains in possession
of the Leased Premises or any part thereof after the expiration of the Lease
Term such occupancy shall be a tenancy from month to month upon all the
provisions of this Lease pertaining to the obligations of Tenant, except for
base rent which shall be 200 percent (200%) of the base rent in effect at the
expiration of the Lease Term.
37. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
38. ATTORNEYS' FEES. In the event either party hereto, its agents and/or
employees shall be a party to any litigation commenced by the other party
hereto, then the non-prevailing party shall pay all costs, expenses and
reasonable attorneys' fees that may be incurred or paid by the prevailing party,
its agents and/or employees in successfully enforcing the covenants and
agreements of this Lease.
39. AUTHORITY. Each individual executing this Lease on behalf of Tenant
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said corporation. Tenant shall, prior to the execution
of this Lease, deliver to Landlord certified board of director resolutions or
other evidence of such authority satisfactory to Landlord.
40. COUNTERPARTS. This Lease may be executed by the parties hereto at different
times, whether before or after the effective date hereof, and at separate
locations, whether or not in the presence of the other party hereto. Any copy of
this Lease to which the signatures of all parties have been appended shall
constitute an original hereof for all purposes. All such copies shall constitute
one and the same original, and any one of which shall constitute proof of the
terms of this Lease without the necessity of producing any other original copy.
41. LEASEHOLD MORTGAGE.
41.1 LEASEHOLD MORTGAGEE. Landlord hereby acknowledges that Tenant has advised
Landlord that Bankers Trust Company (the "Leasehold Mortgagee") is the mortgagee
under a mortgage encumbering Tenant's leasehold interest in the Leased Premises,
and as such, is entitled to the benefits contained in this Paragraph 41. All
notices to the Leasehold Mortgagee shall be deemed to have been duly given when
sent in the manner required hereunder addressed to the Leasehold Mortgagee at
One Bankers Trust Plaza, New York, New York 10006. Tenant acknowledges on its
and Leasehold Mortgagee's behalf that Landlord has not reviewed and is
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not a party to any loan documents between Tenant and the Leasehold Mortgagee and
is not obligated to Leasehold Mortgagee for any obligations of Tenant to the
Leasehold Mortgage.
41.2 NOTICES AND DEMANDS. Landlord shall give to the Leasehold Mortgagee a
copy of each notice of default by Tenant at the same time and in the same manner
as the notice given by Landlord to Tenant, addressed to the Leasehold Mortgagee
at its address set forth herein or such other address that Leasehold Mortgagee
may have subsequently furnished to Landlord. No notice by Landlord to Tenant
under this Lease shall be deemed to have been duly given to the Leasehold
Mortgagee in the manner provided in Paragraph 29.
41.3 RIGHT TO CURE. Subject to the terms of Paragraph 41.5 hereof, the
Leasehold Mortgagee shall have a period that shall run concurrently with the
cure period afforded to Tenant within which to remedy any default of Tenant
hereunder or cause such default to be remedied. The Leasehold Mortgagee shall
have the option, as provided herein, but not the obligation, to cure any default
of Tenant hereunder, provided that if the Leasehold Mortgagee desires to cure
such default it shall promptly after receipt of notice of default notify
Landlord in writing of its intent to cure. Following receipt of notice of any
such default in accordance with Paragraph 41.2 above and subject to Paragraph
41.5, if the Leasehold Mortgagee shall diligently commence a cure to the
default, and continue same without interruption, the Leasehold Mortgagee shall
also be given an additional period of time as the Leasehold Mortgagee may
reasonably request in writing in order to complete such cure. If the
Leasehold Mortgagee agrees to undertake such cure and requires additional time
as aforesaid to complete same and thereafter the Leasehold Mortgagee fails to
complete such cure and such failure results in additional damage to Landlord,
the Leasehold Mortgagee shall indemnify Landlord against loss arising out of
such damage.
41.4 PERFORMANCE OF LEASE BY LEASEHOLD MORTGAGEE. The Leasehold Mortgagee
shall to the extent it has the right to do so under its Mortgage, have the right
to perform any term, covenant, condition, or agreement and to remedy any default
by Tenant under this Lease, and Landlord shall accept such performance by the
Leasehold Mortgagee with the same force and effect as if performed by Tenant.
41.5 CERTAIN DEFAULT. In the event a default by Tenant occurs in the
performance or observance of any term, covenant, condition, or agreement on
Tenant's part to be performed under this Lease (other than a term, covenant,
condition or agreement requiring the payment of a sum of money) which cannot
practicably be cured by the Leasehold Mortgagee without taking possession of the
Leased Premises (or if such default is of such a nature that the same is not
susceptible, of being cured by the Leasehold Mortgagee), then Landlord shall not
serve a notice of election to terminate this Lease pursuant to the terms of
Paragraph 17.2(a), or otherwise terminate the leasehold estate or any other
estate, right, title or interest of Tenant hereunder by reason of such default
without allowing the Leasehold Mortgagee reasonable time within which:
(a) In the case of a default which cannot practically be cured by the Leasehold
Mortgagee without taking possession of the Leased Premises, to obtain
possession of the Leased Premises as mortgagee (through the appointment of
a receiver of otherwise), and, upon obtaining possession, to commence
promptly and diligently prosecute to completion such action as may be
necessary to cure such default. If the Leasehold Mortgagee agrees to
undertake such cure and require additional time as aforesaid to complete
same and thereafter the Leasehold Mortgagee fails to complete such cure
and such failure results in the direct result of additional damage to
Landlord, the Leasehold Mortgagee shall indemnify Landlord against loss
arising out of such damage; and
(b) In the case of a default which is not susceptible of being cured by the
Leasehold Mortgagee, to commence promptly and diligently prosecute to
completion foreclosure proceedings or to acquire Tenant's estate hereunder,
either in its own name or through a nominee, by assignment in lieu of
foreclosure. If the Leasehold Mortgagee agrees to undertake
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such cure and require additional time as aforesaid to complete same and
thereafter the Leasehold Mortgagee fails to complete such cure, and such
failure results in the direct result of additional damage to Landlord, the
Leasehold Mortgagee shall indemnify Landlord against loss arising out of
such damage.
The Leasehold Mortgagee shall not be required to continue to proceed to obtain
possession, or to continue in possession as mortgagee, of the Leased Premises
pursuant to clause (i) above, or to continue to prosecute foreclosure
proceedings pursuant to clause (ii) above, if and when such default shall be
cured. Nothing herein shall preclude Landlord from exercising any of its
rights or remedies with respect to any other default by Tenant during any period
when Landlord shall be forebearing termination of this Lease as above provided,
but in such event the Leasehold Mortgagee shall have all of the rights and
protections hereinabove provided for. If the Leasehold Mortgagee, or its
nominee, or a purchaser at a foreclosure sale, shall acquire title to Tenant's
leasehold estate hereunder, and shall cure all defaults of Tenant hereunder
which can be cured by the Leasehold Mortgagee, or by such purchaser, as the case
may be, then the defaults of any prior holder of Tenant's leasehold estate or
any other estate, right, title or interest hereunder which are not susceptible
of being cured by the Leasehold Mortgagee (or by such purchaser) shall no
longer be deemed to be defaults hereunder.
41.6 TERMINATION OF LEASE; NEW LEASE TO LEASEHOLD MORTGAGEE. In the event (i)
this Lease is terminated by reason of Tenant's default hereunder, or (ii) this
Lease is disaffirmed in the event of Tenant's bankruptcy, then, within ten (10)
days after such termination (which term as used herein shall include a
disaffirmance) Landlord shall give notice to the Leasehold Mortgagee that this
Lease has been terminated, together with a statement of any and all sums which
would at that time be due under this Lease but for such termination, and of all
other defaults, if any, under this Lease then known to Landlord, and the
Leasehold Mortgagee, by notice to Landlord, thereupon may request Landlord to
enter into a new lease of the Leased Premises and Landlord shall enter into a
new lease (the "New Lease") with the Leasehold Mortgagee (or its nominee, in
which case the New Lease shall be guaranteed by the Leasehold Mortgagee on
terms acceptable to Landlord), within 60 days after the giving of such notice by
the Leasehold Mortgagee provided that the Leasehold Mortgagee shall have cured
or caused to be cured any defaults of Tenant existing at the date of
termination. The New Lease shall commence and Rent and all obligations of the
Tenant under the New Lease shall accrue, as of the date of termination of this
Lease. The term of the New Lease shall continue for the period which would have
constituted the remainder of the term of this Lease had this Lease not been
terminated. The New Lease shall be upon all of the terms, covenants, conditions,
conditional limitations, and agreements contained herein which were in force and
effect immediately prior to the termination of this Lease and shall provide an
indemnity of Landlord from the Leasehold Mortgagee against any claims by or on
behalf of Tenant as its affiliates or creditors on account of the New Lease. The
New Lease, and this covenant, shall be superior to all rights, liens, estates,
titles and interests, other than those to which this Lease shall have been
subject immediately prior to termination and those matters to which this Lease
may, by its terms, become subject. The provisions of the immediately preceding
sentence shall be self-executing, and Landlord shall have no obligation to do
anything (other than to execute such New Lease as herein provided) to assure to
the Leasehold Mortgagee or to the tenant under the New Lease good title to the
leasehold estate and the other estates, rights, titles and interests granted
thereby. Simultaneously therewith, Landlord shall pay over to the Leasehold
Mortgagee all monies on deposit with Landlord, if any, which Tenant would have
been entitled to use but for the termination of this Lease for the purposes of
and in accordance with the provisions of the New Lease. Each subtenant of space
in the Leased Premises whose sublease was in force and effect immediately prior
to the delivery of the New Lease shall attorn to the tenant under the New Lease,
unless such tenant shall, at its option, elect to dispossess such subtenant or
otherwise terminate the sublease held by such subtenant. The Leasehold
Mortgagee shall, simultaneously with the delivery of the New Lease, pay to
Landlord (1) all rent and other sums of money due under this Lease on the date
of termination of this Lease and remaining unpaid; plus (2) all rent and other
sums of money due under the New Lease for the period from the date of
commencement of the term thereof to the date of delivery of the New Lease; plus
(3) all costs and expenses, including reasonable attorneys' fees, court costs,
and litigation expenses, incurred
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by Landlord in connection with termination of this Lease, the recovery of
possession of the Leased Premises, putting the premises in good condition and
repair, and the preparation execution and delivery of such new lease.
41.7 ASSIGMNENT. If the Leasehold Mortgagee forecloses upon or otherwise
acquires all or part of Tenant's leasehold interest, the transfer to the
Leasehold Mortgagee (or any nominee of the Leasehold Mortgagee) shall not
require Landlord's consent and the acquiring Leasehold Mortgagee shall be
permitted to transfer the acquired interest to a third party upon obtaining
Landlord's prior consent thereto, which consent shall not be unreasonably
withheld on the condition that such third party is a reputable person or entity
of good character and is financially responsible and creditworthy. Upon the
transfer to such third party as aforesaid, the Landlord shall be released from
all liability for the performance or observance of the covenants and conditions
in such lease contained on Tenant's part to be performed and observed from and
after the date the assignee shall have assumed such lease.
41.8 APPLICABILITY OF PROVISIONS. The provision of this Paragraph 41 shall
remain in effect only to the extent that the Leasehold Mortgagee holds a
mortgage on the Leased Premises.
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IN WITNESS WHEREOF, the parties have executed this Lease on the day and year
first above written.
LANDLORD:
RIDGE INDUSTRIES, INC.
By: /s/ John D. Simms
---------------------------
Name: John D. Simms
---------------------------
Title: President
---------------------------
TENANT:
MERKLE-KORFF INDUSTRIES, INC.
By: /s/ Jeb Boucher
---------------------------
Name: Jeb Boucher
---------------------------
Title: Vice President
---------------------------
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EXHIBIT A
---------
LEGAL DESCRIPTION
-----------------
LOT ONE (1) OF RICHLAND COUNTY CERTIFIED SURVEY MAP NO. 17 RECORDED IN VOLUME 1
OF CERTIFIED SURVEY MAPS ON PAGE 79-81 AND BEING LOCATED PARTLY IN THE SOUTHWEST
QUARTER (SW 1/4) OF THE SOUTHWEST QUARTER (SW 1/4) OF SECTION TWENTY-TWO (22)
AND PARTLY IN THE SOUTHEAST QUARTER (SE l/4) OF THE SOUTHEAST QUARTER (SE l/4)
OF SECTION TWENTY-ONE (21) ALL IN TOWNSHIP TEN (10) NORTH, RANGE ONE (1) EAST,
RICHLAND COUNTY, WISCONSIN.
Commonly known as: 1300 Peebles Drive
Richland Center, Wisconsin
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Exhibit 10.17
INDUSTRIAL BUILDING LEASE
-------------------------
This Industrial Building Lease (the "Lease") is made as of the 22nd day of
September, 1995, by and between BRADROCK REALTY, INC., an Illinois corporation
(hereafter referred to as "Landlord"), and MERKLE-KORFF INDUSTRIES, INC., an
Illinois corporation formerly known as MK Holdings, Inc. (successor by merger to
Merkle-Korff Industries, Inc.) (hereafter referred to as "Tenant").
1. LEASED PREMISES. Upon and subject to the terms and conditions of this Lease,
Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord, the
real property commonly known as 70 East Bradrock Drive, Des Plaines, Illinois,
together with all easements appurtenant thereto and all buildings, improvements
and fixtures located thereon (collectively, the "Leased Premises"). The real
property of which the Leased Premises is a part is legally described on Exhibit
A attached hereto and incorporated herein.
2. USE. The Leased Premises shall be used and occupied for the manufacture of
low voltage motors and warehouse and office uses related thereto and for no
other purposes.
3. LEASE TERM; RENEWAL OPTION. This Lease shall commence on the date first above
written (the "Commencement Date") and shall continue through September 30, 2000
(the "Initial Term"). Provided Tenant is not then in default under this Lease,
Tenant shall have the option, exercisable by delivery of written notice to
Landlord at any time prior to the date which is six (6) months prior to the
expiration of the Initial Term or the first Renewal Term (as hereinafter
defined), as appropriate, to renew this Lease and extend the Initial Term hereof
for two additional periods of five (5) years (each of such five-year periods
being a "Renewal Term"), all upon the same terms and conditions as govern the
initial Term (including without limitation, the provisions regarding rent set
forth in Paragraph 4 below). Any reference in this Lease to the phrase "Lease
Term" shall mean both the Initial Term and, if exercised, any Renewal Term. As
used herein, the term "Lease Year" shall mean each twelve (12) month period
during the Lease Term hereof commencing on October 1 in each year; provided,
however, that the first Lease Year shall consist of a period of twelve (12)
months and eight (8) days commencing on September 23, 1995.
4. BASE RENT.
(a) Tenant shall pay to Landlord as annual base rent for the Leased Premises
the following amounts:
Lease Year Base Rent
---------- ---------
1 $63,480.00
2 64,750.00
3 67,366.00
4 66,045.00
5 68,713.00
6 70,087.00
7 71,489.00
8 72,919.00
9 74,377.00
10 75,865.00
11 77,382.00
12 78,930.00
13 80,509.00
14 82,119.00
15 83,761.00
(b) All base rent payments, and all other payments due to Landlord under this
Lease, shall be deemed to be rent and shall be made to Landlord at Landlord's
address set forth in Paragraph 29 or at such other address as Landlord may
designate. Landlord acknowledges receipt of One Thousand Four Hundred Ten and
67/100 Dollars ($1,410.67) as base rent for the
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last eight (8) days of September. All other installments of base rent shall be
payable in advance on the first day of each month of the Term in lawful money of
the United States.
5. MARK JAMES LEASE ARRANGEMENT. Tenant acknowledges that as of the
Commencement Date, approximately 1500 square feet of the Leased Premises are
being leased to Mark James, an unrelated third party (the "Mark James Lease").
The Mark James Lease is terminable by Landlord on sixty (60) days' notice.
Landlord shall cause the Mark James Lease to be terminated as soon as reasonably
possible without substantially inconveniencing Mark James and in any event
within one (1) year of the Commencement Date. The existence of the Mark James
Lease shall in no way alter or modify any of Tenant's obligations hereunder,
including without limitation, Tenant's obligation to pay base rent and other
charges as they come due, provided, however, that Landlord shall credit Tenant
in an amount equal to the product obtained by multiplying the base rent payable
hereunder from the Commencement Date through the date the Mark James Lease is
terminated times a fraction, the numerator of which shall be the total square
footage of that portion of the Leased Premises occupied by Mark James and the
denominator of which shall be the total square footage of the Leased Premises.
6. TAXES AND ASSESSMENTS. Throughout the Lease Term, Tenant shall pay, as and
when due, all real property taxes, assessments, special or otherwise, water and
sewer rents and charges, and all other charges of every kind and description
that may be levied against the Leased Premises, any building or improvement
thereon or any use or enjoyment thereof, by any governmental authority. Tenant
also shall pay, as and when due, all taxes, license fees and all other charges
of every kind and description that may be imposed by any governmental authority
on the Tenant's leasehold interest or on any fixtures, equipment, appliances,
goods, inventory and any other personal property placed upon the Leased Premises
by Tenant. Landlord shall cause all bills relating to the real property taxes to
be forwarded to Tenant upon receipt. Tenant shall, upon Landlord's request,
deliver to Landlord sufficient receipts or other evidence of payment. If any
such taxes paid by Tenant shall cover any period of time prior to or after the
expiration of the Term, Tenant's share of such taxes shall be equitably prorated
to cover only the period of time within the tax fiscal year during which this
Lease shall be in effect, and Landlord shall reimburse Tenant to the extent
required. If Tenant shall fail to pay any such taxes, Landlord shall have the
right to pay the same, in which case Tenant shall repay such amount to Landlord
with Tenant's next rent installment together with interest as provided in
Paragraph 35.
It is expressly agreed, however, that Tenant shall not be required to pay or
discharge any real estate taxes or assessments, either general or special, or
other charges for which Tenant, pursuant to the above, may be liable, so long as
Tenant shall in good faith contest the same, or the validity thereof, by
appropriate legal proceedings that shall operate to prevent the collection of
the tax or assessment and the sale of the Leased Premises or any part thereof to
satisfy the same. Pending any such legal proceedings Landlord shall not have the
right to pay, discharge or remove the tax or assessments thereby contested,
provided Tenant shall, prior to the date such tax or assessment is due and
payable, have given such reasonable security as may be demanded in writing by
Landlord to insure such payment and to prevent any sale or forfeiture of the
Leased Premises by reason of such nonpayment, not to exceed, however, one and
one-half times the amount of any such tax or assessment, including any penalties
and/or interest charges thereon imposed by law.
7. UTILITIES. Tenant shall pay, as and when due, all water, sewage, power, heat,
gas, electricity, oil and all other utility services used or consumed on the
Leased Premises during the Lease Term, such payment to be made directly to the
billing utility company.
8. MAINTENANCE, REPAIRS AND ALTERATIONS.
8.1 CONDITION OF PREMISES. Tenant has accepted the leased premises in their
physical condition existing as of the Commencement Date and subject to all
applicable municipal, county and state laws, ordinances and regulations
governing and regulating the use of the Leased Premises, and any covenants or
restrictions of record, and accepts this Lease subject thereto and to all
matters disclosed thereby and by any exhibits attached hereto.
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8.2 TENANT'S OBLIGATIONS. Tenant shall keep in good order, condition and
repair the Leased Premises and every part thereof (whether or not the need for
such repairs occurs as a result of Tenant's use, any prior use, the elements or
the age of the Leased Premises) including, without limiting the generality of
the foregoing, the roof, foundation and structural components of the Leased
Premises, all plumbing, heating, ventilating, air conditioning, electrical, fire
protection, emergency power supply, lighting facilities and equipment within the
Leased Premises, fixtures, walls (interior and exterior), ceilings, floors,
windows, doors, plate glass and skylights located within the Leased Premises,
signs and all landscaping, driveways, parking lots, fences, sidewalks and
parkways located on and/or adjacent to the Leased Premises. Tenant shall procure
and maintain, at Tenant's expense, a heating, ventilating and air conditioning
system maintenance contract and shall provide Landlord, upon request, with
copies of all service reports issued by the contractors who perform such
maintenance. Tenant shall also procure and maintain, at Tenant's expense, a fire
protection and security system.
8.3 SURRENDER. On the last day of the term hereof, or on any sooner
termination, Tenant shall surrender the Leased Premises to Landlord in the same
condition as when received, damage from the elements pursuant to Paragraph 12,
or condemnation pursuant to Paragraph 15, alterations, improvements and
additions made by Tenant to the Leased Premises pursuant to Paragraph 9, or
normal wear and tear excepted, clean and free of debris. Tenant shall repair any
damage to the Leased Premises occasioned by the installation or removal of
Tenant's trade fixtures, furnishings and equipment.
8.4 LANDLORD'S RIGHTS. If Tenant fails to perform Tenant's obligations under
this Paragraph 8, or under any other paragraph of this Lease, Landlord may at
its option (but shall not be required to) enter upon the Leased Premises after
ten (10) days prior written notice to Tenant (except in the case of an
emergency, in which case no notice shall be required), perform such obligations
on Tenant's behalf and put the same in good order, condition and repair, and the
cost thereof together with interest thereon at the rate of eighteen percent
(18%) per annum (or the maximum rate then allowable by law) shall become due and
payable as additional rental to Landlord together with Tenant's next rental
installment.
8.5 LANDLORD'S OBLIGATION. It is intended by the parties hereto that Landlord
have no obligation, in any manner whatsoever, to repair and maintain the Leased
Premises nor the buildings located thereon nor the equipment therein, all of
which obligations are intended to be that of the Tenant under Paragraph 8.2
hereof.
9. ALTERATIONS, IMPROVEMENTS, ADDITIONS AND REPAIRS.
(a) Tenant shall, at its sole cost and expense, perform all necessary or
desired alterations, improvements, additions and repairs (pursuant to Paragraph
12.2 or Paragraph 12.3) to the Leased Premises (collectively, "Changes"),
provided Landlord shall reimburse Tenant for repairs in accordance with
Paragraph 12.2 or 12.3, as appropriate. Notwithstanding the foregoing, no
structural alterations, improvements or additions, which cost individually and
in the aggregate in excess of Ten Thousand and No/100 Dollars ($10,000.00) shall
be made to the Leased Premises without the prior written consent of Landlord,
which consent shall not be unreasonably withheld. All work performed by Tenant
shall be performed in a first-class and workmanlike manner (and materials
furnished shall be of like quality to those in the Leased Premises) at the sole
expense of Tenant. Landlord may require that Tenant remove any or all
alterations, improvements or additions at the expiration of the Lease Term, and
restore the Leased Premises to their prior condition, provided that Landlord
conditions its consent to such alterations, improvements or additions on such
removal at the end of the Term. Landlord may require Tenant to provide Landlord
at Tenant's cost and expense, a lien and completion bond in an amount
equal to one and one-half times the estimated cost of such Changes, to insure
Landlord against any liability for mechanic's and materialmen's liens and to
insure completion of the work. Should Tenant make any alterations, improvements
or additions without the prior approval of Landlord, Landlord may require that
Tenant remove any or all of the same.
(b) Any alterations, improvements or additions in, or about the Leased
Premises that Tenant shall desire to make and which require the consent of
Landlord or any repairs which
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Tenant is either required to make pursuant to Paragraph 12.2 or elects to make
pursuant to Paragraph 12.3 shall be presented to Landlord in written form, with
proposed detailed plans. If Landlord shall give its consent, the consent shall
be deemed conditioned upon Tenant furnishing Landlord, prior to the
commencement of Tenant's work (including any repairs) on or delivery of any
materials to the Leased Premises, with (i) all necessary permits, licenses,
approvals, certificates and authorizations for prosecution and completion of
Tenant's work, (ii) sworn Tenant (Owner), contractor and subcontractor
affidavits listing all subcontractors and suppliers of materials or labor, (iii)
certificates of insurance from all contractors and subcontractors, insuring
against any and all claims, costs, liabilities and expenses which may arise in
connection with work, and (iv) such other documents as may be reasonably
requested by Landlord.
(c) Landlord reserves the right to inspect and check for liens upon completion
of all work. Tenant shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Tenant at or for use in
the Leased Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Leased Premises or any interest therein. Tenant
shall give Landlord not less than ten (10) days notice prior to the commencement
of any work in the Leased Premises, and Landlord shall have the right to post
notices of non-responsibility in or on the Leased Premises as provided by law.
If Tenant shall, in good faith, contest the validity of any such lien, claim or
demand, then Tenant shall, at its sole expense defend itself and Landlord
against the same and shall pay and satisfy any such adverse judgment that may be
rendered thereon before the enforcement thereof against the Landlord or the
Leased Premises, upon the condition that Landlord may require Tenant to furnish
to Landlord a surety bond satisfactory to Landlord in an amount equal to such
contested lien claim or demand indemnifying Landlord against liability for the
same and holding the Leased Premises free from the effect of such claim. In
addition, Landlord may require Tenant to pay Landlord's reasonable attorneys'
fees and costs in participating in such action if Landlord shall decide it is to
its best interest to do so.
(d) Unless Landlord requires their removal, all alterations, improvements or
additions, which may be made to the Leased Premises, shall become the property
of Landlord and remain upon and be surrendered with the Leased Premises at the
expiration of the term. Notwithstanding the foregoing sentence, Tenant's trade
fixtures, furnishings and equipment, other than that which is affixed to the
Leased Premises so that it cannot be removed without material damage to the
Leased Premises, shall remain the property of Tenant and may be removed by
Tenant subject to the provisions of Paragraph 8.3.
10. ASSIGNMENT AND SUBLETTING.
10.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not voluntarily or by operation
of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all
or any part of Tenant's interest in this Lease or in the Leased Premises,
without Landlord's prior written consent, which consent may be withheld in
Landlord's sole and absolute discretion. Any attempted assignment, transfer,
mortgage, encumbrance or subletting without such consent shall be void, and
shall constitute an immediate material default and breach of this Lease.
10.2 TENANT AFFILIATE. Notwithstanding the provisions of Paragraph 10.1
hereof, Tenant may assign or sublet the Leased Premises, or any portion thereof,
without Landlord's consent, to any corporation which controls, is controlled by
or is under common control with Tenant, provided that said assignee assumes, in
full, the obligations of Tenant under this Lease.
10.3 NO RELEASE OF TENANT. Regardless of Landlord's consent, no subletting or
assignment shall release Tenant of Tenant's obligation or alter the primary
liability of Tenant to pay the rent and to perform all other obligations to be
performed by Tenant hereunder. The acceptance of rent by Landlord from any other
person shall not be deemed to be a waiver by Landlord of any provision hereof.
Consent to one assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default by any assignee of
Tenant or any successor of Tenant in the performance of any of the terms hereof,
Landlord may proceed directly against Tenant without the necessity of exhausting
remedies against said
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assignee. Landlord may consent to subsequent assignments or subletting of this
Lease or amendments or modifications to this Lease with assignees of Tenant,
without notifying Tenant, or any successor of Tenant, and without obtaining its
or their consent hereto and such action shall not relieve Tenant of liability
under this Lease.
10.4 ATTORNEYS' FEES FOR CONSENTS. In the event Tenant shall assign or sublet
the Leased Premises or request the consent of Landlord to any assignrnent or
subletting or if Tenant shall request the consent of Landlord for any act Tenant
proposes to do, then Tenant shall pay Landlord's reasonable attorneys' fees
incurred in connection therewith.
11. INSURANCE AND INDEMNITY.
11.1 LIABILITY INSURANCE. Tenant shall, at Tenant's expense, obtain and keep
in force during the term of this Lease a policy of comprehensive public
liability insurance insuring Landlord and Tenant against any liability arising
out of Tenant's negligent acts or omissions arising out of its use, occupancy or
maintenance of the Leased Premises and all areas appurtenant thereto. Such
insurance shall be in an amount of not less than Five Million Dollars
($5,000,000) for injury to or death of one person in any one accident or
occurrence and in an amount of not less than Five Million Dollars ($5,000,000)
for injury to or death of more than one person in any one accident or
occurrence. Such insurance shall further insure Landlord and Tenant against
liability for property damage of at least One Million Dollars ($1,000,000). If
Tenant shall fail to procure and maintain said insurance, Landlord may, but
shall not be required to, procure and maintain the same, but at the expense of
Tenant. The policy required by this Paragraph 11.1 shall insure performance by
Tenant of the indemnity provisions of this Paragraph 11. The limits of said
insurance may be increased from time to time to such greater amounts as Landlord
may reasonably hereafter advise Tenant in writing. The limits of said insurance
shall not, however, limit the liability of Tenant hereunder.
11.2 PROPERTY INSURANCE. Tenant shall, at Tenant's expense, obtain and keep in
force during the term of this Lease a commercially reasonable policy or policies
of insurance covering loss or damage to the Leased Premises, in the arnount of
the full replacement value thereof, as the same shall be determined by Landlord,
in its sole and absolute discretion, against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief,
earthquake, flood (in the event same is required by a lender having a lien on
the Leased Premises), and special extended perils ("all risks" as such term is
used in the insurance industry). Said insurance shall provide for payment of
loss thereunder to Landlord or to the holders of mortgages or deeds of trust on
the Leased Premises subject to Landlord's obligations pursuant to Paragraph 12
below. Tenant shall obtain and keep in full force during the term of this Lease
similar coverage on Tenant's improvements, trade fixtures and equipment to the
extent they are not deemed to be part of the Leased Premises under Paragraph 9
hereof. A stipulated value or agreed amount endorsement deleting the coinsurance
provision of the policy shall be procured with said insurance as well as an
automatic increase in insurance endorsement causing the increase in annual
property insurance coverage by two percent (2%) per quarter.
11.3 INSURANCE POLICIES. Insurance required hereunder shall be in companies
holding a "General Policyholders Rating" of at least A+ or AAA, or such other
rating as may be required by a lender having a lien on the Leased Premises, as
set forth in the most current issue of "Best's Insurance Guide". Tenant has
delivered to Landlord a certificate evidencing the existence and amounts of such
insurance with loss payable clauses as required by this Paragraph ll. No such
policy shall be cancelable or subject to reduction of coverage or other
modification except after thirty (30) days prior written notice to Landlord.
Tenant shall, within thirty (30) days prior to expiration of such policies
furnish Landlord with renewals thereof, or Landlord may order such insurance and
charge the cost thereof to Tenant, which amount shall be payable by Tenant upon
demand. Tenant shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 11.
11.4 WAIVER OF SUBROGATION. Notwithstanding anything to the contrary contained
in this Lease, Tenant and Landlord each waives any and all rights of recovery
against the other, or against the officers, employees, agents and
representatives of the other, for loss of or damage
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to such waiving party or its property or the property of others under its
control, where such loss or damage is insured against under any insurance policy
in force at the time of such loss or damage. Tenant and Landlord shall, upon
obtaining the policies of insurance required hereunder, give notice to the
insurance carrier or carriers that the foregoing mutual waiver of subrogation is
contained in this Lease.
11.5 INDEMNITY. Tenant shall indemnify, defend and hold Landlord harmless from
and against any and all losses, claims, liabilities, damages, demands, fines,
costs and expenses (including reasonable attorneys' fees and expenses) of
whatever kind and nature arising from Tenant's use of the Leased Premises, or
from the conduct of Tenant's business or from any activity, work or things done
by Tenant, its agents, invitees, contractors and/or employees in or about the
Leased Premises or elsewhere, including, without limitation, those relating to
violations or alleged violations of Environmental Laws (as hereinafter defined),
and shall further indemnify, defend and hold harmless Landlord from and against
any and all claims arising from any breach or default in the performance of any
obligation on Tenant's part to be performed under the terms of this Lease, or
arising from any negligence of Tenant, or any of Tenant's agents, invitees,
contractors, or employees, and from and against all costs, attorneys' fees,
expenses and liabilities incurred in the defense of any such claim or any action
or proceeding brought thereon; and in case any action or proceeding be brought
against Landlord by reason of any such claim, Tenant upon notice from Landlord
shall defend the same at Tenant's expense by counsel reasonably satisfactory to
Landlord. Tenant, as a material part of the consideration to Landlord, hereby
assumes all risk of damage to property or injury to persons, in, upon or about
the Leased Premises arising from any cause, except for such damage to property
or injury to persons as may be caused by the gross negligence or other wilful
tortious conduct of Landlord or its agents or employees, and Tenant hereby
waives all claims in respect thereof against Landlord. Nothing herein shall be
deemed to require Tenant to indemnify Landlord over, from and against claims
arising out of Landlord's gross negligence or wilful act or omission. As used in
this Paragraph 11.5 and elsewhere in this Lease, the term "Environmental Laws"
shall mean any laws, regulations, rules or directives of any federal, state or
local governmental authority presently having jurisdiction over the Leased
Premises, including, without limitation, all requirements pursuant to
environmental protection laws and regulations (including those relating to the
disposal of hazardous substances, solid wastes or liquid wastes and those
governing emissions of gaseous matters).
11.6 EXEMPTION OF LANDLORD FROM LIABILITY. Tenant hereby agrees that Landlord
shall not be liable for injury to Tenant's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Tenant, Tenant's employees, invitees, customers, or any other person in or about
the Leased Premises unless caused by the gross negligence or other wilful
tortious conduct of Landlord or its agents or employees, nor, unless through its
gross negligence or wilful misconduct, shall Landlord be liable for injury to
the person of Tenant, Tenant's employees, invitees, agents or contractors,
whether such damage or injury is caused by or results from fire, steam,
electricity, gas, water or rain, or from the breakage, leakage, obstruction or
other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures, or from any other cause, whether the said
damage or injury results from conditions arising upon the Leased Premises or
upon other portions of the building of which the Leased Premises are a part, or
from other sources or places and regardless of whether the cause of such damage
or injury or the means of repairing the same is inaccessible to Landlord or
Tenant. Landlord shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the buildings location on the Leased
Premises.
12. DAMAGE OR DESTRUCTION.
12.1 DEFINITIONS.
(a) "Leased Premises Partial Damage" shall herein mean damage or destruction
to the Leased Premises to the extent that the cost of repair is less than 50% of
the then replacement cost of the Leased Premises.
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(b) "Leased Premises Total Destruction" shall herein mean damage or
destruction to the Leased Premises to the extent that the cost of repair is 50%
or more of the then replacement cost of the Leased Premises.
(c) "Insured Loss" shall herein mean damage or destruction which was caused by
an event covered by the insurance described in Paragraph 11.
12.2 PARTIAL DAMAGE -- INSURED LOSS. Subject to the provisions of Paragraphs
12.4 and 12.5, if at any time during the term of this Lease there is damage
which is an Insured Loss and which falls into the classification of Leased
Premises Partial Damage, then Landlord may at Landlord's option either (i) at
Landlord's expense, repair such damage, but not Tenant's fixtures, equipment or
Tenant improvements unless the same have become a part of the Leased Premises
pursuant to Paragraph 8 hereof as soon as reasonably possible, or (ii) require
Tenant to repair such damage, provided Landlord pays to Tenant all insurance
proceeds payable on account of such Insured Loss and, in either case, this Lease
shall continue in full force and effect.
12.3 TOTAL DESTRUCTION; PARTIAL DAMAGE - UNINSURED LOSS. Subject to the
provisions of Paragraphs 12.4 and 12.5, if at any time during the term of this
Lease there is damage which either (a) falls with the classification of Leased
Premises Total Destruction or (b) is not an Insured Loss and which falls within
the classification of Leased Premises Partial Damage, unless caused by a
negligent or willful act of Tenant (in which event Tenant shall make the repairs
at Tenant's expense), Landlord may at Landlord's option either (i) repair such
damage as soon as reasonably possible at Landlord's expense, in which event this
Lease shall continue in full force and effect, or (ii) give written notice to
Tenant within thirty (30) days after the date of the occurrence of such damage
of Landlord's intention to cancel and terminate this Lease as of the date of the
occurrence of such damage. In the event Landlord elects to give such notice of
Landlord's intention to cancel and terminate this Lease, Tenant shall have the
right within ten (10) days after the receipt of such notice to notify Landlord
in writing of Tenant's intention to repair such damage at Tenant's expense,
without reimbursement from Landlord except for the payment by Landlord to Tenant
of any insurance proceeds payable to Landlord on account of any Insured Loss, in
which event this Lease shall continue in full force and effect, and Tenant shall
proceed to make such repairs as soon as possible. If Tenant does not give such
notice within such ten-day period this Lease shall be cancelled and terminated
as of the date of the occurrence of such damage.
12.4 DAMAGE NEAR END OF LEASE TERM. If at any time during the last twelve
months of the Lease Terrn there is damage, whether or not an Insured Loss, which
falls within the classification of Leased Premises Partial Damage, Landlord or
Tenant may at either party's option cancel and terminate this Lease as of the
date of occurrence of such damage by giving written notice to the other of its
election to do so within thirty (30) days after the date of occurrence of such
damage.
12.5 ABATEMENT OF BASE RENT; TENANT'S REMEDIES.
(a) In the event of damage described in Paragraphs 12.2 or 12.3, and Landlord
or Tenant repairs or restores the Leased Premises pursuant to the provision of
this Paragraph 12, the base rent payable hereunder for the period during which
such damage, repair or restoration continues shall be abated in proportion to
the degree to which Tenant's use of the Leased Premises is impaired which shall
be no less than the square footage of the Leased Premises damaged. Except for
abatement of base rent, if any, Tenant shall have no claim against Landlord for
any damage suffered by reason of any such damage, destruction, repair or
restoration.
(b) If Landlord shall be obligated to repair or restore the Leased Premises
under the provisions of this Paragraph 12 and shall not commence such repair or
restoration within sixty (60) days after such obligation shall accrue, Tenant
may at Tenant's option cancel and terminate this Lease by giving Landlord
written notice of Tenant's election to do so at any
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time prior to the commencement of such repair or restoration. In such event this
Lease shall terminate as of the date of such notice.
(c) Notwithstanding the foregoing, provided Tenant has not caused such
destruction whether partial or in total and Tenant is not able to utilize any
portion of the Leased Premises, base rent shall abate until the Leased Premises
can be restored and Tenant regains occupancy. In the event of partial
destruction, provided insurance proceeds are sufficient therefor, the Leased
Premises shall be restored to Tenant within nine (9) months from the date of
occurrence or Tenant, within thirty (30) days after the end of such nine (9)
month period may give written notice to Landlord to terminate this Lease.
12.6 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 12, any advance rent and any advance payments made by Tenant
to Landlord shall be reimbursed to Tenant. Landlord shall, in addition, return
to Tenant so much of Tenant's security deposit as not theretofore been applied
by Landlord.
12.7 WAIVER. Landlord and Tenant waive the provisions of any statutes which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
13. RIGHT OF FIRST REFUSAL. At all times during the Term, Tenant shall have a
right of first refusal to purchase the Leased Premises on the following terms
and conditions:
(a) In the event Landlord receives a third party offer to purchase the Leased
Premises and Landlord is willing to accept the offer on the terms and conditions
contained therein, it shall, in turn, submit such offer to Tenant in writing
prior to accepting such offer. Provided Tenant is not then in default under the
Lease, Tenant shall have three (3) business days to elect to purchase the Leased
Premises upon the same terms and conditions as stated in the third party offer.
In the event Tenant desires to exercise its first right to purchase the Leased
Premises, it shall do so by delivering written notice to Landlord of such
intention within such three (3) business day period. In the event that the terms
and conditions in such offer change, Landlord shall resubmit such offer to
Tenant, who shall then have an additional three (3) business days to exercise
this right to purchase the Leased Premises upon the new terms and conditions set
forth in the revised offer. In the event Tenant elects not to exercise its first
right to purchase the Leased Premises, Landlord shall be free to proceed with
the sale of the Leased Premises to the third party offeree.
(b) Title to the Leased Premises shall be conveyed to Tenant by general
warranty deed warranting that fee simple indefeasible title to the Leased
Premises is good and marketable and free and clear of all liens and encumbrances
except (i) taxes and assessments, both general and special, that are a lien but
are not then due and payable, (ii) zoning ordinances, if any, (iii) reasonable
easements, covenants and restrictions of record as may be approved in writing by
Tenant. In addition, Landlord shall at its sole cost and expense, deliver to
Tenant as of the date of transfer of title an ALTA Owner's Fee Policy of Title
Insurance (the "Title Policy") in the amount of the purchase price and issued by
a title company specified by Tenant (the "Title Company") insuring fee simple
indefeasible and marketable title to be vested in Tenant subject only to the
matters set forth in items (i) through (iii) of this subparagraph (b).
(c) If the right of first refusal is so exercised, all funds and documents
necessary to convey title to the Leased Premises shall be deposited in escrow
with the Title Company within ninety (90) days of receipt of Tenant's written
notice of its desire to exercise such right (the "Closing Date"). On the
condition that Title Company can and will issue the Title Policy as specified
above, the Title Company shall complete the transaction on the Closing Date upon
receipt of all funds and documents. If a defect in title appears which is not
permitted hereunder, Landlord shall have sixty (60) days after actual notice of
such defect to cause such defect to be removed. If the defect is not removed,
Tenant shall have the right, at its option, to revoke the exercise of its right
of first refusal, whereupon all funds and documents deposited in escrow shall be
returned to the depositing party, all escrow fees and other charges incurred in
anticipation of transfer of title to Tenant shall be paid or satisfied by
Landlord, and this Lease
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shall continue in accordance with its terms, including the right of first
refusal, which may be thereafter re-exercised in anticipation of the defect in
title being removed. Notwithstanding anything herein to the contrary, Landlord
shall have the unconditional obligation (without necessity of notice from
Tenant) to cause to be released of record any mortgage or other lien for the
payment of money affecting the Leased Premises.
(d) The Title Company shall charge Landlord and pay out of escrow the cost of
the owner's title insurance policy, any and all costs to cure title defects and
one-half of the escrow fee. The Title Company shall charge Tenant the fee for
filing the deed and any mortgage for record, the remaining one-half of the
escrow fee, the cost of any lender's title insurance policy and the fees
relating to any endorsements requested by Tenant and/or any lender of Tenant.
Conveyance tax and transfer fees, if any, shall be borne by the party specified
in the applicable statute or ordinance or, in the event the applicable statute
or ordinance is silent, such tax and/or fees shall be borne equally by the
parties.
14. ESTOPPEL CERTIFICATE.
(a) Either party shall, at any time upon not less than ten (10) days' prior
written notice from the requesting party, execute, acknowledge and deliver to
the requesting party a statement in writing (i) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification and certifying that this Lease, as so modified, is in full
force and effect) and the date to which the rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are not, to such party's
knowledge, any uncured defaults on the part of the requesting party hereunder,
or specifying such defaults if any are claimed. Any such statement may be
conclusively relied upon by any prospective and permitted encumbrancer of the
Leased Premises.
(b) A party's failure to deliver such statement within such time shall be
conclusive upon such party (i) that this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
that there are no uncured defaults in the requesting party's performance, and
(iii) that not more than one month's rent has been paid in advance and such
failure may be considered by Landlord, if Landlord is the requesting party, as a
default by Tenant under this Lease.
(c) If Landlord desires to finance, refinance, or sell the Leased Premises,
or any part thereof, Tenant hereby agrees to deliver (not more than once in any
12-month period) to any lender designated by Landlord such financial
statements of Tenant as may be reasonably required by such lender. Such
statements shall include the past three years' financial statements of Tenant
and be supplied at no additional cost to Tenant. All such financial statements
shall be received by Landlord and such lender in confidence pursuant to such
agreement reasonably required by Tenant and shall be used only for the purposes
herein set forth.
15. CONDEMNATION. If the whole of the Leased Premises shall be taken,
appropriated or condemned for any public or quasi-public use or purpose, or if
less than all of the Leased Premises is taken but the remaining portion is not
sufficient for the operation of Tenant's business, then the Lease Term shall
automatically cease and terminate as of the date Tenant must relinquish
possession of the Leased Premises or when title to the Leased Premises vests in
the taking authority whichever first occurs, and all rents and other charges
paid under this Lease shall be apportioned as of the date of termination.
If less than all of the Leased Premises shall be taken, appropriated or
condemned for any public or quasi-public use or purpose, and the remaining
portion not so taken is sufficient for the operation of Tenant's business,
Tenant shall continue to use the portion not so taken and there shall be a
proportionate reduction in rent.
16. SUBORDINATION.
(a) This Lease, at Landlord's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation or security now or
hereafter placed upon
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the real property of which the Leased Premises are a part and to any and all
advances made on the security thereof and to all renewals, modifications,
consolidations, replacements and extensions thereof. Notwithstanding such
subordination, Tenant's right to quiet possession of the Leased Premises and any
options to renew or purchase shall not be disturbed if Tenant is not in default
and so long as Tenant shall pay the rent and observe and perform all of the
provisions of this Lease, unless this Lease is otherwise terminated pursuant to
its terms. If any mortgagee, trustee or ground lessor shall elect to have this
Lease prior to the lien of its mortgage, deed of trust or ground lease, and
shall give written notice thereof to Tenant, this Lease shall be deemed prior to
such mortgage, deed of trust, or ground lease, whether this Lease is dated prior
or subsequent to the date of said mortgage, deed of trust or ground lease or the
date of recording thereof.
(b) Tenant agrees to execute any documents reasonably required to effectuate
an attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Tenant's failure to
execute such documents within ten (10) days after written demand shall entitle
Landlord to execute such documents on behalf of Tenant as Tenant's attorney-in-
fact. Tenant does hereby make, constitute and irrevocably appoint Landlord as
Tenant's attorney-in-fact and in Tenant's name, place and stead, to execute such
documents in accordance with this Paragraph 16(b).
17. DEFAULTS; REMEDIES.
17.1 DEFAULTS. The occurrence of any one or more of the following events shall
constitute a material default and breach of this Lease by Tenant:
(a) The vacating or abandonment of the Leased Premises by Tenant.
(b) The failure to make any payment of rent or any other payment required to
be made by Tenant hereunder, as and when due, where such failure shall continue
for a period of three (3) days after written notice thereof from Landlord to
Tenant. In the event that Landlord serves Tenant with a default notice pursuant
to applicable unlawful detainer statutes, such default notice shall also
constitute the notice required by this subparagraph.
(c) The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Tenant,
other than described in paragraph (b) above, where such failure shall continue,
except as otherwise specifically set forth herein, for a period of thirty (30)
days after written notice hereof from Landlord to Tenant; provided, however,
that if the nature of Tenant's default is such that more than thirty (30) days
are reasonably required for its cure, then Tenant shall not be deemed to be in
default if Tenant commenced such cure within said 30-day period and thereafter
diligently prosecutes such cure to completion.
(d) (i) The making by Tenant or any guarantor of this Lease of any general
arrangement or assignment for the benefit of creditors; (ii) in the event Tenant
or any guarantor of this Lease becomes a "debtor" as defined in 11 U.S.C.
Section 101 or any successor statute thereto (unless, in the case of a petition
filed against Tenant, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Tenant's or any guarantor's assets or of Tenant's interest in this Lease, where
possession is not restored to Tenant or any guarantor within thirty (30) days;
or (iv) the attachment, execution or other judicial seizure of substantially all
of Tenant's or any guarantor's assets or of Tenant's interest in this Lease,
where such seizure is not discharged within thirty (30) days; provided, however,
in the event that any provision of this Paragraph 17(d) is contrary to any
appiicable law, such provision shall be of no force or effect.
(e) The discovery by Landlord that any financial statement given to Landlord
by Tenant, any assignee of Tenant, any subtenant of Tenant, any successor in
interest of Tenant or any guarantor of Tenant's obligation hereunder, and any
of them, was materially false.
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17.2 REMEDIES. In the event of any such material default or breach by Tenant.
Landlord may at any time thereafter, with or without notice or demand and
without limiting Landlord in the exercise of any right or remedy which Landlord
may have by reason of such default or breach:
(a) Terminate Tenant's right to possession of the Leased Premises by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Leased Premises to Landlord. In such
event Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default including, but not limited to (i) the
cost of recovering possession of the Leased Premises, (ii) expenses of
reletting, including reasonably necessary renovation and alteration of the
Leased Premises, reasonable attorneys' fees and any leasing commission actually
paid, (iii) the worth at the time of award by the court having jurisdiction
thereof of the amount by which the unpaid rent for the balance of the term after
the time of such award exceeds the amount of such rental loss for the same
period that Tenant proves could be reasonably avoided, and (iv) that portion of
any leasing commission paid by Landlord applicable to the unexpired term of the
Lease.
(b) Maintain Tenant's right to possession in which case this Lease shall
continue in effect whether or not Tenant shall have abandoned the Premises. In
such event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due hereunder.
(c) Pursue any other remedy now or hereafter available to Landlord under the
laws or judicial decisions of the state wherein the Leased Premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Tenant
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by law.
17.3 DEFAULT BY LANDLORD. Landlord shall not be in default unless Landlord
fails to perform obligations required of Landlord within a reasonable time, but
in no event later than thirty (30) days after written notice by Tenant to
Landlord and to the holder of any first mortgage deed of trust covering the
Leased Premises whose name and address shall have theretofore been furnished to
Tenant in writing, specifying wherein Landlord has failed to perform such
obligation; provided, however, that if the nature of Landlord's obligation is
such that more than thirty (30) days are required for performance then Landlord
shall not be in default if Landlord commences performance within such 30-day
period and thereafter diligently prosecutes the same to completion.
17.4 LATE CHARGES. Tenant hereby acknowledges that the late payment by Tenant
to Landlord of rent and other sums due hereunder will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any mortgage or trust deed covering the Leased
Premises. Accordingly, if any installment of rent or any other sum due from
Tenant shall not be received by Landlord or Landlord's designee within ten (10)
days after the same is due, Tenant shall pay to Landlord a late charge equal to
six percent (6%) of such overdue amount. The parties hereby agree that such late
charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of late payment by Tenant. Acceptance of such late charge by
Landlord shall in no event constitute a waiver of Tenant's default with respect
to such overdue amount, nor prevent Landlord from exercising any of the other
rights and remedies granted hereunder.
17.5 IMPOUNDS. In the event that a late charge is payable hereunder, whether
or not collected, for three (3) installments of rent or any other monetary
obligation of Tenant under the terms of this Lease, Tenant shall pay to
Landlord, if Landlord shall so request, in addition to any other payments
required under this Lease, a monthly advance installment, payable at the same
time as the monthly rent, as estimated by Landlord, for real property tax and
insurance expenses on the Leased Premises which are payable by Tenant under the
terms of this Lease. Such fund shall be established to insure payment when due,
before delinquency, of any or all such real property taxes and insurance
premiums. If the amounts paid to Landlord by Tenant
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under the provisions of this paragraph are insufficient to discharge the
obligations of Tenant to pay such real property taxes and insurance premiums as
the same become due, Tenant shall pay to Landlord, upon Landlord's demand, such
additional sums necessary to pay such obligations. All moneys paid to Landlord
under this paragraph may be intermingled with other moneys of Landlord and shall
not bear interest. In the event of a default in the obligations of Tenant to
perform under this Lease, then any balance remaining from funds paid to Landlord
under the provisions of this paragraph may, at the option of Landlord, be
applied to the payment of any monetary default of Tenant in lieu of being
applied to the payment of real property tax and insurance premiums.
18. COMPLIANCE WITH LAW. Tenant shall comply, at its own cost and expense, with
all governmental laws, ordinances, rules, regulations, orders or other
requirements of all governmental bodies that possess or purport to possess
jurisdiction over the Leased Premises and/or Tenant's business at the Leased
Premises, including, without limitation, the Americans With Disabilities Act and
all Environmental Laws.
19. SIGNAGE. Tenant shall have exclusive signage for the building. This signage
shall comply with all local sign ordinances and shall be at the sole cost of
Tenant. Both Tenant and Landlord shall mutually agree on signage.
20. RIGHT OF ENTRY. Landlord and its agents shall have the right, upon prior
notice and during reasonable times (except in the case of emergencies), to enter
the Leased Premises for the purpose of inspecting the same, showing the same to
prospective lenders, purchasers or Tenants, and making such alterations,
improvements or additions to the Leased Premises as Landlord is required or
permitted to make pursuant to this Lease.
21. SURRENDER OF LEASED PREMISES. At the expiration of the Lease Term, or upon
any earlier termination of this Lease for any reason, Tenant shall surrender the
Leased Premises in broom-clean condition and in the same condition as the Leased
Premises were in upon delivery of possession under this Lease, taking by eminent
domain, casualty loss and normal wear and tear excepted.
22. LOSS OF AND DAMAGE TO PROPERTY OF TENANT AND OTHERS. Landlord shall not be
liable for the loss of or any damage to any property of Tenant or of others
located or stored in, upon or about the Leased Premises, whether by theft,
vandalism, malicious mischief, unlawful entry or any other cause or reason.
Landlord shall not be liable for any loss or damage caused to Tenant's property
by other Tenants or persons in the Leased Premises, occupants of adjacent
property, or the public, or caused by operations in the construction of any
private, public or quasi-public work or any other cause.
23. QUIET ENJOYMENT. Landlord warrants to Tenant, that upon Tenant's paying the
rent and all other amounts and charges Tenant is required under this Lease to
pay, and upon Tenant's performing and observing all covenants, agreements and
conditions of this Lease that Tenant is required to perform and observe, Tenant
shall quietly have, hold and enjoy the Leased Premises during the Lease Term
without hindrance or interruption by Landlord or any other person or persons
lawfully or equitably claiming by, through or under the Landlord.
24. FORCE MAJEURE. Except for any obligation to pay rent or other charges
required under this Lease, if either Landlord or Tenant shall be delayed in or
prevented from the performance of any of the terms, covenants and conditions
of this Lease, by reason of restrictive governmental laws or regulations, riots,
insurrections, war, sabotage, act of God, or any other reason of a similar or
dissimilar nature not the fault of the party delayed in or prevented from
performance, then performance shall be excused for the period of the delay or
prevention of performance and the time for performance shall be extended for an
equivalent period.
25. WAIVER. The waiver by Landlord of any breach of any term, covenant or
condition of this Lease shall not be deemed to be a waiver of such term,
covenant or condition or any subsequent breach of the same or any other term,
covenant, or condition of this Lease. Landlord's acceptance of rent shall not be
deemed to be a waiver of any preceding breach by
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Tenant of any term, covenant or condition of this Lease. No term, covenant, or
condition of this lease shall be deemed to have been waived by Landlord unless
such waiver be in writing by Landlord.
26. ENTIRE AGREEMENT. This Lease contains the entire agreement of the parties in
regard to the Leased Premises. There are no oral agreements existing between the
parties hereto.
27. MODIFICATION OF LEASE. This Lease shall not be modified except in writing
signed by both Landlord and Tenant.
28. GOVERNING LAW; SEVERABILITY. This Lease and the rights and obligations of
the parties hereto shall be governed, interpreted and regulated by and in
accordance with the laws of the state where the Leased Premises are located,
without reference to the provisions governing conflicts of laws. If any portion
of this Lease should be invalid or held invalid, the remainder of it shall be
unaffected and remain in full force and effect.
29. NOTICES. Any notice, demand, request consent or communication (collectively
a "Notice") required or permitted to be given under this Lease shall be
effective only if it is in writing and (i) personally delivered, (ii) sent by
certified or registered mail, return receipt requested, postage prepaid, or
(iii) sent by a nationally recognized overnight delivery service, with delivery
confirmed, addressed as follows:
(a) If to the Landlord, to:
BRADROCK REALTY, INC.
c/o John D. Simms
611 Edgemont Lane
Park Ridge, Illinois 60068
in each case with a copy to:
John L. Eisel
Mark W. Hianik
WILDMAN, HARROLD, ALLEN & DIXON
225 West Wacker Drive
Chicago, Illinois 60606-1229
(b) If to Tenant, to:
MERKLE-KORFF INDUSTRIES, INC.
c/o Jordan Industries, Inc.
Thomas H. Quinn, President
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60015
with a copy to:
G. Robert Fisher
Michael Van Dyke
BRYAN CAVE L.L.P.
3500 One Kansas City Place
1200 Main Street
Kansas City, Missouri 64105-2100
or to such other persons or addresses as shall be furnished in writing by any
party to the other party. A Notice shall be deemed to have been given as of the
date when (i) personally delivered, (ii) two (2) business days after the date
when deposited with the United States mail properly addressed, or (iii) when
receipt of a Notice sent by an overnight delivery service is
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confirmed by such overnight delivery service, as the case may be, unless the
sending party has actual knowledge that a Notice was not received by the
intended recipient.
30. LANDLORD'S LIABILITY. The term "Landlord" as used herein shall mean only the
owner or owners at the time in question of the fee title or a tenant's interest
in a ground lease of the Leased Premises, in the event of any transfer of such
title or interest. Landlord herein named (and in case of any subsequent
transfers then the grantor) shall be relieved from and after the date of such
transfer of all liability as respects Landlord's obligations thereafter to be
performed, provided that any funds in the hands of Landlord or the grantor at
the time of such transfer, in which Tenant has an interest, shall be delivered
to the grantee. The obligations contained in this Lease to be performed by
Landlord shall, subject as aforesaid, be binding on Landlord's successors and
assigns, only during their respective periods of ownership.
31. MEMORANDUM OF LEASE. Either Landlord or Tenant shall, upon written request
of the other, execute a "short form" or memorandum of this Lease, in recordable
form, to evidence of record the leasehold estate created by this Lease and the
right of first refusal.
32. SUCCESSORS. The provisions of this Lease shall apply to and be binding upon
the heirs, successors, assigns and legal representatives of both Tenant and
Landlord, subject to the provisions of Paragraph 10.
33. BROKER. Landlord and Tenant acknowledge and agree that no broker or other
agent dealt with or represented either of them in connection with this Lease and
each of them do hereby agree to indemnify and hold the other harmless from all
against any and all claims made by anyone claiming entitlement to a brokerage
commission or other fee on account of this Lease.
34. TIME OF ESSENCE. Time is of the essence in all matters pertaining to this
Lease.
35. INTEREST ON PAST-DUE OBLIGATION. Except as expressly herein provided, any
amount due to Landlord not paid when due shall bear interest at eighteen percent
(18%) per annum or the maximum rate then allowable by law from the date due,
whichever is less. Payment of such interest shall not excuse or cure any default
by Tenant under this Lease, provided, however, that interest shall not be
payable on late charges incurred by Tenant nor on any amounts upon which late
charges are paid by Tenant.
36. HOLDING OVER. If Tenant, without Landlord's consent, remains in possession
of the Leased Premises or any part thereof after the expiration of the Lease
Term, such occupancy shall be a tenancy from month to month upon all the
provisions of this Lease pertaining to the obligations of Tenant, except for
base rent which shall be 200 percent (200%) of the base rent in effect at the
expiration of the Lease Term.
37. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
38. ATTORNEYS' FEES. In the event either party hereto, its agents and/or
employees shall be a party to any litigation commenced by the other party
hereto, then the non-prevailing party shall pay all costs, expenses and
reasonable attorneys' fees that may be incurred or paid by the prevailing party,
its agents and/or employees in successfully enforcing the covenants and
agreements of this Lease.
39. AUTHORITY. Each individual executing this Lease on behalf of Tenant
represents and warrants that he or she is duly authorized to execute and deliver
this lease on behalf of said corporation. Tenant shall, prior to the execution
of this Lease, deliver to Landlord certified board of director resolutions or
other evidence of such authority satisfactory to Landlord.
40. COUNTERPARTS. This Lease may be executed by the parties hereto at different
times, whether before or after the effective date hereof, and at separate
locations, whether or not in the presence of the other party hereto. Any copy of
this Lease to which the signatures of all parties have been appended shall
constitute an original hereof for all purposes. All such copies shall
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constitute one and the same original, and any one of which shall constitute
proof of the terms of this Lease without the necessity of producing any other
original copy.
41. LEASEHOLD MORTGAGE.
41.1 LEASEHOLD MORTGAGEE. Landlord hereby acknowledges that Tenant has advised
Landlord that bankers trust company (the "Leasehold Mortgagee") is the mortgagee
under a mortgage encumbering Tenant's leasehold interest in the Leased Premises,
and as such, is entitled to the benefits contained in this Paragraph 41. All
notices to the Leasehold Mortgagee shall be deemed to have been duly given when
sent in the manner required hereunder addressed to the Leasehold Mortgagee at
One Bankers Trust Plaza, New York, New York 10006. Tenant acknowledges on its
and Leasehold Mortgagee's behalf that Landlord has not reviewed and is not a
party to any loan documents between Tenant and the Leasehold Mortgagee and is
not obligated to Leasehold Mortgagee for any obligations of Tenant to the
Leasehold Mortgage.
41.2 NOTICES AND DEMANDS. Landlord shall give to the Leasehold Mortgagee a
copy of each notice of default by Tenant at the same time and in the same manner
as the notice given by Landlord to Tenant, addressed to the Leasehold Mortgagee
at its address set forth herein or such other address that Leasehold Mortgagee
may have subsequently furnished to Landlord. no notice by Landlord to Tenant
under this lease shall be deemed to have been duly given to the Leasehold
Mortgagee in the manner provided in Paragraph 29.
41.3 RIGHT TO CURE. Subject to the terms of Paragraph 41.5 hereof, the
Leasehold Mortgagee shall have a period that shall run concurrently with the
cure period afforded to Tenant within which to remedy any default of Tenant
hereunder or cause such default to be remedied. The Leasehold Mortgagee shall
have the option, as provided herein, but not the obligation, to cure any default
of Tenant hereunder, provided that if the Leasehold Mortgagee desires to cure
such default it shall promptly after receipt of notice of default notify
Landlord in writing of its intent to cure. Following receipt of notice of any
such default in accordance with Paragraph 41.2 above and subject to Paragraph
41.5, if the Leasehold Mortgagee shall diligently commence a cure to the
default, and continue same without interruption, the Leasehold Mortgagee shall
also be given an additional period of time as the Leasehold Mortgagee may
reasonably request in writing in order to complete such cure. If the Leasehold
Mortgagee agrees to undertake such cure and requires additional time as
aforesaid to complete same and thereafter the Leasehold Mortgagee fails to
complete such cure and such failure results in additional damage to Landlord,
the Leasehold Mortgagee shall Lndemnify Landlord against loss arising out of
such damage.
41.4 PERFORMANCE OF LEASE BY LEASEHOLD MORTGAGEE. The Leasehold Mortgagee
shall to the extent it has the right to do so under its Mortgage, have the right
to perform any term, Covenant, condition, or agreement and to remedy any default
by Tenant under this Lease, and Landlord shall accept such performance by the
Leasehold Mortgagee with the same force and effect as if performed by Tenant.
41.5 CERTAIN DEFAULT. In the event a default by Tenant occurs in the
performance or observance of any term, covenant, condition, or agreement on
Tenant's part to be performed under this Lease (other than a term, covenant,
condition or agreement requiring the payment of a sum of money) which cannot
practicably be cured by the Leasehold Mortgagee without taking possession of the
Leased Premises (or if such default is of such a nature that the same is not
susceptible of being cured by the Leasehold Mortgagee), then Landlord shall not
serve a notice of election to terminate this lease pursuant to the terms of
Paragraph 17.2(a), or otherwise terminate the leasehold estate or any other
estate, right, title or interest of Tenant hereunder by reason of such default
without allowing the Leasehold Mortgagee reasonable time within which:
(a) In the case of a default which cannot practically be cured by the Leasehold
Mortgagee without taking possession of the Leased Premises, to obtain
possession of the Leased Premises as mortgagee (through the appointment of
a receiver of otherwise), and, upon obtaining possession, to commence
promptly and diligently prosecute to completion such action as may be
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necessary to cure such default. If the Leasehold Mortgagee agrees to
undertake such cure and require additional time as aforesaid to complete
same and thereafter the Leasehold Mortgagee fails to complete such cure,
and such failure results in the direct result of additional damage to
Landlord, the Leasehold Mortgagee shall indemnify Landlord against loss
arising out of such damage; and
(b) In the case of a default which is not susceptible of being cured by the
Leasehold Mortgagee, to commence promptly and diligently prosecute to
completion foreclosure proceedings or to acquire Tenant's estate
hereunder, either in its own name or through a nominee, by assignment
in lieu of foreclosure. If the Leasehold Mortgagee agrees to undertake
such cure and require additional time as aforesaid to complete same and
thereafter the Leasehold Mortgagee fails to complete such cure, and such
failure results in the direct result of additional damage to Landlord, the
Leasehold Mortgagee shall indemnify Landlord against loss arising out of
such damage.
The Leasehold Mortgagee shall not be required to continue to proceed to obtain
possession, or to continue in possession as mortgagee, of the Leased Premises
pursuant to clause (i) above, or to continue to prosecute foreclosure
proceedings pursuant to clause (ii) above, if and when such default shall be
cured. Nothing herein shall preclude Landdlord from exercising any of its rights
or remedies with respect to any other default by Tenant during any period when
Landlord shall be forebearing termination of this Lease as above provided, but
in such event the Leasehold Mortgagee shall have all of the rights and
protections hereinabove provided for. If the Leasehold Mortgagee, or its
nominee, or a purchaser at a foreclosure sale, shall acquire title to Tenant's
leasehold estate hereunder, and shall cure all defaults of Tenant hereunder
which can be cured by the Leasehold Mortgagee, or by such purchaser, as the case
may be, then the defaults of any prior holder of Tenant's leasehold estate or
any other estate, right, title or interest hereunder which are not susceptible
of being cured by the Leasehold Mortgagee (or by such purchaser) shall no longer
be deemed to be defaults hereunder.
41.6 TERMINATION OF LEASE; NEW LEASE TO LEASEHOLD MORTGAGEE. In the event (i)
this lease is terminated by reason of Tenant's default hereunder, or (ii) this
lease is disaffirmed in the event of Tenant's bankruptcy, then, within ten (10)
days after such termination (which term as used herein shall include a
disaffirmance) Landlord shall give notice to the Leasehold Mortgagee that this
lease has been terminated, together with a statement of any and all sums which
would at that time be due under this lease but for such termination, and of all
other defaults, if any, under this lease then known to Landlord, and the
leasehold mortgagee, by notice to Landlord, thereupon may request Landlord to
enter into a New Lease of the Leased Premises and Landlord shall enter into a
New Lease (the "New Lease") with the Leasehold Mortgagee (or its nominee, in
which case the New Lease shall be guaranteed by the Leasehold Mortgagee on terms
acceptable to Landlord), within 60 days after the giving of such notice by the
Leasehold Mortgagee provided that the Leasehold Mortgagee shall have cured or
caused to be cured any defaults of Tenant existing at the date of termination.
The New Lease shall commence and Rent and all obligations of the Tenant under
the New Lease shall accrue, as of the date of termination of this Lease. The
term of the New Lease shall continue for the period which would have constituted
the remainder of the term of this lease had this lease not been terminated. The
New Lease shall be upon all of the terms, covenants, conditions, conditional
limitations, and agreements contained herein which were in force and effect
immediately prior to the termination of this Lease and shall provide an
indemnity of Landlord from the Leasehold Mortgagee against any claims by or on
behalf of Tenant as its affiliates or creditors on account of the New Lease. The
New Lease, and this covenant, shall be superior to all rights, liens, estates,
titles and interests, other than those to which this Lease shall have been
subject immediately prior to termination and those matters to which this Lease
may, by its terms, become subject. The provisions of the immediately preceding
sentence shall be self-executing, and Landlord shall have no obligation to do
anything (other than to execute such New Lease as herein provided) to assure to
the Leasehold Mortgagee or to the tenant under the New Lease good title to the
leasehold estate and the other estates, rights, titles and interests granted
thereby.
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<PAGE>
Simultaneously therewith, Landlord shall pay over to the Leasehold Mortgagee all
monies on deposit with Landlord, if any, which Tenant would have been entitled
to use but for the termination of this Lease for the purposes of and in
accordance with the provisions of the New Lease. Each subtenant of space in the
Leased Premises whose sublease was in force and effect immediately prior to the
delivery of the New Lease shall attorn to the Tenant under the New Lease, unless
such Tenant shall, at its option, elect to dispossess such subtenant or
otherwise terminate the sublease held by such subtenant. The Leasehold
Mortgagee shall, simultaneously with the delivery of the New Lease, pay to
Landlord (1) all rent and other sums of money due under this Lease on the date
of termination of this Lease and remaining unpaid; plus (2) all rent and other
sums of money due under the New Lease for the period from the date of
commencement of the term thereof to the date of delivery of the New Lease; plus
(3) all costs and expenses, including reasonable attorneys' fees, court costs,
and litigation expenses, incurred by Landlord in connection with termination of
this Lease, the recovery of possession of the Leased Premises, putting the
premises in good condition and repair, and the preparation, execution and
delivery of such new lease.
41.7 ASSIGNMENT. If the Leasehold Mortgagee forecloses upon or otherwise
acquires all or part of Tenant's leasehold interest, the transfer to the
Leasehold Mortgagee (or any nominee of the Leasehold Mortgagee) shall not
require Landlord's consent and the acquiring Leasehold Mortgagee shall be
permitted to transfer the acquired interest to a third party upon obtaining
Landlord's prior consent thereto, which consent shall not be unreasonably
withheld on the condition that such third party is a reputable person or entity
of good character and is financially responsible and creditworthy. Upon the
transfer to such third party as aforesaid, the Landlord shall be released from
ali liability for the performance or observance of the covenants and conditions
in such lease contained on Tenant's part to be performed and observed from and
after the date the assignee shall have assumed such lease.
41.8 APPLICABILITY OF PROVISIONS. The provision of this Paragraph 41 shall
remain in effect only to the extent that the Leasehold Mortgagee holds a
mortgage on the Leased Premises.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease on the day and year
first above written.
LANDLORD:
BRADROCK REALTY. INC.
By: /s/ John D. Simms
--------------------------
Name: John D. Simms
-------------------------
Title: President
------------------------
TENANT:
MERKLE-KORFF INDUSTRIES, INC.
By: /s/ Jonathan F. Boucher
---------------------------
Name: Jonathan F. Boucher
-------------------------
Title: Vice President
------------------------
<PAGE>
EXHIBIT A
---------
LEGAL DESCRIPTION
-----------------
LOT 5 IN ANDERSON MILLER DES PLAINES INDUSTRIAL PARK UNIT NUMBER 2 BEING A
RESUBDIVISION OF LOT 6 EXCEPT THE SOUTH 366 FEET AS MEASURED AT RIGHT ANGLES TO
THE SOUTH LINE OF SAID LOT 6 AND EXCEPT THE EAST 3 ACRES OF THE NORTH 10 ACRES
(EXCEPT THE SOUTH 3 ACRES THEREOF) AND EXCEPT THE EAST 41.79 FEET OF SAID LOT 6
IN GREWE'S SUBDIVISION OF THAT PART OF THE NORTH WEST FRACTIONAL QUARTER AND THE
WEST HALF OF THE WEST HALF OF THE NORTH EAST 1/4 OF SECTION 30, TOWNSHIP 41
NORTH, RANGE 12 EAST QF THE THIRD PRINCIPAL MERIDIAN LYING NORTH OF A LINE 14.70
FEET NORTH OF THE EAST AND WEST CENTER LINE OF THE NORTH HALF OF SAID SECTION
(EXCEPT THE RIGHT OF WAY OF THE DES PLAINES SOUTH VALLEY RAILROAD) IN COOK
COUNTY, ILLINOIS.
PERMANENT INDEX NO.: 09-80-100-035-0000
COMMONLY KNOWN AS: 70-74 EAST BRADROCK DRIVE
DES PLAINES. ILLINOIS 60018
<PAGE>
EXHIBIT 10.18
INDUSTRIAL BUILDING LEASE
-------------------------
This Industrial Building Lease (the "Lease") is made as of the 22nd day of
September, 1995, by and between FJM REALTY, INC., an Illinois corporation
(hereafter referred to as "Landlord"), and MERKLE-KORFF INDUSTRIES, INC., an
Illinois corporation formerly known as MK Holdings, Inc. (successor by merger to
Merkle-Korff Industries, Inc.) (hereafter referred to as "Tenant").
1. LEASED PREMISES. Upon and subject to the terms and conditions of this Lease,
Landlord hereby leases tO Tenant, and Tenant hereby hires from Landlord, the
real property commonly known as 1776 Winthrop Drive, Des Plaines, Illinois, and
legally described in Exhibit A, attached hereto and incorporated herein,
together with all easements appurtenant thereto and all buildings, improvements
and fixtures located thereon (collectively, the "Leased Premises").
2. USE. The Leased Premises shall be used and occupied for the manufacture of
low voltage motors and warehouse and office uses related thereto and for no
other purposes.
3. LEASE TERM; RENEWAL OPTION. This Lease shall commence on the date first above
written (the "Commencement Date") and shall continue through September 30, 2000
(the "Initial Term"). Provided Tenant is not then in default under this Lease,
Tenant shall have the option, exercisable by delivery of written notice to
Landlord at any time prior to the date which is six (6) months prior to the
expiration of the Initial Term or the first Renewal Term (as hereinafter
defined), as appropriate, to renew this Lease and extend the Initial Term hereof
for two additional periods of five (5) years (each of such five-year periods
being a "Renewal Term"), all upon the same terms and conditions as govern the
initial Term (including without limitation, the provisions regarding rent set
forth in Paragraph 4 below). Any reference in this Lease to the phrase "Lease
Term" shall mean both the Initial Term and, if exercised, any Renewal Term. As
used herein, the term "Lease Year" shall mean each twelve (12) month period
during the Lease Term hereof commencing on October 1 in each year; provided,
however, the first Lease Year shall consist of a period of twelve months and
eight (8) days commencing on September 23, 1995.
4. BASE RENT.
(a) Tenant shall pay to Landlord as annual base rent for the Leased Premises
the following amounts:
Lease Year Base Rent
---------- ---------
1 $240,000.00
2 244,800.00
3 249,696.00
4 254,690.00
5 259,784.00
6 264,980.00
7 270,280.00
8 275,686.00
9 281,200.00
10 286,824.00
11 292,560.00
12 298,411.00
13 304,379.00
14 310,467.00
15 316,676.00
(b) All base rent payments, and all other payments due to Landlord under this
Lease, shall be deemed to be rent and shall be made to Landlord at Landlord's
address set forth in Paragraph 29 or at such other address as Landlord may
designate. Landlord acknowledges receipt of Five Thousand Three Hundred Thirty-
Three and 33/100 Dollars ($5,333.33) as base
<PAGE>
rent for the last eight (8) days of September. All other installments of base
rent shall be payable in advance on the first day of each month of the Term in
lawful money of the United States.
5. [INTENTIONALLY OMITTED.]
6. TAXES AND ASSESSMENTS. Throughout the Lease Term, Tenant shall pay, as and
when due, all real property taxes, assessments, special or otherwise, water and
sewer rents and charges, and all other charges of every kind and description
that may be levied against the Leased Premises, any building or improvement
thereon or any use or enjoyment thereof, by any governmental authority. Tenant
also shall pay, as and when due, all taxes, license fees and all other charges
of every kind and description that may be imposed by any governmental authority
on the Tenant's leasehold interest or on any fixtures, equipment, appliances,
goods, inventory and any other personal property placed upon the Leased Premises
by Tenant. Landlord shall cause all bills relating to the real property taxes to
be forwarded to Tenant upon receipt. Tenant shall, upon Landlord's request,
deliver to Landlord sufficient receipts or other evidence of payment. If any
such taxes paid by Tenant shall cover any period of time prior to or after the
expiration of the Term, Tenant's share of such taxes shall be equitably prorated
to cover only the period of time within the tax fiscal year during which this
Lease shall be in effect and Landlord shall reimburse Tenant to the extent
required. If Tenant shall fail to pay any such taxes, Landlord shall have the
right to pay the same, in which case Tenant shall repay such amount to Landlord
with Tenant's next rent installment together with interest as provided in
Paragraph 35.
It is expressly agreed, however, that Tenant shall not be required to pay or
discharge any real estate taxes or assessments, either general or special, or
other charges for which Tenant, pursuant to the above, may be liable, so long as
Tenant shall in good faith contest the same, or the validity thereof, by
appropriate legal proceedings that shall operate to prevent the collection of
the tax or assessment and the sale of the Leased Premises or any part thereof to
satisfy the same. Pending any such legal proceedings Landlord shall not have the
right to pay, discharge or remove the tax or assessments thereby contested,
provided Tenant shall, prior to the date such tax or assessment is due and
payable, have given such reasonable security as may be demanded in writing by
Landlord to insure such payment and to prevent any sale or forfeiture of the
Leased Premises by reason of such nonpayment not to exceed, however, one and
one-half times the amount of any such tax or assessment, including any penalties
and/or interest charges thereon imposed by law.
7. UTILITIES. Tenant shall pay, as and when due, all water, sewage, power, heat,
gas, electricity, oil and all other utility services used or consumed on the
Leased Premises during the Lease Term, such payment to be made directly to the
billing utility company.
8. MAINTENANCE, REPAIRS AND ALTERATIONS.
8.1 CONDITION OF PREMISES. Tenant has accepted the Leased Premises in their
physical condition existing as of the Commencement Date and subject to all
applicable municipal, county and state laws, ordinances and regulations
governing and regulating the use of the Leased Premises, and any covenants or
restrictions of record, and accepts this Lease subject thereto and to all
matters disclosed thereby and by any exhibits attached hereto.
8.2 TENANT'S OBLIGATIONS. Tenant shall keep in good order, condition and
repair the Leased Premises and every part thereof (whether or not the need for
such repairs occurs as a result of Tenant's use, any prior use, the elements or
the age of the Leased Premises) including, without limiting the generality of
the foregoing, the roof, foundation and structural components of the Leased
Premises, all plumbing, heating, ventilating, air conditioning, electrical, fire
protection, emergency power supply, lighting facilities and equipment within the
Leased Premises, fixtures, walls (interior and exterior), ceilings, floors,
windows, doors, plate glass and skylights located within the Leased Premises,
signs and all landscaping, driveways, parking lots, fences, sidewalks and
parkways located on/or adjacent to the Leased Premises. Tenant shall procure
and maintain, at Tenant's expense, a heating, ventilating and air conditioning
system maintenance contract and shall provide Landlord, upon request, with
copies of all service reports
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<PAGE>
issued by the contractors who perform such maintenance. Tenant shall also
procure and maintain, at Tenant's expense, a fire protection and security
system.
8.3 SURRENDER. On the last day of the term hereof, or on any sooner
termination, Tenant shall surrender the Leased Premises to Landlord in the same
condition as when received, damage from the elements pursuant to Paragraph 12,
or condemnation pursuant to Paragraph 15, alterations, improvements and
additions made by Tenant to the Leased Premises pursuant to Paragraph 9, or
normal wear and tear excepted, clean and free of debris. Tenant shall repair any
damage to the Leased Premises occasioned by the installation or removal of
Tenant's trade fixtures, furnishings and equipment.
8.4 LANDLORD'S RIGHTS. If Tenant fails to perform Tenant's obligations under
this Paragraph 8, or under any other paragraph of this Lease, Landlord may at
its option (but shall not be required to) enter upon the Leased Premises after
ten (10) days prior written notice to Tenant (except in the case of an
emergency, in which case no notice shall be required), perform such obligations
on Tenant's behalf and put the same in good order, condition and repair, and the
cost thereof together with interest thereon at the rate of eighteen percent (18
%) per annum (or the maximum rate then allowable by law) shall become due and
payable as additional rental to Landlord together with Tenant's next rental
installment.
8.5 LANDLORD'S OBLIGATION. It is intended by the parties hereto that Landlord
have no obligation, in any manner whatsoever, to repair and maintain the Leased
Premises nor the buildings located thereon nor the equipment therein, all of
which obligations are intended to be that of the Tenant under Paragraph 8.2
hereof.
9. ALTERATIONS, IMPROVEMENTS, ADDITIONS AND REPAIRS.
(a) Tenant shall, at its sole cost and expense, perform all necessary or
desired alterations, improvements, additions and repairs (pursuant to Paragraph
12.2 or Paragraph 12.3) to the Leased Premises (collectively, "Changes"),
provided Landlord shall reimburse Tenant for repairs in accordance with
Paragraph 12.2 or 12.3, as appropriate. Notwithstanding the foregoing, no
structural alterations, improvements or additions, which cost individually and
in the aggregate in excess of Ten Thousand and No/100 Dollars ($10,000.00) shall
be made to the Leased Premises without the prior written consent of Landlord,
which consent shall not be unreasonably withheld. All work performed by Tenant
shall be performed in a first-class and workmanlike manner (and materials
furnished shall be of like quality to those in the Leased Premises) at the sole
expense of Tenant. Landlord may require that Tenant remove any or all
alterations, improvements or additions at the expiration of the Lease Term, and
restore the Leased Premises to their prior condition, provided that Landlord
conditions its consent to such alterations, improvements or additions on such
removal at the end of the Term. Landlord may require Tenant to provide Landlord,
at Tenant's sole cost and expense, a lien and completion bond in an amount equal
to one and one-half times the estimated cost of such Changes, to insure Landlord
against any liability for mechanic's and materialmen's liens and to insure
completion of the work. Should Tenant make any alterations, improvements or
additions without the prior approval of Landlord, Landlord may require that
Tenant remove any or all of the same.
(b) Any alterations, improvements or additions in, or about the Leased
Premises that Tenant shall desire to make and which require the consent of
Landlord or any repairs which Tenant is either required to make pursuant to
Paragraph 12.2 or elects to make pursuant to Paragraph 12.3 shall be presented
to Landlord in written form, with proposed detailed plans. If Landlord shall
give its consent, the consent shall be deemed conditioned upon Tenant furnishing
Landlord, prior to the commencement of Tenant's work (including any repairs) on
or delivery of any materials to the Leased Premises, with (i) all necessary
permits, licenses, approvals, certificates and authorizations for prosecution
and completion of Tenant's work, (ii) sworn Tenant (Owner), contractor and
subcontractor affidavits listing all subcontractors and suppliers of materials
or labors (iii) certificates of insurance from all contractors and
subcontractors, insuring against any and all claims, costs, liabilities and
expenses which may arise in connection with work, and (iv) such other documents
as may be reasonably requested by Landlord.
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<PAGE>
(c) Landlord reserves the right to inspect and check for liens upon completion
of all work. Tenant shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Tenant at or for use in
the Leased Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Leased Premises or any interest therein. Tenant
shall give Landlord not less than ten (10) days notice prior to the commencement
of any work in the Leased Premises, and Landlord shall have the right to post
notices of non-responsibility in or on the Leased Premises as provided by law.
If Tenant shall, in good faith, contest the validity of any such lien, claim or
demand, then Tenant shall, at its sole expense defend itself and Landlord
against the same and shall pay and satisfy any such adverse judgment that may be
rendered thereon before the enforcement thereof against the Landlord or the
Leased Premises, upon the condition that Landlord may require Tenant to furnish
to Landlord a surety bond satisfactory to Landlord in an amount equal to such
contested lien claim or demand indemnifying Landlord against liability for the
same and holding the Leased Premises free from the effect of such claim. In
addition, Landlord may require Tenant to pay Landlord's reasonable attorneys'
fees and costs in participating in such action if Landlord shall decide it is to
its best interest to do so.
(d) Unless Landlord requires their removal, all alterations, improvements or
additions, which may be made to the Leased Premises, shall become the property
of Landlord and remain upon and be surrendered with the Leased Premises at the
expiration of the term. Notwithstanding the foregoing sentence, Tenant's trade
fixtures, furnishings and equipment, other than that which is affixed to the
Leased Premises so that it cannot be removed without material damage to the
Leased Premises, shall remain the property of Tenant and may be removed by
Tenant subject to the provisions of Paragraph 8.3.
10. ASSIGNMENT AND SUBLETTING.
10.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not voluntarily or by operation
of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all
or any part of Tenant's interest in this Lease or in the Leased Premises,
without Landlord's prior written consent, which consent may be withheld in
Landlord's sole and absolute discretion. Any attempted assignment, transfer,
mortgage, encumbrance or subletting without such consent shall be void and shall
constitute an immediate material default and breach of this Lease.
10.2 TENANT AFFILIATE. Notwithstanding the provisions of Paragraph 10.1
hereof, Tenant may assign or sublet the Leased Premises, or any portion thereof,
without Landlord's consent, to any corporation which controls, is controlled by
or is under common control with Tenant, provided that said assignee assumes, in
full, the obligations of Tenant under this Lease.
10.3 NO RELEASE OF TENANT. Regardless of Landlord's consent, no subletting or
assignment shall release Tenant of Tenant's obligation or alter the primary
liability of Tenant to pay the rent and to perform all other obligations to be
performed by Tenant hereunder. The acceptance of rent by Landlord from any other
person shall not be deemed to be a waiver by Landlord of any provision hereof.
Consent to one assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default by any assignee of
Tenant or any successor of Tenant in the performance of any of the terms hereof,
Landlord may proceed directly against Tenant without the necessity of exhausting
remedies against said assignee. Landlord may consent to subsequent assignments
or subletting of this Lease or amendments or modifications to this Lease with
assignees of Tenant, without notifying Tenant, or any successor of Tenant, and
without obtaining its or their consent hereto and such action shall not relieve
Tenant of liability under this Lease.
10.4 ATTORNEYS' FEES FOR CONSENTS. In the event Tenant shall assign or sublet
the Leased Premises or request the consent of Landlord to any assignment or
subletting or if Tenant shall request the consent of Landlord for any act Tenant
proposes to do, then Tenant shall pay Landlord's reasonable attorneys' fees
incurred in connection therewith.
-4-
<PAGE>
11. INSURANCE AND INDEMNITY.
11.1 LIABILITY INSURANCE. Tenant shall, at Tenant's expense, obtain and keep
in force during the term of this Lease a policy of comprehensive public
liability insurance insuring Landlord and Tenant against any liability arising
out of Tenant's negligent acts or omissions arising out of its use, occupancy or
maintenance of the Leased Premises and all areas appurtenant thereto. Such
insurance shall be in an amount of not less than Five Million Dollars
($5,000,000) for injury to or death of one person in any one accident or
occurrence and in an amount of not less than Five Million Dollars ($5,000,000)
for injury to or death of more than one person in any one accident or
occurrence. Such insurance shall further insure Landlord and Tenant against
liability for property damage of at least One Million Dollars ($1,000,000). If
Tenant shall fail to procure and maintain said insurance, Landlord may, but
shall not be required to, procure and maintain the same, but at the expense of
Tenant. The policy required by this Paragraph 11.1 shall insure performance by
Tenant of the indemnity provisions of this Paragraph 11. The limits of said
insurance may be increased from time to time to such greater amounts as Landlord
may reasonably hereafter advise Tenant in writing. The limits of said
insurance shall not, however, limit the liability of Tenant hereunder.
11.2 PROPERTY INSURANCE. Tenant shall, at Tenant's expense, obtain and keep in
force during the term of this Lease a commercially reasonable policy or policies
of insurance covering loss or damage to the Leased Premises, in the amount of
the full replacement value thereof, as the same shall be determined by Landlord,
in its sole and absolute discretion, against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief,
earthquake, flood (in the event same is required by a lender having a lien on
the Leased Premises), and special extended perils ("all risks" as such term is
used in the insurance industry). Said insurance shall provide for payment of
loss thereunder to Landlord or to the holders of mortgages or deeds of trust on
the Leased Premises subject to Landlord's obligations pursuant to Paragraph 12
below. Tenant shall obtain and keep in full force during the term of this Lease
similar coverage on Tenant's improvements, trade fixtures and equipment to the
extent they are not deemed to be part of the Leased Premises under Paragraph 9
hereof. A stipulated value or agreed amount endorsement deleting the coinsurance
provision of the policy shall be procured with said insurance as well as an
automatic increase in insurance endorsement causing the increase in annual
property insurance coverage by two percent (2%) per quarter.
11.3 INSURANCE POLICIES. Insurance required hereunder shall be in companies
holding a "General Policyholders Rating" of at least A+ or AAA, or such other
rating as may be required by a lender having a lien on the Leased Premises, as
set forth in the most current issue of "Best's Insurance Guide". Tenant as
delivered to Landlord a certificate evidencing the existence and amounts of such
insurance with loss payable clauses as required by this Paragraph 11. No such
policy shall be cancelable or subject to reduction of coverage or other
modification except after thirty (30) days prior written notice to Landlord.
Tenant shall, within thirty (30) days prior to expiration of such policies
furnish Landlord with renewals thereof, or Landlord may order such insurance and
charge the cost thereof to Tenant, which amount shall be payable by Tenant upon
demand. Tenant shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 11.
11.4 WAIVER OF SUBROGATION. Notwithstanding anything to the contrary contained
in this Lease, Tenant and Landlord each waives any and all rights of recovery
against the other, or against the officers, employees, agents and
representatives of the other, for loss of or damage to such waiving party or its
property or the property of others under its control, where such loss or damage
is insured against under any insurance policy in force at the time of such loss
or damage. Tenant and Landlord shall, upon obtaining the policies of insurance
required hereunder, give notice to the insurance carrier or carriers that the
foregoing mutual waiver of subrogation is contained in this Lease.
11.5 INDEMNITY. Tenant shall indemnify, defend and hold Landlord harmless from
and against any and all losses, claims, liabilities, damages, demands, fines,
costs and expenses (including reasonable attorneys' fees and expenses) of
whatever kind and nature arising from Tenant's use of the Leased Premises, or
from the conduct of Tenant's business or from any
-5-
<PAGE>
activity, work or things done by Tenant, its agents, invitees, contractors
and/or employees in or about the Leased Premises or elsewhere, including,
without limitation, those relating to violations or alleged violations of
Environmental Laws (as hereinafter defined), and shall further indemnify, defend
and hold harmless Landlord from and against any and all claims arising from any
breach or default in the performance of any obligation on Tenant's part to be
performed under the terms of this Lease, or arising from any negligence of
Tenant, or any of Tenant's agents, invitees, contractors, or employees, and from
and against all costs, attorneys' fees, expenses and liabilities incurred in the
defense of any such claim or any action or proceeding brought thereon; and in
case any action or proceeding be brought against Landlord by reason of any such
claim, Tenant upon notice from Landlord shall defend the same at Tenant's
expense by counsel reasonably satisfactory to Landlord. Tenant, as a material
part of the consideration to Landlord, hereby assumes all risk of damage to
property or injury to persons, in, upon or about the Leased Premises arising
from any cause, except for such damage to property or injury to persons as may
be caused by the gross negligence or other wilful tortious conduct of Landlord
or its agents or employees, and Tenant hereby waives all claims in respect
thereof against Landlord. Nothing herein shall be deemed to require Tenant to
indemnify Landlord over, from and against claims arising out of Landlord's gross
negligence or wilful act or omission. As used in this Paragraph 11.5 and
elsewhere in this Lease, the term "Environmental Laws" shall mean any laws,
regulations, rules or directives of any federal, state or local governmental
authority presently having jurisdiction over the Leased Premises, including,
without limitation, all requirements pursuant to environmental protection laws
and regulations (including those relating to the disposal of hazardous
substances, solid wastes or liquid wastes and those governing emissions of
gaseous matters).
11.6 EXEMPTION OF LANDLORD FROM LIABILITY. Tenant hereby agrees that Landlord
shall not be liable for injury to Tenant's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Tenant, Tenant's employees, invitees, customers, or any other person in or about
the Leased Premises unless caused by the gross negligence or other wilful
tortious conduct of Landlord or its agents or employees, nor, unless through its
gross negligence or wilful misconduct, shall Landlord be liable for injury to
the person of Tenant, Tenant's employees, invitees, agents or contractors,
whether such damage or injury is caused by or results from fire, steam,
electricity, gas, water or rain, or from the breakage, leakage, obstruction or
other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures, or from any other cause, whether the said
damage or injury results from conditions arising upon the Leased Premises or
upon other portions of the building of which the Leased Premises are a part, or
from other sources or places and regardless of whether the cause of such damage
or injury or the means of repairing the same is inaccessible to Landlord or
Tenant. Landlord shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the buildings location on the Leased
Premises.
12. DAMAGE OR DESTRUCTION.
12.1 DEFINITIONS.
(a) "Leased Premises Partial Damage" shall herein mean damage or destruction
to the Leased Premises to the extent that the cost of repair is less than 50% of
the then replacement cost of the Leased Premises.
(b) "Leased Premises Total Destruction" shall herein mean damage or
destruction to the Leased Premises to the extent that the cost of repair is 50%
or more of the then replacement cost of the Leased Premises.
(c) "Insured Loss" shall herein mean damage or destruction which was caused by
an event covered by the insurance described in Paragraph 11.
12.2 PARTIAL DAMAGE--INSURED LOSS. Subject to the provisions of Paragraphs
12.4 and 12.5, if at any time during the term of this Lease there is damage
which is an Insured Loss and which falls into the classification of Leased
Premises Partial Damage, then Landlord may at Landlord's option either (i) at
Landlord's expense, repair such damage, but not Tenant's
-6-
<PAGE>
fixtures, equipment or tenant improvements unless the same have become a part of
the Leased Premises pursuant to Paragraph 8 hereof as soon as reasonably
possible, or (ii) require Tenant to repair such damage, provided Landlord pays
to Tenant all insurance proceeds payable on account of such Insured Loss and, in
either case, this Lease shall continue in full force and effect.
12.3 TOTAL DESTRUCTION; PARTIAL DAMAGE - UNINSURED LOSS. Subject to the
provisions of Paragraphs 12.4 and 12.5, if at any time during the term of this
Lease there is damage which either (a) falls within the classification of Leased
Premises Total Destruction or (b) is not an Insured Loss and which falls within
the classification of Leased Premises Partial Damage, unless caused by a
negligent or willful act of Tenant (in which event Tenant shall make the repairs
at Tenant's expense), Landlord may at Landlord's option either (i) repair such
damage as soon as reasonably possible at Landlord's expense, in which event this
Lease shall continue in full force and effect, or (ii) give written notice to
Tenant within thirty (30) days after the date of the occurrence of such damage
of Landlord's intention to cancel and terminate this Lease as of the date of the
occurrence of such damage. In the event Landlord elects to give such notice of
Landlord's intention to cancel and terminate this Lease, Tenant shall have the
right within ten (10) days after the receipt of such notice to notify Landlord
in writing of Tenant's intention to repair such damage at Tenant's expense,
without reimbursement from Landlord except for the payment by Landlord to Tenant
of any insurance proceeds payable to Landlord on account of any Insured Loss, in
which event this Lease shall continue in full force and effect, and Tenant shall
proceed to make such repairs as soon as possible. If Tenant does not give such
notice within such ten-day period this Lease shall be cancelled and terminated
as of the date of the occurrence of such damage.
12.4 DAMAGE NEAR END OF LEASE TERM. If at any time during the last twelve
months of the Lease Term there is damage, whether or not an Insured Loss, which
falls within the classification of Leased Premises Partial Damage, Landlord or
Tenant may at either party's option cancel and terminate this Lease as of the
date of occurrence of such damage by giving written notice to the other of its
election to do so within thirty (30) days after the date of occurrence of such
damage.
12.5 ABATEMENT OF BASE RENT; TENANT'S REMEDIES.
(a) In the event of damage described in Paragraphs 12.2 or 12.3, and Landlord
or Tenant repairs or restores the Leased Premises pursuant to the provision of
this Paragraph 12, the base rent payable hereunder for the period during which
such damage, repair or restoration continues shall be abated in proportion to
the degree to which Tenant's use of the Leased Premises is impaired which shall
be no less than the square footage of the Leased Premises damaged. Except for
abatement of base rent, if any, Tenant shall have no claim against Landlord for
any damage suffered by reason of any such damage, destruction, repair or
restoration.
(b) If Landlord shall be obligated to repair or restore the Leased Premises
under the provisions of this Paragraph 12 and shall not commence such repair or
restoration within sixty (60) days after such obligation shall accrue, Tenant
may at Tenant's option cancel and terminate this Lease by giving Landlord
written notice of Tenant's election to do so at any time prior to the
commencement of such repair or restoration. In such event this Lease shall
terminate as of the date of such notice.
(c) Notwithstanding the foregoing, provided Tenant has not caused such
destruction whether partial or in total and Tenant is not able to utilize any
portion of the Leased Premises, base rent shall abate until the Leased Premises
can be restored and Tenant regains occupancy. In the event of partial
destruction, provided insurance proceeds are sufficient therefor, the Leased
Premises shall be restored to Tenant within nine (9) months from the date of
occurrence or Tenant, within thirty (30) days after the end of such nine (9)
month period may give written notice to Landlord to terminate this Lease.
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12.6 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 12, any advance rent and any advance payments made by Tenant
to Landlord shall be reimbursed to Tenant. Landlord shall, in addition, return
to Tenant so much of Tenant's security deposit as not theretofore been applied
by Landlord.
12.7 WAIVER. Landlord and Tenant waive the provisions of any statutes which
relate to termination of leases when leased property is destroyed and agree
that such event shall be governed by the terms of this Lease.
13. RIGHT OF FIRST REFUSAL. At all times during the Term, Tenant shall have a
right of first refusal to purchase the Leased Premises on the following terms
and conditions:
(a) In the event Landlord receives a third party offer to purchase the Leased
Premises and Landlord is willing to accept the offer on the terms and conditions
contained therein, it shall, in turn, submit such offer to Tenant in writing
prior to accepting such offer. Provided Tenant is not then in default under the
Lease, Tenant shall have three (3) business days to elect to purchase the Leased
Premises upon the same terms and conditions as stated in the third party offer.
In the event Tenant desires to exercise its first right to purchase the Leased
Premises, it shall do so by delivering written notice to Landlord of such
intention within such three (3) business day period. In the event that the terms
and conditions in such offer change, Landlord shall resubmit such offer to
Tenant, who shall then have an additional three (3) business days to exercise
this right to purchase the Leased Premises upon the new terms and conditions set
forth in the revised offer. In the event Tenant elects not to exercise its first
right to purchase the Leased Premises, Landlord shall be free to proceed with
the sale of the Leased Premises to the third party offeree.
(b) Title to the Leased Premises shall be conveyed to Tenant by general
warranty deed warranting that fee simple indefeasible title to the Leased
Premises is good and marketable and free and clear of all liens and encumbrances
except (i) taxes and assessments, both general and special, that are a lien but
are not then due and payable, (ii) zoning ordinances, if any, (iii) reasonable
easements, covenants and restrictions of record as may be approved in writing by
Tenant. In addition, Landlord shall at its sole cost and expense, deliver to
Tenant as of the date of transfer of title an ALTA Owner's Fee Policy of Title
Insurance (the "Title Policy") in the amount of the purchase price and issued by
a title company specified by Tenant (the "Title Company") insuring fee simple
indefeasible and marketable title to be vested in Tenant subject only to the
matters set forth in items (i) through (iii) of this subparagraph (b).
(c) If the right of first refusal is so exercised, all funds and documents
necessary to convey title to the Leased Premises shall be deposited in escrow
with the Title Company within ninety (90) days of receipt of Tenant's written
notice of its desire to exercise such right (the "Closing Date"). On the
condition that the Title Company can and will issue the Title Policy as
specified above, the Title Company shall complete the transaction on the Closing
Date upon receipt of all funds and documents. If a defect in title appears which
is not permitted hereunder, Landlord shall have sixty (60) days after actual
notice of such defect to cause such defect to be removed. If the defect is not
removed, Tenant shall have the right, at its option, to revoke the exercise of
its right of first refusal, whereupon all funds and documents deposited in
escrow shall be returned to the depositing party, all escrow fees and other
charges incurred in anticipation of transfer of title to Tenant shall be paid or
satisfied by Landlord, and this Lease shall continue in accordance with its
terms, including the right of first refusal, which may be thereafter re-
exercised in anticipation of the defect in title being removed. Notwithstanding
anything herein to the contrary, Landlord shall have the unconditional
obligation (without necessity of notice from Tenant) to cause to be released of
record any mortgage or other lien for the payment of money affecting the Leased
Premises.
(d) The Title Company shall charge Landlord and pay out of escrow the cost of
the owner's title insurance policy, any and all costs to cure title defects and
one-half of the escrow fee. The Title Company shall charge Tenant the fee for
filing the deed and any mortgage for record, the remaining one-half of the
escrow fee, the cost of any lender's title insurance policy and the fees
relating to any endorsements requested by Tenant and/or any lender of Tenant.
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Conveyance tax and transfer fees, if any, shall be borne by the party specified
in the applicable statute or ordinance or, in the event the applicable statute
or ordinance is silent, such tax and/or fees shall be borne equally by the
parties.
14. ESTOPPEL CERTIFICATE.
(a) Either party shall, at any time upon not less than ten (10) days' prior
written notice from the requesting party, execute, acknowledge and deliver to
the requesting party a statement in writing (i) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification and certifying that this Lease, as so modified, is in full
force and effect) and the date to which the rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are not, to such party's
knowledge, any uncured defaults on the part of the requesting party hereunder,
or specifying such defaults if any are claimed. Any such statement may be
conclusively relied upon by any prospective and permitted encumbrancer of the
Leased Premises.
(b) A party's failure to deliver such statement within such time shall be
conclusive upon such party (i) that this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
that there are no uncured defaults in the requesting party's performance, and
(iii) that not more than one month's rent has been paid in advance and such
failure may be considered by Landlord, if Landlord is the requesting party, as a
default by Tenant under this Lease.
(c) If Landlord desires to finance, refinance, or sell the Leased Premises,
or any part thereof, Tenant hereby agrees to deliver (not more than once in any
12-month period) to any lender designated by Landlord such financial statements
of Tenant as may be reasonably required by such lender. Such statements shall
include the past three years' financial statements of Tenant and be supplied at
no additional cost to Tenant. All such financial statements shall be received
by Landlord and such lender in confidence pursuant to such agreement reasonably
required by Tenant and shall be used only for the purposes herein set forth.
15. CONDEMNATION. If the whole of the Leased Premises shall be taken,
appropriated or condemned for any public or quasi-public use or purpose, or if
less than all of the Leased Premises is taken but the remaining portion is not
sufficient for the operation of Tenant's business, then the Lease Term shall
automatically cease and terminate as of the date Tenant must relinquish
possession of the Leased Premises or when title to the Leased Premises vests in
the taking authority whichever first occurs, and all rents and other charges
paid under this Lease shall be apportioned as of the date of termination.
If less than all of the Leased Premises shall be taken, appropriated or
condemned for any public or quasi-public use or purpose, and the remaining
portion not so taken is sufficient for the operation of Tenant's business,
Tenant shall continue to use the portion not so taken and there shall be a
proportionate reduction in rent.
16. SUBORDINATION.
(a) This Lease, at Landlord's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation or security now or
hereafter placed upon the real property of which the Leased Premises are a part
and to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Tenant's right to quiet possession of
the Leased Premises and any options to renew or purchase shall not be disturbed
if Tenant is not in default and so long as Tenant shall pay the rent and observe
and perform all of the provisions of this Lease, unless this Lease is otherwise
terminated pursuant to its terms. If any mortgagee, trustee or ground lessor
shall elect to have this Lease prior to the lien of its mortgage, deed of trust
or ground lease, and shall give written notice thereof to Tenant, this Lease
shall be deemed prior to such mortgage, deed of trust, or ground lease, whether
this Lease is dated prior or subsequent to the date of said mortgage, deed of
trust or ground lease or the date of recording thereof.
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(b) Tenant agrees to execute any documents reasonably required to effectuate
an attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Tenant's failure to
execute such documents within ten (10) days after written demand shall entitle
Landlord to execute such documents on behalf of Tenant as Tenant's attorney-in-
fact. Tenant does hereby make, constitute and irrevocably appoint Landlord as
Tenant's attorney-in-fact and in Tenant's name, place and stead, to execute such
documents in accordance with this Paragraph 16(b).
17. DEFAULTS; REMEDIES.
17.1 DEFAULTS. The occurrence of any one or more of the following events shall
constitute a material default and breach of this Lease by Tenant:
(a) The vacating or abandonment of the Leased Premises by Tenant.
(b) The failure to make any payment of rent or any other payment required to
be made by Tenant hereunder, as and when due, where such failure shall continue
for a period of three (3) days after written notice thereof from Landlord to
Tenant. In the event that Landlord serves Tenant with a default notice pursuant
to applicable unlawful detainer statutes, such default notice shall also
constitute the notice required by this subparagraph.
(c) The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Tenant,
other than described in paragraph (b) above, where such failure shall continue,
except as otherwise specifically set forth herein, for a period of thirty (30)
days after written notice hereof from Landlord to Tenant; provided, however,
that if the nature of Tenant's default is such that more than thirty (30) days
are reasonably required for its cure, then Tenant shall not be deemed to be in
default if Tenant commenced such cure within said 30-day period and thereafter
diligently prosecutes such cure to completion.
(d) (i) The making by Tenant or any guarantor of this Lease of any general
arrangement or assignment for the benefit of creditors; (ii) in the event Tenant
or any guarantor of this Lease becomes a "debtor" as defined in 11 U.S.C.
Section 101 or any successor statute thereto (unless, in the case of a petition
filed against Tenant, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Tenant's or any guarantor's assets or of Tenant's interest in this Lease, where
possession is not restored to Tenant or any guarantor within thirty (30) days;
or (iv) the attachment, execution or other judicial seizure of substantially all
of Tenant's or any guarantor's assets or of Tenant's interest in this Lease,
where such seizure is not discharged within thirty (30) days; provided, however,
in the event that any provision of this Paragraph 17.1(d) is contrary to any
applicable law, such provision shall be of no force or effect.
(e) The discovery by Landlord that any finnncial statement given to Landlord
by Tenant, any assignee of Tenant, any subtenant of Tenant, any successor in
interest of Tenant or any guarantor of Tenant's obligation hereunder, and any of
them, was materially false.
17.2 REMEDIES. In the event of any such material default or breach by Tenant,
Landlord may at any time thereafter, with or without notice or demand and
without limiting Landlord in the exercise of any right or remedy which Landlord
may have by reason of such default or breach:
(a) Terminate Tenant's right to possession of the Leased Premises by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Leased Premises to Landlord. In such
event Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default including, but not limited to (i) the
cost of recovering possession of the Leased Premises, (ii) expenses of
reletting, including reasonably necessary renovation and alteration of the
Leased Premises, reasonable attorneys' fees and any leasing commission actually
paid, (iii) the worth at the time of award by the court having jurisdiction
thereof of the amount by which the unpaid rent for the
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balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Tenant proves could be reasonably avoided,
and (iv) that portion of any leasing commission paid by Landlord applicable to
the unexpired term of the Lease.
(b) Maintain Tenant's right to possession in which case this Lease shall
continue in effect whether or not Tenant shall have abandoned the Premises. In
such event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due hereunder.
(c) Pursue any other remedy now or hereafter available to Landlord under the
laws or judicial decisions of the state wherein the Leased Premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Tenant
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by law.
17.3 DEFAULT BY LANDLORD. Landlord shall not be in default unless Landlord
fails to perform obligations required of Landlord within a reasonable time, but
in no event later than thirty (30) days after written notice by Tenant to
Landlord and to the holder of any first mortgage deed of trust covering the
Leased Premises whose name and address shall have theretofore been furnished to
Tenant in writing, specifying wherein Landlord has failed to perform such
obligation; provided, however, that if the nature of Landlord's obligation is
such that more than thirty (30) days are required for performance then Landlord
shall not be in default if Landlord commences performance within such 30-day
period and thereafter diligently prosecutes the same to completion.
17.4 LATE CHARGES. Tenant hereby acknowledges that the late payment by Tenant
to Landlord of rent and other sums due hereunder will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any mortgage or trust deed covering the Leased
Premises. Accordingly, if any installment of rent or any other sum due from
Tenant shall not be received by Landlord or Landlord's designee within ten (10)
days after the same is due, Tenant shall pay to Landlord a late charge equal to
six percent (6%) of such overdue amount. The parties hereby agree that such late
charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of late payment by Tenant. Acceptance of such late charge by
Landlord shall in no event constitute a waiver of Tenant's default with respect
to such overdue amount, nor prevent Landlord from exercising any of the other
rights and remedies granted hereunder.
I7.5 IMPOUNDS. In the event that a late charge is payable hereunder, whether
or not collected, for three (3) installments of rent or any other monetary
obligation of Tenant under the terms of this Lease, Tenant shall pay to
Landlord, if Landlord shall so request, in addition to any other payments
required under this Lease, a monthly advance installment, payable at the same
time as the monthly rent, as estimated by Landlord, for real property tax and
insurance expenses on the Leased Premises which are payable by Tenant under the
terms of this Lease. Such fund shall be established to insure payment when due,
before delinquency, of any or all such real property taxes and insurance
premiums. If the amounts paid to Landlord by Tenant under the provisions of
this paragraph are insufficient to discharge the obligations of Tenant to pay
such real property taxes and insurance premiums as the same become due, Tenant
shall pay to Landlord, upon Landlord's demand, such additional sums necessary to
pay such obligations. All moneys paid to Landlord under this paragraph may be
intermingled with other moneys of Landlord and shall not bear interest. In the
event of a default in the obligations of Tenant to perform under this Lease,
then any balance remaining from funds paid to Landlord under the provisions or
this paragraph may, at the option of Landlord, be applied to the payment of any
monetary default of Tenant in lieu of being applied to the payment of real
property tax and insurance premiums.
18. COMPLIANCE WITH LAW. Tenant shall comply, at its own cost and expense, with
all governmental laws, ordinances, rules, regulations, orders or other
requirements of all governmental bodies that possess or purport to possess
jurisdiction over the Leased Premises
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and/or Tenant's business at the Leased Premises. including, without limitation,
the Americans With Disabilities Act and all Environmental Laws.
19. SIGNAGE. Tenant shall have exclusive signage for the building. This signage
shall comply with all local sign ordinances and shall be at the sole cost of
Tenant. Both Tenant and Landlord shall mutually agree on signage.
20. RIGHT OF ENTRY. Landlord and its agents shall have the right, upon prior
notice and during reasonable times (except in the case of emergencies), to enter
the Leased Premises for the purpose of inspecting the same, showing the same to
prospective lenders, purchasers or tenants, and making such alterations,
improvements or additions to the Leased Premises as Landlord is required or
permitted to make pursuant to this Lease.
21. SURRENDER OF LEASED PREMISES. At the expiration of the Lease Term, or upon
any earlier termination of this Lease for any reason, Tenant shall surrender tne
Leased Premises in broom-clean condition and in the same condition as the Leased
Premises were in upon delivery of possession under this Lease, tahng by eminent
domain, casualty loss and normal wear and teaf excepted.
22. LOSS OF AND DAMAGE TO PROPERTY OF TENANT AND OTHERS. LANDLORD SHALL not be
liable for the loss of or any damage to any property of Tenant or of others
located or stored in, upon or about the Leased Premises, whether by theft,
vandalism, malicious mischief, unlawful entry or any other cause or reason.
Landlord shall not be liable for any loss or damage caused to Tenant's property
by other tenants or persons in the Leased Premises, occupants of adjacent
property, or the public, or caused by operations in the construction of any
private, public or quasi-public work or any .other cause.
23. QUIET ENJOYMENT. Landlord warrants to Tenant, that upon Tenant's paying the
rent and all other amounts and charges Tenant is required under this Lease to
pay, and upon Tenant's performing and observing all covenants, agreements and
conditions of this Lease that Tenant is required to perform and observe, Tenant
shall quietly have, hold and enjoy the Leased Premises during the Lease Term
without hindrance or interruption by Landlord or any other person or persons
lawfully or equitably claiming by, through or under the Landlord.
24. FORCE MAJEURE. Except for any obligation to pay rent or other charges
required under this Lease, if either Landlord or Tenant shall be delayed in or
prevented from the performance of any of the terms, covenants and conditions of
this Lease, by reason of restrictive governmental laws or regulations, riots,
insurrections, war, sabotage, act of God, or any other reason of a similar or
dissimilar nature not the fault of the party delayed in or prevented from
performance, then performance shall be excused for the period of the delay or
prevention of performance and the time for performance shall be extended for an
equivalent period.
25. WAIVER. The waiver by Landlord of any breach of any term, covenant or
condition of this Lease shall not be deemed to be a waiver of such term,
covenant or condition or any subsequent breach of the same or any other term,
covenant, or condition of this Lease. Landlord's acceptance of rent shall not be
deemed to be a waiver of any preceding breach by Tenant of any term, covenant or
condition of this Lease. No term, covenant, or condition of this lease shall be
deemed to have been waived by Landlord unless such waiver be in writing by
Landlord.
26. ENTIRE AGREEMENT. This Lease contains the entire agreement of the parties in
regard to the Leased Premises . There-are no oral agreements existing between
the parties hereto.
27. MODIFICATION OF LEASE. This Lease shall not be modified except in writing
signed by both Landlord and Tenant.
28. GOVERNING LAW; SEVERABILIB. This Lease and the rights and obligations of the
parties hereto shall be governed, interpreted and regulated by and in accordance
with the laws of the state where the Leased Premises are located. without
reference to the provisions governing
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conflicts of laws. If any portion of this Lease should be invalid or held
invalid, the remainder of it shall be unaffected and remain in full force and
effect.
29. NOTICES. Any notice, demand, request, consent or communication (collectively
a "Notice") required or permitted to be given under this Lease shall be
effective only if it is in writing and (i) personally delivered, (ii) sent by
certified or registered mail, return receipt requested, postage prepaid, or
(iii) sent by a nationally recognized overnight delivery service, with delivery
confirmed, addressed as follows:
(a) If to the Landlord, to:
FJM REALTY, INC.
c/o John D. Simms
611 Edgemont Lane
Park Ridge, Illinois 60068
in each case with a copy to:
John L. Eisel
Mark W. Hianik
WILDMAN, HARROLD, ALLEN & DIXON
225 West Wacker Drive
Chicago, Illinois 60606-1229
(b) If to Tenant, to:
MERKLE-KORFF INDUSTRIES, INC.
c/o Jordan Industries, Inc.
Thomas H. Ouinn,
President
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60015
with a copy to:
G. Robert Fisher
Michael Van Dyke
BRYAN CAVE LLP
3500 One Kansas City Place
1200 Main Street
Kansas City, Missouri 64105
or to such other persons or addresses as shall be furnished in writing by any
party to the other party. A Notice shall be deemed to have been given as of the
date when (i) personally delivered, (ii) two (2) business days after the date
when deposited with the United States mail properly addressed, or (iii) when
receipt of a Notice sent by an overnight delivery service is confirmed by such
overnight delivery service, as the case may be, unless the sending party has
actual knowledge that a Notice was not received by the intended recipient.
30. LANDLORD'S LIABILITY. The term "Landlord" as used herein shall mean only the
owner or owners at the time in question of the fee title or a tenant's interest
in a ground lease of the Leased Premises, in the event of any transfer of such
title or interest. Landlord herein named (and in case of any subsequent
transfers then the grantor) shall be relieved from and after the date of such
transfer of all liability as respects Landlord's obligations thereafter to be
performed, provided that any funds in the hands of Landlord or the grantor at
the time of such transfer, in which Tenant has an interest, shall be delivered
to the grantee. The obligations contained in this Lease to be performed by
Landlord shall, subject as aforesaid, be binding on Landlord's successors and
assigns, only during their respective periods of ownership.
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31. MEMORANDUM OF LEASE. Either Landlord or Tenant shall, upon written request
of the other, execute a "short form" or memorandum of this Lease, in recordable
form, to evidence of record the leasehold estate created by this Lease and the
right of first refusal.
32. SUCCESSORS. The provisions of this Lease shall apply to and be binding upon
the heirs, successors, assigns and legal representatives of both Tenant and
Landlord, subject to the provisions of Paragraph 10.
33. BROKER. Landlord and Tenant acknowledge and agree that no broker or other
agent dealt with or represented either of them in connection with this Lease and
each of them do hereby agree to indemnify and hold the other harmless from all
against any and all claims made by anyone claiming entitlement to a brokerage
commission or other fee on account of this Lease.
34. TIME OF ESSENCE. Time is of the essence in all matters pertaining to this
Lease.
35. INTEREST ON PAST-DUE OBLIGATION. Except as expressly herein provided, any
amount due to Landlord not paid when due shall bear interest at eighteen percent
(18%) per annum or the maximum rate then allowable by law from the date due,
whichever is less. Payment of such interest shall not excuse or cure any default
by Tenant under this Lease, provided, however, that interest shall not be
payable on late charges incurred by Tenant nor on any amounts upon which late
charges are paid by Tenant.
36. HOLDING OVER. If Tenant, without Landlord's consent, remains in possession
of the Leased Premises or any part thereof after the expiration of the Lease
Term, such occupancy shall be a tenancy from month to month upon all the
provisions of this Lease pertaining to the obligations of Tenant, except for
base rent which shall be 200 percent (200%) of the base rent in effect at the
expiration of the Lease Term.
37. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
38. ATTORNEYS' FEES. In the event either party hereto, its agents and/or
employees shall be a party to any litigation commenced by the other party
hereto, then the non-prevailing party shall pay all costs, expenses and
reasonable attorneys' fees that may be incurred or paid by the prevailing party,
its agents and/or employees in successfully enforcing the covenants and
agreements of this Lease.
39. AUTHORITY. Each individual executing this Lease on behalf of Tenant
represents and warrants that she or she is duly authorized to execute and
deliver this Lease on behalf of said corporation. Tenant shall, prior to the
execution of this Lease, deliver to Landlord certified board of director
resolutions or other evidence of such authority satisfactory to Landlord.
40. COUNTERPARTS. This Lease may be executed by the parties hereto at different
times, whether before or after the effective date hereof, and at separate
locations, whether or not in the presence of the other party hereto. Any copy of
this Lease to which the signatures of all parties have been appended shall
constitute an original hereof for all purposes. All such copies shall constitute
one and the same original, and any one of which shall constitute proof of the
terms of this Lease without the necessity of producing any other original copy.
41. LEASEHOLD MORTGAGE.
41.1 LEASEHOLD MORTGAGEE. Landlord hereby acknowledges that Tenant has advised
Landlord that Bankers Trust Company (the "Leasehold Mortgagee") is the mortgagee
under a mortgage encumbering Tenant's leasehold interest in the Leased Premises,
and as such, is entitled to the benefits contained in this Paragraph 41. All
notices to the Leasehold Mortgagee shall be deemed to have been duly given when
sent in the manner required hereunder addressed to the Leasehold Mortgagee at
One Bankers Trust Plaza, New York, New York 10006. Tennnt acknowledges on its
and Leasehold Mortgagee's behalf that Landlord has not reviewed and is
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not a party to any loan documents between Tenant and the Leasehold Mortgagee and
is not obligated to Leasehold Mortgagee for any obligations of Tenant to the
Leasehold Mortgage.
41.2 NOTICES AND DEMANDS. Landlord shall give to the Leasehold Mortgagee a
copy of each notice of default by Tenant at the same time and in the same manner
as the notice given by Landlord to Tenant, addressed to the Leasehold Mortgagee
at its address set forth herein or such other address that Leasehold Mortgagee
may have subsequently furnished to Landlord. No notice by Landlord to Tenant
under this Lease shall be deemed to have been duly given to the Leasehold
Mortgagee in the manner provided in Paragraph 29.
41.3 RIGHT TO CURE. Subject to the terms of Paragraph 41.5 hereof, the
Leasehold Mortgagee shall have a period that shall run concurrently with the
cure period afforded to Tenant within which to remedy any default of Tenant
hereunder or cause such default to be remedied. The Leasehold Mortgagee shall
have the option, as provided herein, but not the obligation, to cure any default
it shall promptly after receipt of notice of any such default in accordance with
Paragraph 41.2 above and subject to Paragraph 41.5, if the Leasehold Mortgagee
shall diligently commence a cure to the default, and continue same without
interruption, the Leasehold Mortgagee may reasonably request in writing in order
to complete such cure. If the Leasehold Mortgagee agrees to undertake such cure
and requires additional time as aforesaid to complete same and thereafter the
Leasehold Mortgagee fails to complete such cure and such failure results in
additional damage to Landlord, the Leasehold Mortgagee shall indemnify Landlord
against loss arising out of such damage.
41.4 PERFORMANCE OF LEASE BY LEASEHOLD MORTGAGEE. The Leasehold Mortgagee
shall to the extent it has the right to do so under its Mortgage, have the right
to perform any term, covenant, condition, or agreement and to remedy any default
by Tenant under this Lease, and Landlord shall accept such performance by the
Leasehold Mortgagee with the same force and effect as if performed by Tenant.
41.5 CERTAIN DEFAULT. In the event a default by Tenant occurs~in the
performance or observance of any term, covenant, condition, or agreement on
Tenant's part to be performed under this Lease (other than a term covenant,
condition or agreement requiring the payment of a sum of money) which cannot
practicably be cured by the Leasehold Mortgagee without taking possession of the
Leased Premises (or if such default is of such a nature that the same is not
susceptible of being cured by the Leasehold Mortgagee), then Landlord shall not
serve a notice of election to terminate this Lease pursuant to the terms of
Paragraph 17.2(a), or otherwise terminate the leasehold estate or any other
estate, right, title or interest of Tenant hereunder by reason of such default
without allowing the Leasehold Mortgagee reasonable time within which:
(a) In the case of a default which cannot practically be cured by the Leasehold
Mortgagee without taking possession of the Leased Premises, to obtain
possession of the Leased Premises as mortgagee (through the appointment
of a receiver of otherwise), and, upon obtaining possession, to commence
promptly and diligently prosecute to completion such action as may be
necessary to cure such default. If the Leasehold Mortgagee agrees to
undertake such cure and require additional time as aforesaid to complete
same and thereafter the Leasehold Mortgagee fails to complete such cure,
and such failure results in the direct result of additional damage to
Landlord, the Leasehold Mortgagee shall indemnify Landlord against loss
arising out of such damage; and
(b) In the case of a default which is not susceptible of being cured by the
Leasehold Mortgagee, to commence promptly and diligently prosecute to
completion foreclosure proceedings or to acquire Tenant's estate hereunder,
either in its own name or through a nominee, by-assignment in lieu of
foreclosure. If the Leasehold Mortgagee agrees to undertake
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<PAGE>
such cure and require additional time as aforesaid to complete same and
thereafter the Leasehold Mortgagee fails to complete such cure, and such
failure results in the direct result of additional damage to Landlord, the
Leasehold Mortgagee shall indemnify Landlord against loss arising out of
such damage.
The Leasehold Mortgagee shall not be required to continue to proceed to obtain
possession, or to continue in possession as mortgagee, of the Leased Premises
pursuant to clause (i) above, or to continue to prosecute foreclosure
proceedings pursuant to clause (ii) above, if and when such default shall be
cured. Nothing herein shall preclude Landlord from exercising any of its rights
or remedies with respect to any other default by Tenant during any period when
Landlord shall be forebearing termination of this Lease as above provided, but
in such event the Leasehold Mortgagee shall have all of the rights and
protections hereinabove provided for. If the Leasehold Mortgagee, or its
nominee, or a purchaser at a foreclosure sale, shall acquire title to Tenant's
leasehold estate hereunder, and shall cure all defaults of Tenant hereunder
which can be cured by the Leasehold Mortgagee, or by such purchaser, as the case
may be, then the defaults of any prior holder of Tenant's leasehold estate or
any other estate, right, title or interest hereunder which are not susceptible
of being cured by the Leasehold Mortgagee (or by such purchaser) shall no longer
be deemed to be defaults hereunder.
41.6 TERMINATION OF LEASE; NEW LEASE TO LEASEHOLD MORTGAGEE. In the event (i)
this Lease is terminated by reason of Tenant's default hereunder, or (ii) this
Lease is disaffirmed in the event of Tenant's bankruptcy, then, within ten (10)
days after such termination (which~term as used herein shall include a
disaffirmance) Landlord shall give notice to the Leasehold Mortgagee that this
Lease has been terminated, together with a statement of any and all sums which
would at that time be due under this Lease but for such termination, and of all
other defaults, if any, under this Lease then known to Landlord, and the
Leasehold Mortgagee, by notice to Landlord, thereupon may request Landlord to
enter into a new lease of the Leased Premises and Landlord shall enter into a
new lease (the "New Lease") with the Leasehold Mortgagee (or its nominee, in
which case the New Lease shall be guaranteed by the Leasehold Mortgagee on terms
acceptable to Landlord), within 60 days after the giving of such notice by the
Leasehold Mortgagee provided that the Leasehold Mortgagee shall have cured or
caused to be cured any defaults of Tenant existing at the date of termination.
The New Lease shall commence and Rent and all obligations of the Tenant under
the New Lease shall accrue, as of the date of termination of this Lease. The
term of the New Lease shall continue for the period which would have constituted
the remainder of the term of this Lease had this Lease not been terminated. The
New Lease shall be upon all of the terms, covenants, conditions, conditional
limitations, and agreements contained herein which were in force and effect
immediately prior to the termination of this Lease and shall provide an
indemnity of Landlord from the Leasehold Mortgagee against any claims by or on
behalf of Tenant as its afffiliates or creditors on account of the New Lease.
The New Lease, and this covenant, shall be superior to all rights, liens,
estates, titles and interests, other than those to which this Lease shall have
been subject immediately prior to termination and those matters to which this
Lease may, by its terms, become subject. The provisions of the immediately
preceding sentence shall be self-executing, and Landlord shall have no
obligation to do anything (other than to execute such New Lease as herein
provided) to assure to the Leasehold Mortgagee or to the tenant under the New
Lease good title to the leasehold estate and the other estates, rights, titles
and interests granted thereby. Simultaneously therewith, Landlord shall pay over
to the Leasehold Mortgagee all monies on deposit with Landlord, if any, which
Tenant would have been entitled to use but for the termination of this Lease for
the purposes of and in accordance with the provisions of the New Lease. Each
subtenant of space in the Leased Premises whose sublease was in force and effect
immediately prior to the delivery of the New Lease shall attorn to the tenant
under the New Lease, unless such tenant shall, at its option, elect to
dispossess such subtenant or otherwise terminate the sublease held by such
subtenant. The Leasehold Mortgagee shall, simultaneously with the delivery of
the New Lease, pay to Landlord (1) all rent and other sums of money due under
this Lease on the date of termination of this Lease and remaining unpaid; plus
(2) all rent and other sums of money due under the New Lease for the period from
the date of commencement of the term thereof to the date of delivery of the New
Lease; plus (3) all costs and expenses, including reasonable attorneys' fees,
court costs, and litigation expenses, incurred
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<PAGE>
by Landlord in connection with termination of this Lease, the recovery of
possession of the Leased Premises, putting the premises in good condition and
repair, and the preparation, execution and delivery of such new lease.
41.7 ASSIGMNENT. If the Leasehold Mortgagee forecloses upon or otherwise
acquires all or part of Tenant's leasehold interest, the transfer to the
Leasehold Mortgagee (or any nominee of the Leasehold Mortgagee) shall not
require Landlord's consent and the acquiring Leasehold Mortgagee shall be
permitted to transfer the acquired interest to a third party upon obtaining
Landlord's prior consent thereto, which consent shall not be unreasonably
withheld on the condition that such third party is a reputable person or entity
of good character and is financially responsible and creditworthy. Upon the
transfer to such third party as aforesaid, the Landlord shall be released from
all liability for the performance or observance of the covenants and conditions
in such lease contained on Tenant's part to be performed and observed from and
after the date the assignee shall have assumed such lease.
41.8 APPLICABILITY OF PROVISIONS. The provision of this Paragraph 41 shall
remain in effect only to the extent that the Leasehold Mortgagee holds a
mortgage on the Leased Premises.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease on the day and year
first ahove written.
LANDLORD:
FJM REALTY, INC.
By: /s/ John D. Simms
-------------------------
Name: John D. Simms
Title: President
TENANT:
MERKLE-KORFF INDUSTRIES, INC.
By: /s/ Jonathan F. Boucher
-------------------------
Name: Jonathan F. Boucher
-----------------------
Title: Vice President
----------------------
<PAGE>
EXHIBIT A
---------
Legal Description
-----------------
LOT 8 (EXCEPT THE WEST 30.75 FEET THEREOF) IN ANDERSON MILLER DES PLAINES
INDUSTRIAL PARK UNIT NUMBER 3, BEING A RESUBDIVISION OF LOTS 2, 3, 4 AND PART OF
THE LOTS 5 AND 6 IN GREWE'S SUBDIVISION OF THAT PART OF THE NORTH WEST
FRACTIONAL QUARTER AND THE WEST HALF OF THE WEST HALF OF THE NORTH EAST QUARTER
OF SECTION 30, TOWNSHIP 41 NORTH, RANGE 12 EAST OF THE THIRD PRINCIPAL MERIDIAN,
LYING NORTH OF A LINE 14.70 FEET NORTH OF THE EAST AND WEST CENTER LINE OF THE
NORTH HALF OF SAID SECTION (EXCEPT RIGHT OF WAY OF DES PLAINES VALLEY RAILWAY
EXCEPT THAT PART TAKEN FOR OAKTON STREET BY DOCUMENT NUMBER 10627381; TOGETHER
WITH THE EAST 102 FEET OF LOT 1 AND THAT PART OF LOT 6 LYING NORTHERLY OF A 19
FEET SWITCH TRACK EASEMENT IN GEORGE H. GEIL'S SUBDIVISION OF THAT PART OF THE
SOUTH HALF OF THE NORTH HALF AND THE SOUTH 14.70 FEET OF THE NORTH HALF OF THE
NORTH HALF OF SECTION 30, TOWNSHIP 41 NORTH, RANGE I2 EAST OF THE THIRD
PRINCIPAL MERIDIAN LYING WEST OF THE RIGHT OF WAY OF THE DES PLAINES VALLEY
RAILWAY AS SHOWN ON PLAT RECORDED SEPTEMBER lO, 1928 AS DOCUMENT NUMBER 10142179
IN COOK COUNTY, ILLINOIS.
Permanent Index No. 09-30-100-057-0000
Commonly Known As: 1776 Winthrop Drive
Des Plaines, Illinois 60018
<PAGE>
Exhibit 10.19
INDUSTRIAL BUILDING LEASE
-------------------------
This Industrial Building Lease (the "Lease") is made as of the 22nd day of
September, 1995, by and between BRADROCK REALTY, INC., an Illinois corporation
(hereafter referred to as "Landlord"), and MERKLE-KORFF INDUSTRIES, INC., an
Illinois corporation formerly known as MK Holdings, Inc. (successor by merger to
Elmco Industries, Inc.) (hereafter referred to as "Tenant").
1. LEASED PREMISES. Upon and subject to the terms and conditions of this Lease,
Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord, the
real property commonly known as 72-74 East Bradrock Drive, Des Plaines,
Illinois, together with all easements appurtenant thereto and all buildings,
improvements and fixtures located thereon (collectively, the "Leased Premises").
The real property of which the Leased Premises is a part is legally described on
Exhibit A attached hereto and incorporated herein.
2. USE. The Leased Premises shall be used and occupied for the manufacture of
low voltage motors and warehouse and office uses related thereto and for no
other purposes.
3. LEASE TERM; RENEWAL OPTION. This Lease shall commence on the date first above
written (the "Commencement Date") and shall continue through September 30, 2000
(the "Initial Term"). Provided Tenant is not then in default under this Lease,
Tenant shall have the option, exercisable by delivery of written notice to
Landlord at any time prior to the date which is six (6) months prior to the
expiration of the Initial Term or the first Renewal Term (as hereinafter
defined), as appropriate, to renew this Lease and extend the Initial Term
hereof for two additional periods of five (5) years (each of such five-year
periods being a "Renewal Term"), all upon the same terms and conditions as
govern the initial Term (including without limitation, the provisions regarding
rent set forth in Paragraph 4 below). Any reference in this Lease to the phrase
"Lease Term" shall mean both the Initial Term and, if exercised, any Renewal
Term. As used herein, the term "Lease Year" shall mean each twelve (12) month
period during the Lease Term hereof commencing on October 1 in each year;
provided, however, the first Lease Year shall consist of a period of twelve (12)
months and eight (8) days commencing on September 23, 1995.
4. BASE RENT.
(a) Tenant shall pay to Landlord as annual base rent for the Leased Premises
the following amounts:
Lease Year Base Rent
---------- ---------
1 $254,040.00
2 259,121.00
3 264,303.00
4 269,589.00
5 274,981.00
6 280,481.00
7 286,091.00
8 291,813.00
9 297,649.00
10 303,602.00
11 309,674.00
12 315,867.00
13 322,184.00
14 328,628.00
15 335,201.00
(b) All base rent payments, and all other payments due to Landlord under this
Lease, shall be deemed to be rent and shall be made to Landlord at Landlord's
address set forth in Paragraph 29 or at such other address as Landlord may
designate. Landlord acknowledges
<PAGE>
receipt of Five Thousand Six Hundred Forty-Five and 33/100 Dollars ($5,645.33)
as base rent for the last eight (8) days of September. All other installments of
base rent shall be payable in advance on the first day of each month of the Term
in lawful money of the United States.
5. [INTENTIONALLY OMITTED.]
6. TAXES AND ASSESSMENTS. Throughout the Lease Term, Tenant shall pay, as and
when due, all real property taxes, assessments, special or otherwise, water and
sewer rents and charges, and all other charges of every kind and description
that may be levied against the Leased Premises, any building or improvement
thereon or any use or enjoyment thereof, by any governmental authority. Tenant
also shall pay, as and when due, all taxes, license fees and all other charges
of every kind and description that may be imposed by any governmental authority
on the Tenant's leasehold interest or on any fixtures, equipment, appliances,
goods, inventory and any other personal property placed upon the Leased Premises
by Tenant. Landlord shall cause all bills relating to the real property taxes to
be forwarded to Tenant upon receipt. Tenant shall, upon Landlord's request,
deliver to Landlord sufficient receipts or other evidence of payment. If any
such taxes paid by Tenant shall cover any period of time prior to or after the
expiration of the Term, Tenant's share of such taxes shall be equitably prorated
to cover only the period of time within the tax fiscal year during which this
Lease shall be in effect, and Landlord shall reimburse Tenant to the extent
required. If Tenant shall fail to pay any such taxes, Landlord shall have the
right to pay the same, in which case Tenant shall repay such amount to Landlord
with Tenant's next rent installment together with interest as provided in
Paragraph 35.
It is expressly agreed, however, that Tenant shall not be required to pay or
discharge any real estate taxes or assessments, either general or special, or
other charges for which Tenant, pursuant to the above, may be liable, so long as
Tenant shall in good faith contest the same, or the validity thereof, by
appropriate legal proceedings that shall operate to prevent the collection of
the tax or assessment and the sale of the Leased Premises or any part thereof to
satisfy the same. Pending any such legal proceedings Landlord shall not have the
right to pay, discharge or remove the tax or assessments thereby contested,
provided Tenant shall, prior to the date such tax or assessment is due and
payable, have given such reasonable security as may be demanded in writing by
Landlord to insure such payment and to prevent any sale or forfeiture of the
Leased Premises by reason of such nonpayment, not to exceed, however, one and
one-half times the amount of any such tax or assessment, including any penalties
and/or interest charges thereon imposed by law.
7. UTILITIES. Tenant shall pay, as and when due, all water, sewage, power, heat,
gas, electricity, oil and all other utility services used or consumed on the
Leased Premises during the Lease Term, such payment to be made directly to the
billing utility company.
8. MAINTENANCE, REPAIRS AND ALTERATIONS.
8.1 CONDITION OF PREMISES. Tenant has accepted the Leased Premises in their
physical condition existing as of the Commencement Date and subject to all
applicable municipal, county and state laws, ordinances and regulations
governing and regulating the use of the Leased Premises, and any covenants or
restrictions of record, and accepts this Lease subject thereto and to all
matters disclosed thereby and by any exhibits attached hereto.
8.2 TENANT'S OBLIGATIONS. Tenant shall keep in good order, condition and
repair the Leased Premises and every part thereof (whether or not the need for
such repairs occurs as a result of Tenant's use, any prior use, the elements or
the age of the Leased Premises) including, without limiting the generality of
the foregoing, the roof, foundation and structural components of the Leased
Premises, all plumbing, heating, ventilating, air conditioning, electrical, fire
protection, emergency power supply, lighting facilities and equipment within the
Leased Premises, fixtures, walls (interior and exterior), ceilings, floors,
windows, doors, plate glass and skylights located within the Leased Premises,
signs and all landscaping, driveways, parking lots, fences, sidewalks and
parkways located on and/or adjacent to the Leased Premises. Tenant shall procure
and maintain, at Tenant's expense, a heating, ventilating and air conditioning
system
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<PAGE>
maintenance contract and shall provide Landlord, upon request, with copies of
all service reports issued by the contractors who perform such maintenance.
Tenant shall also procure and maintain, at Tenant's expense, a fire protection
and security system.
8.3 SURRENDER. On the last day of the term hereof, or on any sooner
termination, Tenant shall surrender the Leased Premises to Landlord in the same
condition as when received, damage from the elements pursuant to Paragraph 12,
or condemnation pursuant to Paragraph 15, alterations, improvements and
additions made by Tenant to the Leased Premises pursuant to Paragraph 9, or
normal wear and tear excepted, clean and free of debris. Tenant shall repair any
damage to the Leased Premises occasioned by the installation or removal of
Tenant's trade fixtures, furnishings and equipment.
8.4 LANDLORD'S RIGHTS. If Tenant fails to perform Tenant's obligations under
this Paragraph 8, or under any other paragraph of this Lease, Landlord may at
its option (but shall not be required to) enter upon the Leased Premises after
ten (10) days prior written notice to Tenant (except in the case of an
emergency, in which case no notice shall be required), perform such obligations
on Tenant's behalf and put the same in good order, condition and repair, and the
cost thereof together with interest thereon at the rate of eighteen percent
(18%) per annum (or the maximum rate then allowable by law) shall become due and
payable as additional rental to Landlord together with Tenant's next rental
installment.
8.5 LANDLORD'S OBLIGATION. It is intended by the parties hereto that
Landlord have no obligation, in any manner whatsoever, to repair and maintain
the Leased Premises nor the buildings located thereon nor the equipment therein,
all of which obligations are intended to be that of the Tenant under Paragraph
8.2 hereof.
9. ALTERATIONS, IMPROVEMENTS, ADDITIONS AND REPAIRS.
(a) Tenant shall, at its sole cost and expense, perform all necessary or
desired alterations, improvements, additions and repairs (pursuant to Paragraph
12.2 or Paragraph 12.3) to the Leased Premises (collectively, "Changes"),
provided Landlord shall reimburse Tenant for repairs in accordance with
Paragraph 12.2 or Paragraph 12.3, as appropriate. Notwithstanding the foregoing,
no structural alterations, improvements or additions, which cost individually
and in the aggregate in excess of Ten Thousand and No/100 Dollars ($10,000.00)
shall be made to the Leased Premises without the prior written consent of
Landlord, which consent shall not be unreasonably withheld. All work performed
by Tenant shall be performed in a first-class and workmanlike manner (and
materials furnished shall be of like quality to those in the Leased Premises) at
the sole expense of Tenant. Landlord may require that Tenant remove any or all
alterations, improvements or additions at the expiration of the Lease Term, and
restore the Leased Premises to their prior condition, provided that Landlord
conditions its consent to such alterations, improvements or additions on such
removal at the end of the Term. Landlord may require Tenant to provide Landlord,
at Tenant's sole cost and expense, a lien and completion bond in an amount equal
to one and one-half times the estimated cost of such Changes, to insure Landlord
against any liability for mechanic's and materialmen's liens and to insure
completion of the work. Should Tenant make any alterations, improvements or
additions without the prior approval of Landlord, Landlord may require that
Tenant remove any or all of the same.
(b) Any alterations, improvements or additions in, or about the Leased
Premises that Tenant shall desire to make and which require the consent of
Landlord or any repairs which Tenant is either required to make pursuant to
Paragraph 12.2 or elects to make pursuant to Paragraph 12.3 shall be presented
to Landlord in written form, with proposed detailed plans. If Landlord shall
give its consent, the consent shall be deemed conditioned upon Tenant furnishing
Landlord, prior to the commencement of Tenant's work (including any repairs) on
or delivery of any materials to the Leased Premises, with (i) all necessary
permits, licenses, approvals, certificates and authorizations for prosecution
and completion of Tenant's work, (ii) sworn Tenant (Owner), contractor and
subcontractor affidavits listing all subcontractors and suppliers of materials
or labor, (iii) certificates of insurance from all contractors and
subcontractors, insuring against any and all claims, costs, liabilities and
expenses which may
-3-
<PAGE>
arise in connection with work, and (iv) such other documents as may be
reasonably requested by Landlord.
(c) Landlord reserves the right to inspect and check for liens upon completion
of all work. Tenant shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Tenant at or for use in
the Leased Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Leased Premises or any interest therein. Tenant
shall give Landlord not less than ten (10) days notice prior to the commencement
of any work in the Leased Premises, and Landlord shall have the right to post
notices of non-responsibility in or on the Leased Premises as provided by law.
If Tenant shall, in good faith, contest the validity of any such lien, claim or
demand, then Tenant shall, at its sole expense defend itself and Landlord
against the same and shall pay and satisfy any such adverse judgment that may be
rendered thereon before the enforcement thereof against the Landlord or the
Leased Premises, upon the condition that Landlord may require Tenant to
furnish to Landlord a surety bond satisfactory to Landlord in an amount equal to
such contested lien claim or demand indemnifying Landlord against liability for
the same and holding the Leased Premises free from the effect of such claim. In
addition, Landlord may require Tenant to pay Landlord's reasonable attorneys'
fees and costs in participating in such action if Landlord shall decide it is to
its best interest to do so.
(d) Unless Landlord requires their removal, all alterations, improvements or
additions, which may be made to the Leased Premises, shall become the property
of Landlord and remain upon and be surrendered with the Leased Premises at the
expiration of the term. Notwithstanding the foregoing sentence, Tenant's trade
fixtures, furnishings and equipment, other than that which is affixed to the
Leased Premises so that it cannot be removed without material damage to the
Leased Premises, shall remain the property of Tenant and may be removed by
Tenant subject to the provisions of Paragraph 8.3.
10. ASSIGNMENT AND SUBLETTING.
10.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not voluntarily or by operation
of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all
or any part of Tenant's interest in this Lease or in the Leased Premises,
without Landlord's prior written consent, which consent may be withheld in
Landlord's sole and absolute discretion. Any attempted assignment, transfer,
mortgage, encumbrance or subletting without such consent shall be void, and
shall constitute an immediate material default and breach of this Lease.
10.2 TENANT AFFILIATE. Notwithstanding the provisions of Paragraph 10.1
hereof, Tenant may assign or sublet the Leased Premises, or any portion thereof,
without Landlord's consent, to any corporation which controls, is controlled by
or is under common control with Tenant, provided that said assignee assumes, in
full, the obligations of Tenant under this Lease.
10.3 NO RELEASE OF TENANT. Regardless of Landlord's consent, no subletting or
assignment shall release Tenant of Tenant's obligation or alter the primary
liability of Tenant to pay the rent and to perform all other obligations to be
performed by Tenant hereunder. The acceptance of rent by Landlord from any other
person shall not be deemed to be a waiver by Landlord of any provision hereof.
Consent to one assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default by any assignee of
Tenant or any successor of Tenant in the performance of any of the terms hereof,
Landlord may proceed directly against Tenant without the necessity of exhausting
remedies against said assignee. Landlord may consent to subsequent assignments
or subletting of this Lease or amendments or modifications to this Lease with
assignees of Tenant, without notifying Tenant, or any successor of Tenant, and
without obtaining its or their consent hereto and such action shall not relieve
Tenant of liability under this Lease.
10.4 ATTORNEYS' FEES FOR CONSENTS. In the event Tenant shall assign or sublet
the Leased Premises or request the consent of Landlord to any assignment or
subletting or if Tenant shall request the consent of Landlord for any act Tenant
proposes to do, then Tenant shall pay Landlord's reasonable attorneys' fees
incurred in connection therewith.
-4-
<PAGE>
11. INSURANCE AND INDEMNITY.
11.1 LIABILITY INSURANCE. Tenant shall, at Tenant's expense, obtain and keep
in force during the term of this Lease a policy of comprehensive public
liability insurance insuring Landlord and Tenant against any liability arising
out of Tenant's negligent acts or omissions arising out of its use, occupancy or
maintenance of the Leased Premises and all areas appurtenant thereto. Such
insurance shall be in an amount of not less than Five Million Dollars
($5,000,000) for injury to or death of one person in any one accident or
occurrence and in an amount of not less than Five Million Dollars ($5,000,000)
for injury to or death of more than one person in any one accident or
occurrence. Such insurance shall further insure Landlord and Tenant against
liability for property damage of at least One Million Dollars ($1,000,000). If
Tenant shall fail to procure and maintain said insurance, Landlord may, but
shall not be required to, procure and maintain the same, but at the expense of
Tenant. The policy required by this Paragraph 11.1 shall insure performance by
Tenant of the indemnity provisions of this Paragraph 11. The limits of said
insurance may be increased from time to time to such greater amounts as Landlord
may reasonably hereafter advise Tenant in writing. The limits of said insurance
shall not, however, limit the liability of Tenant hereunder.
11.2 PROPERTY INSURANCE. Tenant shall, at Tenant's expense, obtain and keep in
force during the term of this Lease a commercially reasonable policy or policies
of insurance covering loss or damage to the Leased Premises, in the amount of
the full replacement value thereof, as the same shall be determined by Landlord,
in its sole and absolute discretion, against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief,
earthquake, flood (in the event same is required by a lender having a lien on
the Leased Premises), and special extended perils ("all risks" as such term is
used in the insurance industry). Said insurance shall provide for payment of
loss thereunder to Landlord or to the holders of mortgages or deeds of trust on
the Leased Premises subject to Landlord's obligations pursuant to Paragraph 12
below. Tenant shall obtain and keep in full force during the term of this Lease
similar coverage on Tenant's improvements, trade fixtures and equipment to the
extent they are not deemed to be part of the Leased Premises under Paragraph 9
hereof. A stipulated value or agreed amount endorsement deleting the coinsurance
provision of the policy shall be procured with said insurance as well as an
automatic increase in insurance endorsement causing the increase in annual
property insurance coverage by two percent (2%) per quarter.
11.3 INSURANCE POLICIES. Insurance required hereunder shall be in companies
holding a "General Policyholders Rating" of at least A+ or AAA, or such other
rating as may be required by a lender having a lien on the Leased Premises, as
set forth in the most current issue of "Best's Insurance Guide". Tenant has
delivered to Landlord a certificate evidencing the existence and amounts of such
insurance with loss payable clauses as required by this Paragraph 11. No such
policy shall be cancelable or subject to reduction of coverage or other
modification except after thirty (30) days prior written notice to Landlord.
Tenant shall, within thirty (30) days prior to expiration of such policies
furnish Landlord with renewals thereof, or Landlord may order such insurance and
charge the cost thereof to Tenant, which amount shall be payable by Tenant upon
demand. Tenant shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 11.
11.4 WAIVER OF SUBROGATION. Notwithstanding anything to the contrary contained
in this Lease, Tenant and Landlord each waives any and all rights of recovery
against the other, or against the officers, employees, agents and
representatives of the other, for loss of or damage to such waiving party or its
property or the property of others under its control, where such loss or damage
is insured against under any insurance policy in force at the time of such loss
or damage. Tenant and Landlord shall, upon obtaining the policies of insurance
required hereunder, give notice to the insurance carrier or carriers that the
foregoing mutual waiver of subrogation is contained in this Lease.
11.5 INDEMNITY. Tenant shall indemnify, defend and hold Landlord harmless from
and against any and all losses, claims, liabilities, damages, demands, fines,
costs and expenses (including reasonable attorneys' fees and expenses) of
whatever kind and nature arising from Tenant's use of the Leased Premises, or
from the conduct of Tenant's business or from any
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activity, work or things done by Tenant, its agents, invitees, contractors
and/or employees in or about the Leased Premises or elsewhere, including,
without limitation, those relating to violations or alleged violations of
Environmental Laws (as hereinafter defined), and shall further indemnify, defend
and hold harmless Landlord from and against any and all claims arising from any
breach or default in the performance of any obligation on Tenant's part to be
performed under the terms of this Lease, or arising from any negligence of
Tenant, or any of Tenant's agents, invitees, contractors, or employees, and from
and against all costs, attorneys' fees, expenses and liabilities incurred in the
defense of any such claim or any action or proceeding brought thereon; and in
case any action or proceeding be brought against Landlord by reason of any such
claim, Tenant upon notice from Landlord shall defend the same at Tenant's
expense by counsel reasonably satisfactory to Landlord. Tenant, as a material
part of the consideration to Landlord, hereby assumes all risk of damage to
property or injury to persons, in, upon or about the Leased Premises arising
from any cause, except for such damage to property or injury to persons as may
be caused by the gross negligence or other wilful tortious conduct of Landlord
or its agents or employees, and Tenant hereby waives all claims in respect
thereof against Landlord. Nothing herein shall be deemed to require Tenant to
indemnify Landlord over, from and against claims arising out of Landlord's gross
negligence or wilful act or omission. As used in this Paragraph 11.5 and
elsewhere in this Lease, the term "Environmental Laws" shall mean any laws,
regulations, rules or directives of any federal, state or local governmental
authority presently having jurisdiction over the Leased Premises, including,
without limitation, all requirements pursuant to environmental protection laws
and regulations (including those relating to the disposal of hazardous
substances, solid wastes or liquid wastes and those governing emissions of
gaseous matters).
11.6 EXEMPTION OF LANDLORD FROM LIABILITY. Tenant hereby agrees that Landlord
shall not be liable for injury to Tenant's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Tenant, Tenant's employees, invitees, customers, or any other person in or about
the Leased Premises unless caused by the gross negligence or other wilful
tortious conduct of Landlord or its agents or employees, nor, unless through its
gross negligence or wilful misconduct, shall Landlord be liable for injury to
the person of Tenant, Tenant's employees, invitees, agents or contractors,
whether such damage or injury is caused by or results from fire, steam,
electricity, gas, water or rain, or from the breakage, leakage, obstruction or
other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures, or from any other cause, whether the said
damage or injury results from conditions arising upon the Leased Premises or
upon other portions of the building of which the Leased Premises are a part, or
from other sources or places and regardless of whether the cause of such damage
or injury or the means of repairing the same is inaccessible to Landlord or
Tenant. Landlord shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the buildings location on the Leased
Premises.
12. DAMAGE OR DESTRUCTION.
12.1 DEFINITIONS.
(a) "Leased Premises Partial Damage" shall herein mean damage or destruction
to the Leased Premises to the extent that the cost of repair is less than 50%
of the then replacement cost of the Leased Premises.
(b) "Leased Premises Total Destruction" shall herein mean damage or
destruction to the Leased Premises to the extent that the cost of repair is 50%
or more of the then replacement cost of the Leased Premises.
(c) "Insured Loss" shall herein mean damage or destruction which was caused by
an event covered by the insurance described in Paragraph 11.
12.2 PARTIAL DAMAGE -- INSURED LOSS. Subject to the provisions of Paragraphs
12.4 and 12.5, if at any time during the term of this Lease there is damage
which is an Insured Loss and which falls into the classification of Leased
Premises Partial Damage, then Landlord may at Landlord's option either (i) at
Landlord's expense, repair such damage, but not Tenant's
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fixtures, equipment or tenant improvements unless the same have become a part of
the Leased Premises pursuant to Paragraph 8 hereof as soon as reasonably
possible, or (ii) require Tenant to repair such damage, provided Landlord pays
to Tenant all insurance proceeds payable on account of such Insured Loss and, in
either case, this Lease shall continue in full force and effect.
12.3 TOTAL DESTRUCTION; PARTIAL DAMAGE - UNINSURED LOSS. Subject to the
provisions of Paragraphs 12.4 and 12.5, if at any time during the term of this
Lease there is damage which either (a) falls with the classification of Leased
Premises Total Destruction or (b) is not an Insured Loss and which falls within
the classification of Leased Premises Partial Damage, unless caused by a
negligent or willful act of Tenant (in which event Tenant shall make the repairs
at Tenant's expense), Landlord may at Landlord's option either (i) repair such
damage as soon as reasonably possible at Landlord's expense, in which event this
Lease shall continue in full force and effect, or (ii) give written notice to
Tenant within thirty (30) days after the date of the occurrence of such damage
of Landlord's intention to cancel and terminate this Lease as of the date of the
occurrence of such damage. In the event Landlord elects to give such notice of
Landlord's intention to cancel and terminate this Lease, Tenant shall have the
right within ten (10) days after the receipt of such notice to notify Landlord
in writing of Tenant's intention to repair such damage at Tenant's expense,
without reimbursement from Landlord except for the payment by Landlord to
Tenant of any insurance proceeds payable to Landlord on account of any Insured
Loss, in which event this Lease shall continue in full force and effect, and
Tenant shall proceed to make such repairs as soon as possible. If Tenant does
not give such notice within such ten-day period this Lease shall be cancelled
and terminated as of the date of the occurrence of such damage.
12.4 DAMAGE NEAR END OF LEASE TERM. If at any time during the last twelve
months of the Lease Term there is damage, whether or not an Insured Loss, which
falls within the classification of Leased Premises Partial Damage, Landlord or
Tenant may at either party's option cancel and terminate this Lease as of the
date of occurrence of such damage by giving written notice to the other of its
election to do so within thirty (30) days after the date of occurrence of such
damage.
12.5 ABATEMENT OF BASE RENT; TENANT'S REMEDIES.
(a) In the event of damage described in Paragraphs 12.2 or 12.3, and Landlord
or Tenant repairs or restores the Leased Premises pursuant to the provision of
this Paragraph 12, the base rent payable hereunder for the period during which
such damage, repair or restoration continues shall be abated in proportion to
the degree to which Tenant's use of the Leased Premises is impaired which shall
be no less than the square footage of the Leased Premises damaged. Except for
abatement of base rent, if any, Tenant shall have no claim against Landlord for
any damage suffered by reason of any such damage, destruction, repair or
restoration.
(b) If Landlord shall be obligated to repair or restore the Leased Premises
under the provisions of this Paragraph 12 and shall not commence such repair or
restoration within sixty (60) days after such obligation shall accrue, Tenant
may at Tenant's option cancel and terminate this Lease by giving Landlord
written notice of Tenant's election to do so at any time prior to the
commencement of such repair or restoration. In such event this Lease shall
terminate as of the date of such notice.
(c) Notwithstanding the foregoing, provided Tenant has not caused such
destruction whether partial or in total and Tenant is not able to utilize any
portion of the Leased Premises, base rent shall abate until the Leased Premises
can be restored and Tenant regains occupancy. In the event of partial
destruction, provided insurance proceeds are sufficient therefor, the Leased
Premises shall be restored to Tenant within nine (9) months from the date of
occurrence or Tenant, within thirty (30) days after the end of such nine (9)
month period may give written notice to Landlord to terminate this Lease.
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12.6 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 12, any advance rent and any advance payments made by Tenant
to Landlord shall be reimbursed to Tenant. Landlord shall, in addition, return
to Tenant so much of Tenant's security deposit as not theretofore been applied
by Landlord.
12.7 WAIVER. Landlord and Tenant waive the provisions of any statutes which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
13. RIGHT OF FIRST REFUSAL. At all times during the Term, Tenant shall have a
right of first refusal to purchase the Leased Premises on the following terms
and conditions:
(a) In the event Landlord receives a third party offer to purchase the Leased
Premises and Landlord is willing to accept the offer on the terms and conditions
contained therein, it shall, in turn, submit such offer to Tenant in writing
prior to accepting such offer. Provided Tenant is not then in default under the
Lease, Tenant shall have three (3) business days to elect to purchase the Leased
Premises upon the same terms and conditions as stated in the third party offer.
In the event Tenant desires to exercise its first right to purchase the Leased
Premises, it shall do so by delivering written notice to Landlord of such
intention within such three (3) business day period. In the event that the terms
and conditions in such offer change, Landlord shall resubmit such offer to
Tenant, who shall then have an additional three (3) business days to exercise
this right to purchase the Leased Premises upon the new terms and conditions set
forth in the revised offer. In the event Tenant elects not to exercise its first
right to purchase the Leased Premises, Landlord shall be free to proceed with
the sale of the Leased Premises to the third party offeree.
(b) Title to the Leased Premises shall be conveyed to Tenant by general
warranty deed warranting that fee simple indefeasible title to the Leased
Premises is good and marketable and free and clear of all liens and encumbrances
except (i) taxes and assessments, both general and special, that are a lien but
are not then due and payable, (ii) zoning ordinances, if any, (iii) reasonable
easements, covenants and restrictions of record as may be approved in writing by
Tenant. In addition, Landlord shall at its sole cost and expense, deliver to
Tenant as of the date of transfer of title an ALTA Owner's Fee Policy of Title
Insurance (the "Title Policy") in the amount of the purchase price and issued by
a title company specified by Tenant (the "Title Company") insuring fee simple
indefeasible and marketable title to be vested in Tenant subject only to the
matters set forth in items (i) through (iii) of this subparagraph (b).
(c) If the right of first refusal is so exercised, all funds and documents
necessary to convey title to the Leased Premises shall be deposited in escrow
with the Title Company within ninety (90) days of receipt of Tenant's written
notice of its desire to exercise such right (the "Closing Date"). On the
condition that the Title Company can and will issue the Title Policy as
specified above, the Title Company shall complete the transaction on the Closing
Date upon receipt of all funds and documents. If a defect in title appears which
is not permitted hereunder, Landlord shall have sixty (60) days after actual
notice of such defect to cause such defect to be removed. If the defect is not
removed, Tenant shall have the right, at its option, to revoke the exercise of
its right of first refusal, whereupon all funds and documents deposited in
escrow shall be returned to the depositing party, all escrow fees and other
charges incurred in anticipation of transfer of title to Tenant shall be paid or
satisfied by Landlord, and this Lease shall continue in accordance with its
terms, including the right of first refusal, which may be thereafter re-
exercised in anticipation of the defect in title being removed. Notwithstanding
anything herein to the contrary, Landlord shall have the unconditional
obligation (without necessity of notice from Tenant) to cause to be released of
record any mortgage or other lien for the payment of money affecting the Leased
Premises.
(d) The Title Company shall charge Landlord and pay out of escrow the cost of
the owner's title insurance policy, any and all costs to cure title defects and
one-half of the escrow fee. The Title Company shall charge Tenant the fee for
filing the deed and any mortgage for record, the remaining one-half of the
escrow fee, the cost of any lender's title insurance policy and the fees
relating to any endorsements requested by Tenant and/or any lender of Tenant.
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Conveyance tax and transfer fees, if any, shall be borne by the party specified
in the applicable statute or ordinance or, in the event the applicable statute
or ordinance is silent, such tax and/or fees shall be borne equally by the
parties.
14. ESTOPPEL CERTIFICATE.
(a) Either party shall, at any time upon not less than ten (10) days' prior
written notice from the requesting party, execute, acknowledge and deliver to
the requesting party a statement in writing (i) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification and certifying that this Lease, as so modified, is in full
force and effect) and the date to which the rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are not, to such party's
knowledge, any uncured defaults on the part of the requesting party hereunder,
or specifying such defaults if any are claimed. Any such statement may be
conclusively relied upon by any prospective and permitted encumbrancer of the
Leased Premises.
(b) A party's failure to deliver such statement within such time shall be
conclusive upon such party (i) that this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
that there are no uncured defaults in the requesting party's performance, and
(iii) that not more than one month's rent has been paid in advance and such
failure may be considered by Landlord, if Landlord is the requesting party, as
a default by Tenant under this Lease.
(c) If Landlord desires to finance, refinance, or sell the Leased Premises, or
any part thereof, Tenant hereby agrees to deliver (not more than once in any 12-
month period) to any lender designated by Landlord such financial statements
of Tenant as may be reasonably required by such lender. Such statements shall
include the past three years' financial statements of Tenant and be supplied at
no additional cost to Tenant. All such financial statements shall be received by
Landlord and such lender in confidence pursuant to such agreement reasonably
required by Tenant and shall be used only for the purposes herein set forth.
15. CONDEMNATION. If the whole of the Leased Premises shall be taken,
appropriated or condemned for any public or quasi-public use or purpose, or if
less than all of the Leased Premises is taken but the remaining portion is not
sufficient for the operation of Tenant's business, then the Lease Term shall
automatically cease and terminate as of the date Tenant must relinquish
possession of the Leased Premises or when title to the Leased Premises vests in
the taking authority whichever first occurs, and all rents and other charges
paid under this Lease shall be apportioned as of the date of termination.
If less than all of the Leased Premises shall be taken, appropriated or
condemned for any public or quasi-public use or purpose, and the remaining
portion not so taken is sufficient1cient for the operation of Tenant's business,
Tenant shall continue to use the portion not so taken and there shall be a
proportionate reduction in rent.
16. SUBORDINATION.
(a) This Lease, at Landlord's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation or security now or
hereafter placed upon the real property of which the Leased Premises are a part
and to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Tenant's right to quiet possession of the
Leased Premises and any o,pti~ons to renew or purchase shall not be disturbed
if Tenant is not in default and so long as Tenant shall pay the rent and observe
and perform all of the provisions of this Lease, unless this Lease is otherwise
terminated pursuant to its terms. If any mortgagee, trustee or ground lessor
shall elect to have this Lease prior to the lien of its mortgage, deed of trust
or ground lease, and shall give written notice thereof to Tenant, this Lease
shall be deemed prior to such mortgage, deed of trust, or ground lease, whether
this Lease is dated prior or subsequent to the date of said mortgage, deed of
trust or ground lease or the date of recording thereof
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(b) Tenant agrees to execute any documents reasonably required to effectuate
an attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Tenant's failure to
execute such documents within ten (10) days after written demand shall entitle
Landlord to execute such documents on behalf of Tenant as Tenant's attorney-in-
fact. Tenant does hereby make, constitute and irrevocably appoint Landlord as
Tenant's attorney-in-fact and in Tenant's name, place and stead, to execute such
documents in accordance with this Paragraph 16(b).
17. DEFAULTS; REMEDIES.
17.1 DEFAULTS. The occurrence of any one or more of the following events shall
constitute a material default and breach of this Lease by Tenant:
(a) The vacating or abandonment of the Leased Premises by Tenant.
(b) The failure to make any payment of rent or any other payment required to
be made by Tenant hereunder, as and when due, where such failure shall continue
for a period of three (3) days after written notice thereof from Landlord to
Tenant. In the event that Landlord serves Tenant with a default notice pursuant
to applicable unlawful detainer statutes, such default notice shall also
constitute the notice required by this subparagraph.
(c) The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Tenant,
other than described in paragraph (b) above, where such failure shall continue,
except as otherwise specifically set forth herein, for a period of thirty (30)
days after written notice hereof from Landlord to Tenant; provided, however,
that if the nature of Tenant's default is such that more than thirty (30) days
are reasonably required for its cure, then Tenant shall not be deemed to be in
default if Tenant commenced such cure within said 30-day period and thereafter
diligently prosecutes such cure to completion.
(d) (i) The making by Tenant or any guarantor of this Lease of any general
arrangement or assignment for the benefit of creditors; (ii) in the event Tenant
or any guarantor of this Lease becomes a "debtor" as defined in 11 U.S.C.
Section 101 or any successor statute thereto (unless, in the case of a petition
filed against Tenant, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Tenant's or any guarantor's assets or of Tenant's interest in this Lease, where
possession is not restored to Tenant or any guarantor within thirty (30) days;
or (iv) the attachment, execution or other judicial seizure of substantially all
of Tenant's or any guarantor's assets or of Tenant's interest in this Lease,
where such seizure is not discharged within thirty (30) days; provided, however,
in the event that any provision of this Paragraph 17.1(d) is contrary to any
applicable law. such provision shall be of no force or effect.
(e) The discovery by Landlord that any financial statement given to Landlord
by Tenant, any assignee of Tenant, any subtenant of Tenant, any successor in
interest of Tenant or any guarantor of Tenant's obligation hereunder, and any of
them, was materially false.
17.2 REMEDIES. In the event of any such material default or breach by Tenant,
Landlord may at any time thereafter, with or without notice or demand and
without limiting Landlord in the exercise of any right or remedy which Landlord
may have by reason of such default or breach:
(a) Terminate Tenant's right to possession of the Leased Premises by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Leased Premises to Landlord. In such
event Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default including, but not limited to (i) the
cost of recovering possession of the Leased Premises, (ii) expenses of
reletting, including reasonably necessary renovation and alteration of the
Leased Premises, reasonable attorneys' fees and any leasing commission actually
paid, (iii) the worth at the time of award by the court having jurisdiction
thereof of the amount by which the unpaid rent for the
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balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Tenant proves could be reasonably avoided,
and (iv) that portion of any leasing commission paid by Landlord applicable to
the unexpired term of the Lease.
(b) Maintain Tenant's right to possession in which case this Lease shall
continue in effect whether or not Tenant shall have abandoned the Premises. In
such event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due hereunder.
(c) Pursue any other remedy now or hereafter available to Landlord under the
laws or judicial decisions of the state wherein the Leased Premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Tenant
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by law.
17.3 DEFAULT BY LANDLORD. Landlord shall not be in default unless Landlord
fails to perform obligations required of Landlord within a reasonable time, but
in no event later than thirty (30) days after written notice by Tenant to
Landlord and to the holder of any first mortgage deed of trust covering the
Leased Premises whose name and address shall have theretofore been furnished to
Tenant in writing, specifying wherein Landlord has failed to perform such
obligation; provided, however, that if the nature of Landlord's obligation is
such that more than thirty (30) days are required for performance then Landlord
shall not be in default if Landlord commences performance within such 30-day
period and thereafter diligently prosecutes the same to completion.
17.4 LATE CHARGES. Tenant hereby acknowledges that the late payment by Tenant
to Landlord of rent and other sums due hereunder will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any mortgage or trust deed covering the Leased
Premises. Accordingly, if any installment of rent or any other sum due from
Tenant shall not be received by Landlord or Landlord's designee within ten
(10) days after the same is due, Tenant shall pay to Landlord a late charge
equal to six percent (6%) of such overdue amount. The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs Landlord
will incur by reason of late payment by Tenant. Acceptance of such late charge
by Landlord shall in no event constitute a waiver of Tenant's default with
respect to such overdue amount, nor prevent Landlord from exercising any of the
other rights and remedies granted hereunder.
17.5 IMPOUNDS. In the event that a late charge is payable hereunder, whether
or not collected, for three (3) installments of rent or any other monetary
obligation of Tenant under the terms of this Lease, Tenant shall pay to
Landlord, if Landlord shall so request, in addition to any other payments
required under this Lease, a monthly advance installment, payable at the same
time as the monthly rent, as estimated by Landlord, for real property tax and
insurance expenses on the Leased Premises which are payable by Tenant under the
terms of this Lease. Such fund shall be established to insure payment when due,
before delinquency, of any or all such real property taxes and insurance
premiums. If the amounts paid to Landlord by Tenant under the provisions of this
paragraph are insufficient to discharge the obligations of Tenant to pay such
real property taxes and insurance premiums as the same become due, Tenant shall
pay to Landlord, upon Landlord's demand, such additional sums necessary to pay
such obligations. All moneys paid to Landlord under this paragraph may be
intermingled with other moneys of Landlord and shall not bear interest. In the
event of a default in the obligations of Tenant to perform under this Lease,
then any balance remaining from funds paid to Landlord under the provisions of
this paragraph may, at the option of Landlord, be applied to the payment of any
monetary default of Tenant in-lieu of being applied to the payment of real
property tax and insurance premiums.
18. COMPLIANCE WITH LAW. Tenant shall comply, at its own cost and expense, with
all governmental laws, ordinances, rules, regulations, orders or other
requirements of all governmental bodies that possess or purport to possess
jurisdiction over the Leased Premises
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and/or Tenant's business at the Leased Premises, including, without limitation,
the Americans With Disabilities Act and all Environmental Laws.
19. SIGNAGE. Tenant shall have exclusive signage for the building. This signage
shall comply with all local sign ordinances and shall be at the sole cost of
Tenant. Both Tenant and Landlord shall mutually agree on signage.
20. RIGHT OF ENTRY. Landlord and its agents shall have the right, upon prior
notice and during reasonable times (except in the case of emergencies), to enter
the Leased Premises for the purpose of inspecting the same, showing the same to
prospective lenders, purchasers or tenants, and making such alterations,
improvements or additions to the Leased Premises as Landlord is required or
permitted to make pursuant to this Lease.
21. SURRENDER OF LEASED PREMISES. At the expiration of the Lease Term, or upon
any earlier termination of this Lease for any reason, Tenant shall surrender the
Leased Premises in broom-clean condition and in the same condition as the Leased
Premises were in upon delivery of possession under this Lease, taking by eminent
domain, casualty loss and normal wear and tear excepted.
22. LOSS OF AND DAMAGE TO PROPERTY OF TENANT AND OTHERS. Landlord shall not be
liable for the loss of or any damage to any property of Tenant or of others
located or stored in, upon or about the Leased Premises, whether by theft,
vandalism, malicious mischief, unlawful entry or any other cause or reason.
Landlord shall not be liable for any loss or damage caused to Tenant's property
by other tenants or persons in the Leased Premises, occupants of adjacent
property, or the public, or caused by operations in the construction of any
private, public or quasi-public work or any other cause.
23. QUIET ENJOYMENT. Landlord warrants to Tenant, that upon Tenant's paying the
rent and all other amounts and charges Tenant is required under this lease to
pay, and upon Tenant's performing and observing all covenants, agreements and
conditions of this Lease that Tenant is required to perform and observe, Tenant
shall quietly have, hold and enjoy the Leased Premises during the Lease Term
without hindrance or interruption by Landlord or any other person or persons
lawfully or equitably claiming by, through or under the Landlord.
24. FORCE MAJEURE. Except for any obligation to pay rent or other charges
required under this Lease, if either Landlord or Tenant shall be delayed in or
prevented from the performance of any of the terms, covenants and conditions of
this Lease, by reason of restrictive governmental laws or regulations, riots,
insurrections, war, sabotage, act of God, or any other reason of a similar or
dissimilar nature not the fault of the party delayed in or prevented from
performance, then performance shall be excused for the period of the delay or
prevention of performance and the time for performance shall be extended for an
equivalent period.
25. WAIVER. The waiver by Landlord of any breach of any term, covenant or
condition of this Lease shall not be deemed to be a waiver of such term,
covenant or condition or any subsequent breach of the same or any other term,
covenant, or condition of this Lease. Landlord's acceptance of rent shall not be
deemed to be a waiver of any preceding breach by Tenant of any term, covenant or
condition of this Lease. No term, covenant, or condition of this lease shall be
deemed to have been waived by Landlord unless such waiver be in writing by
Landlord.
26. ENTIRE AGREEMENT. This Lease contains the entire agreement of the parties in
regard to the Leased Premises. There are no oral agreements existing between the
Parties hereto.
27. MODIFICATION OF LEASE. This Lease shall not be modified except in writing
signed by both Landlord and Tenant.
28. GOVERNING LAW; SEVERABILITY. This Lease and the rights and obligations of
the parties hereto shall be governed, interpreted and regulated by and in
accordance with the laws of the state where the Leased Premises are located,
without reference to the provisions governing
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conflicts of laws. If any portion of this Lease should be invalid or held
invalid, the remainder of it shall be unaffected and remain in full force and
effect.
29. NOTICES. Any notice, demand, request, consent or communication (collectively
a "Notice") required or permitted to be given under this Lease shall be
effective only if it is in writing and (i) personally delivered, (ii) sent by
certified or registered mail, return receipt requested, postage prepaid, or
(iii) sent by a nationally recognized overnight delivery service, with delivery
confirmed, addressed as follows:
(a) If to the Landlord, to:
BRADROCK REALTY, INC.
c/o John D. Simms
611 Edgemont Lane
Park Ridge, Illinois 60068
in each case with a copy to:
John L. Eisel
Mark W. Hianik
WILDMAN, HARROLD, ALLEN & DIXON
225 West Wacker Drive
Chicago, Illinois 60606-1229
(b) If to Tenant, to:
MERKLE-KORFF INDUSTRIES, INC.
c/o JORDAN INDUSTRIES, INC.
Thomas H. Quinn, President
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60015
with a copy to:
G. Robert Fisher
Michael Van Dyke
BRYAN CAVE LLP
3500 One Kansas City Place
1200 Main Street
Kansas City, Missouri 64105-2100
or to such other persons or addresses as shall be furnished in writing by any
party to the other party. A Notice shall be deemed to have been given as of the
date when (i) personally delivered, (ii) two (2) business days after the date
when deposited with the United States mail properly addressed, or (iii) when
receipt of a Notice sent by an overnight delivery service is confirmed by such
overnight delivery service, as the case may be, unless the sending party has
actual knowledge that a Notice was not received by the intended recipient.
30. LANDLORD'S LIABILITY. The term "Landlord" as used herein shall mean only the
owner or owners at the time in question of the fee title or a tenant's interest
in a ground lease of the Leased Premises, in the event of any transfer of such
title or interest. Landlord herein named (and in case of any subsequent
transfers then the grantor) shall be relieved from and after the date of such
transfer of all liability as respects Landlord's obligations thereafter to be
performed, provided that any funds in the hands of Landlord or the grantor at
the time of such transfer, in which Tenant has an interest, shall be delivered
to the grantee. The obligations contained in this Lease to be performed by
Landlord shall, subject as aforesaid, be binding on Landlord's successors and
assigns, only during their respective periods of ownership.
-13-
<PAGE>
31. MEMORANDUM OF LEASE. Either Landlord or Tenant shall, upon written request
of the other, execute a "short form" or memorandum of this Lease, in recordable
form, to evidence of record the leasehold estate created by this Lease and the
right of first refusal.
32. SUCCESSORS. The provisions of this Lease shall apply to and be binding upon
the heirs, successors, assigns and legal representatives of both Tenant and
Landlord, subject to the provisions of Paragraph 10.
33. BROKER. Landlord and Tenant acknowledge and agree that no broker or other
agent dealt with or represented either of them in connection with this Lease and
each of them do hereby agree to indemnify and hold the other harmless from all
against any and all claims made by anyone claiming entitlement to a brokerage
commission or other fee on account of this Lease.
34. TIME OF ESSENCE. Time is of the essence in all matters pertaining to this
Lease.
35. INTEREST ON PAST-DUE OBLIGATION. Except as expressly herein provided, any
amount due to Landlord not paid when due shall bear interest at eighteen percent
(18%) per annum or the maximum rate then allowable by law from the date due,
whichever is less. Payment of such interest shall not excuse or cure any default
by Tenant under this Lease, provided, however, that interest shall not be
payable on late charges incurred by Tenant nor on any amounts upon which late
charges are paid by Tenant.
36. HOLDING OVER. If Tenant, without Landlord's consent, remains in possession
of the Leased Premises or any part thereof after the expiration of the Lease
Term, such occupancy shall be a tenancy from month to month upon all the
provisions of this Lease pertaining to the obligations of Tenant, except for
base rent which shall be 200 percent (200%) of the base rent in effect at the
expiration of the Lease Term.
37. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
38. ATTORNEYS' FEES. In the event either party hereto, its agents and/or
employees shall be a party to any litigation commenced by the other party
hereto, then the non-prevailing party shall pay all costs, expenses and
reasonable attorneys' fees that may be incurred or paid by the prevailing party,
its agents and for employees in successfully enforcing the covenants and
agreements of this Lease.
39. AUTHORITY. Each individual executing this Lease on behalf of Tenant
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said corporation. Tenant shall, prior to the execution
of this Lease, deliver to Landlord certified board of director resolutions or
other evidence of such authority satisfactory to Landlord.
40. COUNTERPARTS. This Lease may be executed by the parties hereto at different
times, whether before or after the effective date hereof, and at separate
locations, whether or not in the presence of the other party hereto. Any copy of
this Lease to which the signatures of all parties have been appended shall
constitute an original hereof for all purposes. All such copies shall constitute
one and the same original, and any one of which shall constitute proof of the
terms of this Lease without the necessity of producing any other original copy.
41. LEASEHOLD MORTGAGE.
41.1 LEASEHOLD MORTGAGEE. Landlord hereby acknowledges that Tenant has
advised Landlord that Bankers Trust Company (the "Leasehold Mortgagee") is the
mortgagee under a mortgage encumbering Tenant's leasehold interest in the Leased
Premises, and as such, is entitled to the benefits contained in this Paragraph
41. All notices to the Leasehold Mortgagee shall be deemed to have been duly
given when sent in the manner required hereunder addressed to the Leasehold
Mortgagee at One Bankers Trust Plaza, New York, New York, 10006. Tenant
acknowledges on its and Leasehold Mortgagee's behalf that Landlord has not
reviewed and is
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<PAGE>
not a party to any loan documents between Tenant and the Leasehold Mortgagee and
is not obligated to Leasehold Mortgagee for any obligations of Tenant to the
Leasehold Mortgage.
41.2 NOTICES AND DEMANDS. Landlord shall give to the Leasehold Mortgagee a
copy of each notice of default by Tenant at the same time and in the same manner
as the notice given by Landlord to Tenant, addressed to the Leasehold Mortgagee
at its address set forth herein or such other address that Leasehold Mortgagee
may have subsequently furnished to Landlord. No notice by Landlord to Tenant
under this Lease shall be deemed to have been duly given to the Leasehold
Mortgagee in the manner provided in Paragraph 29.
41.3 RIGHT TO CURE. Subject to the terms of Paragraph 41.5 hereof, the
Leasehold Mortgagee shall have a period that shall run concurrently with the
cure period afforded to Tenant within which to remedy any default of Tenant
hereunder or cause such default to be remedied. The Leasehold Mortgagee shall
have the option, as provided herein, but not the obligation, to cure any default
of Tenant hereunder, provided that if the Leasehold Mortgagee desires to cure
such default shall promptly after receipt of notice of default notify
Landlord in writing of its intent to cure. Following receipt of notice of any
such default in accordance with Paragraph 41.2 above and subject to Paragraph
41.5, if the Leasehold Mortgagee shall diligently commence a cure to the
default, and continue same without interruption, the Leasehold Mortgagee shall
also be given an additional period of time as the Leasehold Mortgagee may
reasonably request in writing in order to complete such cure. If the Leasehold
Mortgagee agrees to undertake such cure and requires additional time as
aforesaid to complete same and thereafter the Leasehold Mortgagee fails to
complete such cure and such failure results in additional damage to Landlord,
the Leasehold Mortgagee shall indemnify Landlord against loss arising out of
such damage.
41.4 PERFORMANCE OF LEASE BY LEASEHOLD MORTGAGEE. The Leasehold Mortgagee
shall to the extent it has the right to do so under its Mortgage, have the right
to perform any term, covenant, condition, or agreement and to remedy any default
by Tenant under this Lease, and Landlord shall accept such performance by the
Leasehold Mortgagee with the same force and effect as if performed by Tenant.
41.5 CERTAIN DEFAULT. In the event a default by Tenant occurs in the
performance or observance of any term, covenant, condition, or agreement on
Tenant's part to be performed under this Lease (other than a term, covenant,
condition or agreement requiring the payment of a sum of money) which cannot
practicably be cured by the Leasehold Mortgagee without taking possession of the
Leased Premises (or if such default is of such a nature that the same is not
susceptible of being cured by the Leasehold Mortgagee), then Landlord shall
not serve a notice of election to terminate this Lease pursuant to the terms of
Paragraph 17.2(a), or otherwise terminate the leasehold estate or any other
estate, right, title or interest of Tenant hereunder by reason of such default
without allowing the Leasehold Mortgagee reasonable time within which:
(a) In the case of a default which cannot practically be cured by the Leasehold
Mortgagee without taking possession of the Leased Premises, to obtain
possession of the Leased Premises as mortgagee (through the appointment
of a receiver of otherwise), and, upon obtaining possession, to commence
promptly and diligently prosecute to completion such action as may be
necessary to cure such default. If the Leasehold Mortgagee agrees to
undertake such cure and require additional time as aforesaid to complete
same and thereafter the Leasehold Mortgagee fails to complete such cure,
and such failure results in the direct result of additional damage to
Landlord, the Leasehold Mortgagee shall indemnify Landlord against loss
arising out of such damage; and
(b) In the case of a default which is not susceptible of being cured by the
Leasehold Mortgagee, to commence promptly and diligently prosecute to
completion foreclosure proceedings or to acquire Tenant's estate hereunder,
either in its own name or through a nominee, by assignment in lieu of
foreclosure. If the Leasehold Mortgagee agrees to undertake such cure and
require additional time as aforesaid to complete same and
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<PAGE>
thereafter the Leasehold Mortgagee fails to complete such cure, and such failure
results in the direct result of additional damage to Landlord, the Leasehold
Mortgagee shall indemnify Landlord against loss arising out of such damage.
The Leasehold Mortgagee shall not be required to continue to proceed to obtain
possession, or to continue in possession as mortgagee, of the Leased Premises
pursuant to clause (i) above, or to continue to prosecute foreclosure
proceedings pursuant to clause (ii) above, if and when such default shall be
cured. Nothing herein shall preclude Landlord from exercising any of its rights
or remedies with respect to any other default by Tenant during any period when
Landlord shall be forebearing termination of this Lease as above provided, but
in such event the Leasehold Mortgagee shall have all of the rights and
protections hereinabove provided for. If the Leasehold Mortgagee, or its
nominee, or a purchaser at a foreclosure sale, shall acquire title to Tenant's
leasehold estate hereunder, and shall cure all defaults of Tenant hereunder
which can be cured by the Leasehold Mortgagee, or by such purchaser, as the case
may be, then the defaults of any prior holder of Tenant's leasehold estate or
any other estate, right, title or interest hereunder which are not susceptible
of being cured by the Leasehold Mortgagee (or by such purchaser) shall no
longer be deemed to be defaults hereunder.
41.6 TERMINATION OF LEASE; NEW LEASE TO LEASEHOLD MORTGAGEE. In the event (i)
this Lease is terminated by reason of Tenant's default hereunder, or (ii) this
Lease is disaffirmed in the event of Tenant's bankruptcy, then, within ten (10)
days after such termination (which term as used herein shall include a
disaffirmance) Landlord shall give notice to the Leasehold Mortgagee that this
Lease has been terminated, together with a statement of any and all sums which
would at that time be due under this Lease but for such termination, and of all
other defaults, if any, under this Lease then known to Landlord, and the
Leasehold Mortgagee, by notice to Landlord, thereupon may request Landlord to
enter into a new lease of the Leased Premises and Landlord shall enter into a
new lease (the "New Lease") with the Leasehold Mortgagee (or its nominee, in
which case the New Lease shall be guaranteed by the Leasehold Mortgagee on terms
acceptable to Landlord), within 60 days after the giving of such notice by the
Leasehold Mortgagee provided that the Leasehold Mortgagee shall have cured or
caused to be cured any defaults of Tenant existing at the date of termination.
The New Lease shall commence and Rent and all obligations of the Tenant under
the New Lease shall accrue, as of the date of termination of this Lease. The
term of the New Lease shall continue for the period which would have constituted
the remainder of the term of this Lease had this Lease not been terminated. The
New Lease shall be upon all of the terms, covenants, conditions, conditional
limitations, and agreements contained herein which were in force and effect
immediately prior to the termination of this Lease and shall provide an
indemnity of Landlord from the Leasehold Mortgagee against any claims by or on
behalf of Tenant as its affiliates or creditors on account of the New Lease. The
New Lease, and this covenant, shall be superior to all rights, liens, estates,
titles and interests, other than those to which this Lease shall have been
subject immediately prior to termination and those matters to which this Lease
may, by its terms, become subject. The provisions of the immediately preceding
sentence shall be self-executing, and Landlord shall have no obligation to do
anything (other than to execute such New Lease as herein provided) to assure to
the Leasehold Mortgagee or to the tenant under the New Lease good title to the
leasehold estate and the other estates, rights, titles and interests granted
thereby. Simultaneously therewith, Landlord shall pay over to the Leasehold
Mortgagee all monies on deposit with Landlord, if any, which Tenant would have
been entitled to use but for the termination of this Lease for the purposes of
and in accordance with the provisions of the New Lease. Each subtenant of space
in the Leased Premises whose sublease was in force and effect immediately prior
to the delivery of the New Lease shall attorn to the tenant under the New Lease,
unless such tenant shall, at its option, elect to dispossess such subtenant or
otherwise terminate the sublease held by such subtenant. The Leasehold Mortgagee
shall, simultaneously with the delivery of the New Lease, pay to Landlord (1)
all rent and other sums of money due under this Lease on the date of termination
of this Lease and remaining unpaid; plus (2) all rent and other sums of money
due under the New Lease for the period from the date of commencement of the term
thereof to the date of delivery of the New Lease; plus (3) all costs and
expenses, including reasonable attorneys' fees, court costs, and litigation
expenses, incurred by Landlord in connection with termination of this Lease. the
recovery of possession of the
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<PAGE>
Leased Premises, putting the premises in good condition and repair, and the
preparation, execution and delivery of such new lease.
41.7 ASSIGNMENT. If the Leasehold Mortgagee forecloses upon or otherwise
acquires all or part of Tenant's leasehold interest, the transfer to the
Leasehold Mortgagee (or any nominee of the Leasehold Mortgagee) shall not
require Landlord's consent and the acquiring Leasehold Mortgagee shall be
permitted to transfer the acquired interest to a third party upon obtaining
Landlord's prior consent thereto, which consent shall not be unreasonably
withheld on the condition that such third party is a reputable person or entity
of good character and is financially responsible and creditworthy. Upon the
transfer to such third party as aforesaid, the Landlord shall be released from
all liability for the performance or observance of the covenants and conditions
in such lease contained on Tenant's part to be performed and observed from and
after the date the assignee shall have assumed such lease.
41.8 APPLICABILITY OF PROVISIONS. The provision of this Paragraph 41 shall
remain in effect only to the extent that the Leasehold Mortgagee holds a
mortgage on the Leased Premises.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease on the day and year
first above written.
LANDLORD:
BRADROCK REALTY, INC.
By: /s/John D. Simms
-----------------------
Name: John D. Simms
---------------------
Title: President
--------------------
TENANT:
MERKLE-KORFF INDUSTRIES, INC.
By: /s/Jeb Boucher
------------------------
Name: Jeb Boucher
----------------------
Title: Vice President
---------------------
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<PAGE>
EXHIBIT A
---------
LEGAL DESCRIPTION
-----------------
LOT 5 IN ANDERSON MILLER DES PLAINES INDUSTRIAL PARK UNIT NUMBER 2 BEING A
RESUBDIVISION OF LOTS 6 EXCEPT THE SOUTH 366 FEET AS MEASURED AT RIGHT ANGLES TO
THE SOUTH LINE OF SAID LOT 6 AND EXCEPT THE EAST 3 ACRES OF THE NORTH 10 ACRES
(EXCEPT THE SOUTH 3 ACRES THEREOF) AND EXCEPT THE EAST 41.79 FEET OF SAID LOT 6
IN GREWE'S SUBDIVISION OF THAT PART OF THE NORTH WEST FRACTIONAL QUARTER AND THE
WEST HALF OF THE WEST HALF OF THE NORTH EAST 1/4 OF SECTION 30, TOWNSHIP 41
NORTH, RANGE 12 EAST OF THE THIRD PRINCIPAL MERIDIAN LYING NORTH OF A LINE 14.70
FEET NORTH OF THE EAST AND WEST CENTER LINE OF THE NORTH HALF OF THE NORTH HALF
OF SAID SECTION (EXCEPT THE RIGHT OF WAY OF THE DES PLAINES VALLEY RAILROAD) IN
COOK COUNTY, ILLINOIS.
Permanent Index Number: 09-80-100-035-0000
Commonly known as: 70-74 East Bradrock Drive
Des Plaines, Illinois 60018
<PAGE>
EXHIBIT 10.20
EMPLOYMENT AND NONCOMPETITION AGREEMENT
---------------------------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of the 22nd day of
September, 1995, by and between MK HOLDINGS, INC., an Illinois corporation
("Holdings"), and JOHN D. SIMMS, an individual ("Executive");
W I T N E S S E T H:
-------------------
WHEREAS, Executive has been actively involved in the business of Merkle-Korff
Industries, Inc., Mercury Industries, Inc. and Elmco Industries, Inc. (the
"Companies"), as an employee, an officer and member of the Board of Directors of
the Companies;
WHEREAS, Holdings has agreed to purchase all of the issued and outstanding
shares of the capital stock of the Companies (the "Shares") pursuant to an
Agreement for Purchase and Sale of Stock dated May 26, 1995, by and among
Holdings and the stockholders of the Companies, as amended (the "Purchase
Agreement");
WHEREAS, as an inducement to Holdings to consummate its purchase of the
Shares, Executive has agreed to be employed by Holdings as set forth below; and
WHEREAS, Holdings desires to retain the services of Executive and Executive
desires to be retained by Holdings;
NOW, THEREFORE, in consideration of the premises, covenants and agreements
contained herein, as inducement to Holdings to consummate its acquisition of the
Shares, and in consideration of the payments by Holdings to Executive required
below, the parties hereto agree as follows:
1. Employment. Subject to the termination provisions of Section 4, Holdings
----------
shall employ Executive as the Chief Executive Officer of Holdings for a period
of three years from the date of execution of this Agreement. Executive shall be
responsible for the general management of the affairs of Holdings and shall
report only to the Board of Directors of Holdings. Executive shall diligently,
faithfully and competently perform all duties of the office of Chief Executive
Officer and shall devote such amount of his professional time and abilities as
reasonably required to perform such duties.
2. Compensation. While Executive is employed as Chief Executive Officer of
------------
Holdings, Holdings will pay Executive a salary at a rate of One Hundred Thousand
Dollars ($100,000.00) per annum, payable in substantially equal bi-weekly
installments.
<PAGE>
3. Benefits; Business Expenses. While Executive is employed as Chief Executive
---------------------------
Officer of Holdings, Holdings will provide for Executive's participation in
benefit programs on the same basis as other executive officers of Holdings and
the Companies. Such benefits shall include, without limitation, the use of a
Company automobile (leased or owned) comparable in cost and quality to the
automobile now used by the Executive (a Cadillac Fleetwood), with reasonable
operating and maintenance expenses to be paid by Holdings or the Companies.
Holdings or the Companies shall reimburse Executive for all reasonable and
substantiated business expenses incurred by Executive in performing his duties
under the Agreement. Such expense reimbursements shall be made in accordance
with policies and procedures established by the Board of Directors of Holdings
from time to time.
4. Termination of Emplovment for Cause.
-----------------------------------
(a) Termination For Cause. Holdings may terminate all of Holdings' obligations
---------------------
under this Agreement, and Executive's employment hereunder for "cause", by
written notice to the Executive, upon the occurrence of any one of the following
on the part of Executive (a) fraud, embezzlement, dishonesty, or conviction of a
felony; (b) failure to diligently, faithfully and competently perform his
duties, at the direction of Holdings' Board of Directors, all after receiving
written notice from Holdings of such failure and having a reasonable opportunity
to cure such failure to so perform; (c) breach of any of the terms or covenants
of Sections 5 or 6 of this Agreement; or (d) death or disability preventing
Executive from performing Executive's duties under the terms of this Agreement
for a period of more than three (3) months. In the event of termination of this
Agreement for "cause", or in the event of voluntary termination by Executive, no
sums shall be payable by Holdings after the effective termination date. In the
event Executive voluntarily terminates employment, Executive will not be liable
to Holdings or the Companies for any damages which may be caused by such
termination. Sections 5, 6 and 7 of this Agreement shall nevertheless remain in
full force and effect.
(b) Termination Without Cause. If Holdings terminates Executive's employment
-------------------------
hereunder for any reason not constituting cause as defined in section (a) above,
(including for no reason) then Holdings shall be liable to pay to Executive his
annual base compensation until the expiration of the balance of the term hereof.
No other amounts or benefits due hereunder or otherwise shall be due or paid to
Executive from and after the date of termination. Sections 5, 6 and 7 of this
Agreement shall nevertheless remain in full force and effect.
2
<PAGE>
5. Restrictive Covenants. During Executive's employment with Holdings or the
---------------------
Companies hereunder or otherwise and for a period equal to the greater of five
(5) years from the date hereof or three (3) years after Executive is no longer
employed by Holdings or the Companies, Executive shall not:
a. directly or indirectly, either individually or as a principal, partner,
agent, employee, employer, consultant, stockholder, joint venturer, or investor,
or as a director or officer of any corporation or association, or in any other
manner or capacity whatsoever, engage in, assist or have any active interest in
a business located anywhere in United States or any foreign country in which any
of the Companies have conducted business within the last three years that (i)
engages in the business of manufacturing or distribution of electric motors and
related products that competes with or is similar in concept, design, format, or
otherwise to the business conducted by Holdings or the Companies on the date
hereof or at any time during the term of this covenant, or (ii) sells to,
supplies, provides goods or services to, purchases from, or does business in any
manner with Holdings or the Companies if such engagement, assistance or interest
has a materially adverse effect on Holdings or the Companies. Notwithstanding
the above, this paragraph shall not be construed to prohibit Executive from
owning less than three percent (3%) of the outstanding securities of a
corporation which is publicly traded on a securities exchange or over-the-
counter.
b. directly or indirectly, either individually, or as a principal, partner,
agent, employee, employer, consultant, stockholder, joint venturer, or investor,
or as a director or officer of any corporation or association, or in any other
manner or capacity whatsoever, (i) divert or attempt to divert from Holdings or
the Companies any business with any customer or account with which Executive had
any contact or association, which was under the supervision of Executive, or the
identity of which was learned by Executive as a result of Executive's employment
with Holdings or the Companies, or (ii) induce any salesperson, distributor,
supplier, vendor, manufacturer, representative, agent, jobber or other person
transacting business with Holdings or the Companies to terminate their
relationship or association with Holdings or the Companies, or to represent,
distribute or sell services or products in competition with services or products
of Holdings or the Companies, or (iii) induce or cause any employee of Holdings
or the Companies to leave the employ of Holdings or the Companies.
6. Non-Disclosure. Executive shall not at any time or in any manner, directly
--------------
or indirectly, use or disclose to any party other than Holdings or the Companies
any trade secrets or other Confidential Information (as defined below) learned
or obtained by him while a stockholder, officer or director of Holdings or the
Companies. As used herein, the term "Confidential Information"
3
<PAGE>
means information disclosed to or known by Executive as a consequence of his
position with Holdings or the Companies and not generally known in the industry
in which Holdings or the Companies is engaged and that in any way relates to the
Companies' or Holdings' products, processes, services, inventions (whether
patentable or not), formulas, techniques or know-how, including, but not limited
to, information relating to distribution systems and methods, research,
development, manufacturing, purchasing, accounting, engineering, marketing,
merchandising and selling.
7. Specific Performance. The parties hereto agree that their rights hereunder
--------------------
are special and unique and that any violation thereof would not be adequately
compensated by money damages, and each grants the other the right to
specifically enforce (including injunctive relief where appropriate) the terms
of this Agreement.
8. Notices. Any notice, request, consent or communication (collectively a
-------
"Notice") under this Agreement shall be effective only if it is in writing and
(i) personally delivered, (ii) sent by certified or registered mail, return
receipt requested, postage prepaid, or (iii) sent by a nationally recognized
overnight delivery service, with delivery confirmed, addressed as follows:
a. If to Executive:
John D. Simms
611 Edgemont Lane
Park Ridge, Illinois 60068
Telephone No. (708) 825-1569
with a copy to:
Mark W. Hianik
Wildman, Harrold, Allen & Dixon
225 West Wacker Drive
Chicago, Illinois 60606-1229
Telephone No. (312) 201-2000
b. If to Holdings to:
Thomas H. Quinn
c/o Jordan Industries, Inc.
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60015
Telephone No. (708) 945-5522
4
<PAGE>
with a copy to:
G. Robert Fisher, Esq.
Bryan Cave LLP
1200 Main Street, Suite 3500
Kansas City, Missouri 64105
Telephone No. (816) 474-7400
or such other persons or addresses as shall be furnished in writing by any party
to the other party. A Notice shall be deemed to have been given as of the date
when (i) personally delivered, (ii) five (5) days after the date when deposited
with the United States mail properly addressed, or (iii) when receipt of a
Notice sent by an overnight delivery service is confirmed by such overnight
delivery service, as the case may be, unless the sending party has actual
knowledge that a Notice was not received by the intended recipient.
9. Assignment. This Agreement and all of the provisions hereof shall be
----------
binding upon and inure to the benefit of the parties hereto and their respective
heirs, successors and permitted assigns, but neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by Executive.
10. Governing Law. This Agreement shall be governed by the law of the State of
-------------
Illinois as to all matters, including, but not limited to, matters of validity,
construction, effect and performance, except that no doctrine of choice of law
shall be used to apply any law other than that of Illinois.
11. Severability. Holdings and Executive believe the covenants against
------------
competition contained in this Agreement are reasonable and fair in all respects,
and are necessary to protect the interests of Holdings. However, in case any one
or more of the provisions or parts of a provision contained in this Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect in any jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Agreement or
any other jurisdiction, but this Agreement shall be reformed and construed in
any such jurisdiction as if such invalid or illegal or unenforceable provision
or part of a provision had never been contained herein and such provision or
part shall be reformed so that it would be valid, legal and enforceable to the
maximum extent permitted in such jurisdiction. Without limiting the foregoing,
the parties intend that the covenants and agreements contained in part a. of
Section 5 shall be deemed to be a series of separate covenants and agreements,
one for each of The United States of America and one for each of the foreign
countries in which any of the Companies have conducted business within the past
three years. If, in any judicial proceeding, a court shall refuse to enforce all
the separate covenants and agreements deemed to be included in part a.
5
<PAGE>
separate covenants and agreements deemed to be included in part a. of Section 5,
it is the intention of the parties hereto that the covenants and agreements
which, if eliminated, would permit the remaining separate covenants and
agreements to be enforced in such proceeding shall, for the purpose of such
proceeding, be deemed eliminated from the provisions of part a. of Section 5.
12. Neutral Interpretation. This Agreement constitutes the product of the
----------------------
negotiation of the parties hereto and the enforcement hereof shall be
interpreted in a neutral manner, and not more strongly for or against any party
based upon the source of the draftsmanship hereof.
13. Miscellaneous. This Agreement may be executed in two or more counterparts,
-------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. This Agreement embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and may not be modified orally, but only by a writing
subscribed by the party charged therewith. There are no restrictions, promises,
representations, warranties, covenants or undertakings, other than those
expressly set forth or referred to herein. This Agreement supersedes all prior
agreements and understandings (whether oral or written) between the parties with
respect to such subject matter.
IN WITNESS WHEREOF, the parties hereto have made and entered into this
Agreement the date first hereinabove set forth.
HOLDINGS:
MK HOLDINGS, INC.
By /s/
---------------------------
Title: Vice President
------------------------
EXECUTIVE:
/s/ John D. Simms
------------------------------
John D. Simms
6
<PAGE>
EXHIBIT 10.21
EMPLOYMENT AND NONCOMPETITION AGREEMENT
---------------------------------------
THIS EMPLOYMENT AND NONCOMPETITION AGREEMENT (this "Agreement"), dated as of
the 22nd day of September, 1995, by and between MK HOLDINGS, INC., an Illinois
corporation ("Holdings"), and JOHN BROWN, an individual ("Executive");
W I T N E S S E T H:
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WHEREAS, Executive has been actively involved in the business of Merkle-Korff
Industries, Inc., Mercury Industries, Inc. and Elmco Industries, Inc. (the
"Companies"), as an employee and officer of the Companies;
WHEREAS, Holdings has agreed to purchase all of the issued and outstanding
shares of the capital stock of the Companies (the "Shares") pursuant to an
Agreement for Purchase and Sale of Stock dated May 26, 1995, by and among
Holdings and the stockholders of the Companies, as amended (the "Purchase
Aqreement");
WHEREAS, the continued involvement by Executive in a business in competition
with the Companies would diminish the value of the Shares to be purchased by
Holdings;
WHEREAS, as an inducement to Holdings to consummate its purchase of the
Shares, Executive has agreed to be employed and not to compete with Holdings to
the extent set forth below; and
WHEREAS, Holdings desires to retain the services of Executive and Executive
desires to be retained by Holdings;
NOW, THEREFORE, in consideration of the premises, covenants and agreements
contained herein, as inducement to Holdings to consummate its acquisition of the
Shares, and in consideration of the payments by Holdings to Executive required
below. the parties hereto agree as follows:
1. Employment. Subject to the termination provisions of Section 4, Holdings
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shall employ Executive as the President and Chief Operating Officer of Holdings
for a period of three years from the date of execution of this Agreement.
Executive shall be responsible for the day-to-day management of the general
affairs of Holdings and shall report only to the Chief Executive Officer of
Holdings. Executive shall diligently, faithfully and competently perform all
duties of the offices of President and Chief Operating Officer and shall devote
his full professional time and abilities to the performance of such duties.
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2. Compensation. While Executive is employed as President and Chief Operating
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Officer of Holdings, Holdings will pay Executive base compensation at a rate of
Two Hundred Thousand Dollars ($200,000) per annum, payable in substantially
equal biweekly installments. In addition, while Executive is employed as
President and Chief Operating Officer of Holdings, Executive will be eligible to
receive an annual bonus from Holdings of up to $200,000, such bonus to be based
on a formula reflecting annual increases in Holdings' profitability.
3. Benefits; Business Expenses. While Executive is employed as President and
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Chief Operating Officer of Holdings, Holdings will provide for Executive's
participation in benefit programs on the same basis as other executive officers
of Holdings and the Companies. Such benefits shall include, without limitation
(i) the use of a Company automobile (leased or owned) comparable in cost and
quality to the automobile now used by the Executive (an Acura Legend), with
reasonable operating and maintenance expenses to be paid by Holdings or the
Companies, (ii) reimbursement of monthly dues for Itasca Country Club (currently
$270.00) and other incidental annual club fees, such as locker rental, (iii)
payment of annual life insurance premium on Prudential Life Insurance policy NO>
79-618-269 on Executive's life, a copy of which is attached hereto, and (iv)
participation in a disability income protection plan with benefits and costs
comparable to a similar plan maintained for Executives of Jordan Industries,
Inc. Holdings or the Companies shall reimburse Executive for all reasonable and
substantiated business expenses incurred by Executive in performing his duties
under this Agreement. Such expense reimbursements shall be made in accordance
with policies and procedures established by the Board of Directors of Holdings
from time to time.
4. Termination of Employment for Cause.
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(a) Termination For Cause. Holdings may terminate all of Holdings' obligations
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under this Agreement, and Executives employment hereunder for "cause", by
written notice to the Executive, upon the occurrence of any one of the following
on the part of Executive (a) fraud, embezzlement, dishonesty, or conviction of a
felony; (b) failure to diligently, faithfully and competently perform his
duties, at the direction of Holdings' Board of Directors or Chief Executive
Officer in the same manner and to the same extent as performed by him in years
prior to the change in ownership of the Companies, all after receiving written
notice from Holdings of such failure and having a reasonable opportunity to cure
such failure to so perform; (c) breach of any of the terms or covenants Sections
5 or 6 of this Agreement; or (d) death or disability preventing Executive from
performing Executive's duties under the terms of this Agreement for a period of
more than three (3) months. In the event of termination of this Agreement for
"cause", or in the event of voluntary termination by Executive, no sums shall be
payable by Holdings after the effective termination
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date. In the event Executive voluntarily terminates employment, Executive will
not be liable to Holdings or the Companies for any damages which may be caused
by such termination. Sections 5, 6 and 7 of this Agreement shall nevertheless
remain in full force and effect.
(b) Termination Without Cause. If Holdings terminates Executive's employment
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hereunder for any reason not constituting cause as defined in section (a) above,
(including for no reason) then Holdings shall be liable to pay to Executive (i)
his annual base compensation until the expiration of the balance of the term
hereof and (ii) a pro rata (based on the number of days in the year during which
Executive was employed under this Agreement as compared to 365 days in the year)
portion of the annual bonus for the year in which termination occurs which bonus
Executive would have been entitled to receive under section 2 hereof except for
such termination. No other amounts or benefits due hereunder or otherwise shall
be due or paid to Executive from and after the date of termination. Sections 5,
6 and 7 of this Agreement shall nevertheless remain in full force and effect.
5. Restrictive Covenants. During Executive's employment with Holdings or the
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companies hereunder or otherwise and for a period equal to the greater of five
(5) years from the date hereof or three (3) years after Executive is no longer
employed by Holdings or the Companies, Executive shall not:
a. directly or indirectly, either individually or as a principal, partner,
agent, employee, employer, consultant, stockholder, joint venturer, or investor,
or as a director or officer of any corporation or association, or in any other
manner or capacity whatsoever, engage in, assist or have any active interest in
a business located anywhere in United States or any foreign country in which any
of the Companies have conducted business within the past three years that (i)
engages in the business of manufacturing or distribution of electric motors and
related products that competes with or is similar in concept, design, format, or
otherwise to the business conducted by Holdings or the Companies on the date
hereof or at any time during the term of this covenant, or (ii) sells to,
supplies, provides goods or services to, purchases from, or does business in any
manner with Holdings or the Companies if such engagement, assistance or interest
has a materially adverse effect on Holdings or the Companies. Notwithstanding
the above, this paragraph shall not be construed to prohibit Executive from
owning less than three percent (3%) of the outstanding securities of a
corporation which is publicly traded on a securities exchange or over-the-
counter.
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b. directly or indirectly, either individually, or as a principal, partner,
agent, employee, employer, consultant, stockholder, joint venturer, or investor,
or as a director or officer of any corporation or association, or in any other
manner or capacity whatsoever, (i) divert or attempt to divert from Holdings or
the Companies any business with any customer or account with which Executive had
any contact or association, which was under the supervision of Executive, or the
identity of which was learned by Executive as a result of Executive's employment
with Holdings or the Companies, or (ii) induce any salesperson, distributor,
supplier, vendor, manufacturer, representative, agent, jobber or other person
transacting business with Holdings or the Companies to terminate their
relationship or association with Holdings or the Companies, or to represent,
distribute or sell services or products in competition with services or products
of Holdings or the Companies, or (iii) induce or cause any employee of Holdings
or the Companies to leave the employ of Holdings or the Companies.
6. Non-Disclosure. Executive shall not at any time or in any manner, directly
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or indirectly, use or disclose to any party other than Holdings or the Companies
any trade secrets or other Confidential Information (as defined below) learned
or obtained by him while a stockholder, officer or director of Holdings or the
Companies. As used herein, the term "Confidential Information" means information
disclosed to or known by Executive as a consequence of his position with
Holdings or the Companies and not generally known in the industry in which
Holdings or the Companies is engaged and that in any way relates to the
Companies' or Holdings' products, processes, services, inventions (whether
patentable or not), formulas, techniques or know-how, including, but not limited
to, information relating to distribution systems and methods, research,
development, manufacturing, purchasing, accounting, engineering, marketing,
merchandising and selling.
7. Specific Performance. The parties hereto agree that their rights hereunder
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are special and unique and that any violation thereof would not be adequately
compensated by money damages, and each grants the other the right to
specifically enforce (including injunctive relief where appropriate) the terms
of this Agreement.
8. Notices. Any notice, request, consent or communication (collectively a
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"Notice") under this Agreement shall be effective only if it is in writing and
(i) personally delivered, (ii) sent by certified or registered mail, return
receipt requested, postage prepaid, or (iii) sent by a nationally recognized
overnight delivery service, with delivery confirmed, addressed as follows:
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a. If to Executive:
John Brown
713 South Emerson
Mount Prospect, IL 60056
Telephone No. (708)577-4212
with a copy to:
Mark Hianik, Esq.
Wildman, Harrold, Allen & Dixon
225 West Wacker Drive
Chicago, Illinois 60606-1229
Telephone No. (312)201-2520
b. If to Holdings to:
Thomas H. Quinn
c/o Jordan Industries, Inc.
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60015
Telephone No. (708) 945-5522
with a copy to:
G. Robert Fisher, Esq.
Bryan Cave LLP
1200 Main Street, Suite 3500
Kansas City, Missouri 64105
Telephone No. (816) 474-7400
or such other persons or addresses as shall be furnished in writing by any party
to the other party. A Notice shall be deemed to have been given as of the date
when (i) personally delivered, (ii) five (5) days after the date when deposited
with the United States mail properly addressed, or (iii) when receipt of a
Notice sent by an overnight delivery service is confirmed by such overnight
delivery service, as the case may be, unless the sending party has actual
knowledge that a Notice was not received by the intended recipient.
9. Assignment. This Agreement and all of the provisions hereof shall be
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binding upon and inure to the benefit of the parties hereto and their respective
heirs, successors and permitted assigns, but neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by Executive.
10. Governing Law. This Agreement shall be governed by the law of the State of
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Illinois as to all matters, including, but not limited to, matters of validity,
construction, effect and
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performance, except that no doctrine of choice of law shall be used to apply any
law other than that of Illinois.
11. Severability. Holdings and Executive believe the covenants against
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competition contained in this Agreement are reasonable and fair in all respects,
and are necessary to protect the interests of Holdings. However, in case any one
or more of the provisions or parts of a provision contained in this Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect in any jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Agreement or
any other jurisdiction, but this Agreement shall be reformed and construed in
any such jurisdiction as if such invalid or illegal or unenforceable provision
or part of a provision had never been contained herein and such provision or
part shall be reformed so that it would be valid, legal and enforceable to the
maximum extent permitted in such jurisdiction. Without limiting the foregoing,
the parties intend that the covenants and agreements contained in part a. of
Section 5 shall be deemed to be a series of separate covenants and agreements,
one for each of The United States of America and one for each of the foreign
countries in which any of the Companies have conducted business within the past
three years. If, in any judicial proceeding, a court shall refuse to enforce all
the separate covenants and agreements deemed to be included in part a. of
Section 5, it is the intention of the parties hereto that the covenants and
agreements which, if eliminated, would permit the remaining separate covenants
and agreements to be enforced in such proceeding shall, for the purpose of such
proceeding, be deemed eliminated from the provisions of part a. of Section 5.
12. Neutra1 Interpretation. This Agreement constitutes the product of the
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negotiation of the parties hereto and the enforcement hereof shall be
interpreted in a neutral manner, and not more strongly for or against any party
based upon the source of the draftsmanship hereof.
13. Miscellaneous. This Agreement may be executed in two or more counterparts,
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each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. This Agreement embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and may not be modified orally, but only by a writing
subscribed by the party charged therewith. There are no restrictions, promises,
representations, warranties, covenants or undertakings, other than those
expressly set forth or referred to herein. This Agreement supersedes all prior
agreements and understandings (whether oral or written) between the parties with
respect to such subject matter.
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IN WITNESS WHEREOF, the parties hereto have made and entered into this
Agreement the date first hereinabove set forth.
HOLDINGS
MK HOLDINGS, INC.
By: /s/
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Title: Vice President
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EXECUTIVE:
/s/
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John Brown
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AGREEMENT
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This Agreement, dated this 12 day of September 1993, by and between The
Imperial Electric Company, located in Cuyahoga Falls, Ohio (hereinafter referred
to as "Company" or "Employer") and the United Steelworkers of America AFL-CIO,
on behalf of Local Union 4544-3, or its successor (hereinafter referred to as
the "Union").
ARTICLE I
PURPOSE AND INTENT
Section 1.1 It is the intent and purpose of the parties to set forth
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hereafter the agreement covering rates of pay, hours of work, and conditions of
employment keeping in mind that only through mutual understanding and
cooperation on the part of both parties can the maximum benefits be attained
both for the employees and the Company under this Agreement.
Section 1.2 The Company agrees that supervisors will not perform work of
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the same nature as that of the employees they supervise except (1) for
instruction, (2) for experimental purposes, (3) in any effort in the elimination
of a work hazard or in the creation of a safe working condition; (4) in an
emergency; and, (5) when inadequate numbers of bargaining unit members respond
to offers to perform overtime work. The Company will instruct its supervisors to
that end.
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ARTICLE II
RECOGNITION
Section 2.1 The Company recognizes the Union as the sole and exclusive
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bargaining agent acting for and on behalf of the Company's production and
maintenance employees employed by the employer at is 3365 Cavalier Trail,
Cuyahoga Falls, Ohio facility, but, excluding all office, clerical, confidential
and professional employees as well as guards and supervisors as defined in the
National Labor Relations Act, ad amended, for the purpose of collective
bargaining with respect to hourly rates of pay, wages, hours of work and other
conditions of employment.
ARTICLE III
UNION MEMBERSHIP
Section 3.1 It shall be a condition of employment that all employees of
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the Company covered by this Agreement, who are members of the Union in good
standing on the effective date of this Agreement, shall remain members in good
standing, and those who are not members on the effective date of this Agreement
shall, on or after the thirtieth (30th) day following the effective date of this
Agreement, become and remain members in good standing in the Union. It shall
also be a condition of employment that all employees covered by this Agreement
and hired on or after its effective date shall, on or after the thirtieth (30th)
day following the beginning of such employment become and remain members in
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good standing of the Union by signing the authorized card for dues deduction.
Notwithstanding the foregoing obligations, employees shall not have recourse
to the grievance and arbitration procedure set forth in this agreement until
they complete their probationary period as specified in this Agreement.
ARTICLE IV
CHECKOFF
Section 4.1 The Company will check off monthly dues, assements and
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initiation fees each as designated by the International Treasurer of the Union,
as membership dues in the Union, on the basis of individuality signed voluntary
checkoff authorization cards.
Section 4.2 Deductions shall commence with respect to dues for the month
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in which the Company receives such authorization card or in which such card
becomes effective, whichever is later. Dues for a given month shall be deducted
from each pay weekly calculated in the succeeding month.
Section 4.3 In cases of earnings insufficient to cover deductions of
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dues, the dues shall be deducted from the next pay in which there are sufficient
earnings, or a double deduction may be made from the first pay of the following
month, provided however, the accumulation of dues shall be limited to two (2)
months. Should it occur that an employee in any given month fails to work not
less than five regular
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work days, then no such deductions shall be made from any such employee for the
purpose of defraying monthly dues.
Section 4.4 All deductions shall be promptly remitted to the
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International Treasurer of the Union, to the address indicated by the
International Treasurer for the receipt of such.
Section 4.5 The Union shall indemnify and save the Company harmless
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against any and all claims, demands, suits or other forms of liability that
shall arise out of or by reasons of action taken or not taken by the Company for
the purpose of complying with any of the provisions of this Article.
ARTICLE V
NON-DISCRIMINATION
Section 5.1 It is the continuing policy of the Company and the Union
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that the provisions of this Agreement shall be applied to all employees without
regard to race, color, religion, national origin, sex, age or disability. The
representative of the Union and the Company, in all steps of the Grievance
procedure and in all dealings between the parties shall comply with this
provision.
ARTICLE VI
MANAGEMENT'S RIGHTS CLAUSE
Section 6.1 Except to the extent expressly abridged by a specific
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provision of this Agreement, the Company reserves and retains exclusively all of
its rights to
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manage the business, as such rights existed prior to the execution of this
Agreement with the Union unless such rights are abridged by a specific provision
of the Agreement.
Without limiting the generality of the foregoing, the sole and
exclusive rights of management include, but are not limited to, the right to
establish rules and regulations governing the conduct of employees; the right to
plan, direct, and control operations and the methods, processes, and materials
to be employed; the right to direct, employ, schedule, and transfer employees;
to discipline and discharge employees for just cause; to relieve employees from
duties because of lack of work or for other legitimate reasons; to close, lease,
or sell its plant or any part of its operations.
ARTICLE VII
RESPONSIBILITIES OF THE PARTIES
Section 7.1 Each of the parties hereto acknowledges the rights and
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responsibilities of the other party and agrees to discharge its responsibilities
under this Agreement.
Section 7.2 The Union (its officers and representatives, at all levels)
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and all employees are bound to observe the provisions of this Agreement.
Section 7.3 The Company (its officers and representatives, at all
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levels) are bound to observe the provisions of this Agreement.
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Section 7.4 (Strikes and Lockouts) During the life of the Agreement, the
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Union will not cause or permit the employees covered hereunder to cause, nor
will any employee take part in, any sit-down, stay-in, slow-down, sympathetic
strike, or any other curtailment of work or unauthorized work stoppage at the
Cuyahoga Falls plant.
The International Union or the Local shall not be held financially
liable for any such unauthorized acts provided that upon receipt of notice from
the Company of the occurrence of any unauthorized acts, the Union shall
immediately and officially notify employees involved to terminate such
unauthorized acts and promptly take the following actions:
(a) The International Union by telegram to the Local Union officers
shall state that such unauthorized acts are not directed or
authorized by the Union and are in violation of this Agreement.
(b) Endeavor to induce employees to cease such unauthorized acts.
(c) The Local Union officers and stewards shall, by example, continue
to work and endeavor to induce all other employees to do so. The
Union has the exclusive right to discipline its officers and
representatives. The Company has its
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exclusive right to discipline its officers and representatives.
The Company agrees that there shall be no lockout of any kind during the
term of this Agreement.
Any employee engaging in or assisting such action shall be subject to
disciplinary action up to and including termination.
ARTICLE VIII
GRIEVANCE PROCEDURE
Section 8.1 (A) Should differences arise between the Company and the
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Union or any employee in the bargaining unit as to the meaning or application of
any provision of this Agreement, or should a grievance pertaining to hours,
individual wage rates, job classification or working conditions arise during the
terms of this contract, negotiations for settlement thereof shall be conducted
in the following manner:
(B) In order to provide a clarification of disputes and routine handling
of same, those disputes pertaining to broad policy matters or issues involving
the Union as a whole may be started at Step 3 of the Grievance Procedure between
the Company and the Union. Any grievance which would affect relief of specific
employees shall be handled in the usual procedure, commencing with Step 1.
Step 1. The aggrieved employee shall make a reasonable attempt within
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five (5) working days of the event
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which gives rise to the dispute to adjust the difference with his Foreman and,
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if he desires, he may have his Union Committeeman present and the Foreman may
have another Company representative present with him if he desires.
Step 2. If the complaint is not satisfactorily adjusted, the aggrieved
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employee shall then submit the case in writing within five (5) days to the
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Grievance Committee of the Union, and the Committee shall then attempt to settle
the grievance with the Foreman and the Plant Superintendent in a meeting within
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ten (10) days, in which case the Company will give the Committee a written
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answer within three (3) working days after final meeting in this Step.
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Step 3. If no settlement is reached with the Plant Superintendent and
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the Grievance Committee, a representative of the United Steelworkers of America
and the Grievance Committee, the Local Union Unit Chairman and, if necessary the
Grievant and witnesses will meet with the President of the Company and/or his
designated representatives within ten (10) days of the Company's Step 2 written
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answer. However, the Grievant and witness shall not have the right to be
present at the Executive Sessions of the Committee for the purpose of
making its decision. The Company will issue its final written answer to the
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Grievance no later than ten (10) days after the meeting between the Company and
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Union Committees.
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Step 4. In the foregoing process, the parties, by mutual agreement, may
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consent to hold the grievance for further consideration for a period of not to
exceed ten (10) calendar days, but in the absence of such an agreement in
writing, the grievance must be appealed within ten (10) calendar days from the
answer given in Step 3 to arbitration or the grievance is automatically ended.
The Company and the Union may thereafter request the Federal Mediation and
Conciliation Service to furnish a list of possible arbitrators. If the parties
are unable to agree upon an arbitrator or they refuse to act upon the selection
of an arbitrator, then either the Company or the Union may request the Federal
Mediation and Conciliation Service to appoint an arbitrator and his designation
shall be final and binding upon the Company and the Union and all persons
involved.
Section 8.2 The arbitrator shall adhere to this Agreement and apply it
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to the particular case presented to him, but he shall have no authority to add
to or subtract from, or modify the terms of this Agreement. His decision shall
be based only upon the terms and provisions of this Agreement and/or the
practices which the parties may have established under this Agreement. The
Company shall have the right to file grievances which shall be presented to the
Union Grievance Committee. All salaries and expenses of the arbitrator shall be
paid jointly by the Company and the Union.
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ARTICLE IX
DISCIPLINE AND DISCHARGE
Section 9.1 The basis for disciplinary action may be for violation of
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Company work rules and other commonly accepted work and safety rules not
specifically set out.
Section 9.2 The Company will apply progressive discipline for minor work
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rule infractions and other minor incidences of misconduct. The Company will
propose a list of examples of the kinds of infractions that will be subject to
the progressive discipline policy, and, a list of those that will result in
immediate discharge. Such lists will not be exhaustive of the Company's right to
administer discipline, or, of the Union's right to grieve over the discipline.
Some types of misconduct by employees that warrant discipline, include in
appropriate cases, immediate dismissal, are set forth in Appendix C. The Union,
however, reserves the right to grieve the legitimacy of the discipline imposed
for commission of any of these infractions.
Section 9.3 After a written warning has been in effect for twelve (12)
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months, the warning thereafter will not be relevant to any disciplinary action
under this Agreement.
Section 9.4 If any discharged employee believes he has been unjustly
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discharged, he may, within three (3) days or seventy-two (72) hours, submit the
case in writing to
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the Grievance Committee, and they shall proceed with the case in the same manner
as provided in the Grievance Procedure. If the employee's grievance is found to
be valid, he shall be reinstated under such terms and conditions as the parties
handling the case shall decide.
ARTICLE X
GRIEVANCE COMMITTEE
Section 10.1 The Union Grievance Committee shall consist of not more
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than three (3) members and the Local Union Unit Chairman or his representative.
All members of the Grievance Committee shall be employees of the Company and
shall be chosen by the Union.
Section 10.2 Any member of the Grievance Committee shall have the right
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to leave his job at reasonable times for the purpose of transacting the
legitimate business of the Grievance Committee, but must first receive
permission from his supervisor. Such permission will not be unreasonably denied.
Provided further, that time spent in the investigation of grievances shall not
be abused, and, in no event shall the aggregate time spent, by grievance
committee members, collectively, exceed fifteen hours per month.
Section 10.3 Any member of the Grievance Committee, who is off of his
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job with Company approval, to attend meetings with the Company on grievance
matters (except
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for attendance at arbitration hearings), shall be paid by the Company for all
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time lost.
ARTICLE XI
SENIORITY
Section 11.1 Seniority in the plant shall be applied on a plant-wide
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basis, as hereinafter specified.
Section 11.2 All new employees will be regarded as probationary
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employees until they have completed sixty (60) actual days of work, and will
have no seniority standing until they have completed this period of sixty (60)
days of work. There will be no responsibility for their re-employment if laid
off or discharged during this period. Any and all such employees may be
terminated without recourse to the -grievance and arbitration procedures during
this period of sixty (60) days of work. Provided further, that the probationary
period may be extended by mutual agreement for thirty (30) additional days.
Section 11.3 The seniority standing of an employee shall be determined
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by the length of his continuous service with the Company computed from the date
of his last hiring. No such standing shall be computed for or be applicable to
any employee until he has completed his probationary period and during such
period he shall be classified as a "probationary" employee. A revised copy of
the seniority list will be posted in the plant every six (6) months.
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Section 11.4 (Lay-offs and Recalls) During periods of curtailed
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production, employees shall be laid off in accordance with seniority and in
sufficient numbers, so as to provide forty (40) hours per week for remaining
employees; Probationary and Part-timers shall be laid-off before any full-time
employees.
Section ll.7 If an employee is disqualified from a classification
because of inability to perform the work due to medical reasons (a doctor's
statement to that effect required), such employee has the right to exercise his
plant-wide seniority and bump an employee with lessor seniority in a lessor or
equally rated classification
and, will receive the pay rate of the job into which he bumps.
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Section 11.8 Any employee to be laid off in a classification may bump
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into a job held by an employee with less seniority, provided that he possesses
relatively equivalent ability and qualifications to perform the work of that
position.
Section 11.9 The employee lowest in seniority in the classification into
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which a more senior employee bumps will be laid off.
Section 11.10 If the bumping employee qualifies for the job within a
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three (3) day trial period he will be retained for the new job, otherwise, he
will be laid off according to his seniority standing.
Section 11.11 If the employee is maximum rated on his old job and
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bumps into a higher rated job, he will his old rate and will advance
to maximum rate through the automatic progression schedule.
Section 11.12 An employee who has exercised his plant-wide seniority to
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bump to another classification will be recalled to his regular classification in
order of his seniority when production requirements necessitate.
Section 11.13 In the recall of those employees laid off, seniority shall
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govern assuming relatively equivalent ability and qualifications to perform the
work in question; no new employees will be hired so long as there are employees
on lay off who desire to return to work and possess the ability and relatively
equivalent qualifications to do
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so. No new employees will be hired and trained for positions provided that there
exists employees on lay off who have the ability to be trained and who desire to
return to work to fill the vacant positions. Provided further, that this
restriction on the hiring of new employees shall not apply to the position of
and f??? and ?est maintenance/master mechanic and the position of machinist set
up.
Section 11.14 (Job Posting) When new or vacancies occur in different
-------------
classifications, or there is an opportunity for promotion or transfer to non-
supervisory jobs, the Company will give preference to employees on the basis of
plant-wide seniority, assuming ability and A relatively equivalent
qualifications. Notices of all permanent job vacancies or new jobs will be
identified and posted the same day in the plant for a period of twenty-four (24)
hours, exclusive of Saturdays, Sundays or holidays. Such notices will state the
classification, rate, and shift. Each bid will be in an employee's own writing
on a form furnished by the Company, will state the employee's qualifications for
the job, will be initialed by the supervisor and will be given to the supervisor
or placed in a bid box prior to the expiration of the posting period. Bids may
not be pulled once they have been placed in the bid box.
Section 11.15 After the successful bidder has established qualifications
-------------
and/or experience, he shall be given the job for a trial period of up to three
(3) days
<PAGE>
work to determine if he has a present ability and the necessary qualifications
to perform the work in question. Should the employee fail to perform the
required duties to the satisfaction of the Company during the trial period, or
in the event such employee elects to disqualify himself within the trial period,
a second posting of the job opening shall be required and, in the event there
are no successful applicants, the job may be filled at the discretion of the
Company. An employee disqualified from a job into which he has bid shall be
returned to the job which he last held.
Section 11.16 Should the Company fail to fill a job within one (1)
-------------
month, it shall be reposted, if, in the Company's judgment there remains a need
to fill the posted position.
Section 11.17 An employee disqualified by the Company or who
-------------
disqualifies himself after having been a successful bidder, is not eligible to
bid for the same job for one year.
Section 11.18 Successful bidders for posted jobs shall not be eligible
-------------
to make application for another posted job for a period of twelve (12) months
subsequent to being awarded the new job; provided, however, that this limitation
shall not apply to an employee where the employee is unable to perform work on
the new job by reason of the Company's
16
<PAGE>
inability to provide work for the job, the elimination of the job, or in the
event of lay-off.
Section 11.19 An employee who disqualifies himself shall not be eligible
-------------
to bid for t delve (12) months.
Section 11.20 Employees ineligible for posted jobs under any of the
-------------
above provisions may make application; however, such applicants may be
considered if there are no eligible qualified bidders.
Section 11.21 If an employee qualifies and his rate is above the maximum
-------------
rate of the new job, he will be reduced to the maximum rate of the new job.
Section 11.22 If he is maximum rated on his old job and bumps into a
-------------
higher rated job, he will maintain his old rate and will advance to maximum rate
through automatic progression.
Section 11.23 At the end of the trial period the Union will be notified
-------------
of the employee's status.
Section 11.24 An employee's seniority shall be terminated or lost if he:
-------------
(a) quits;
(b) is discharged and the discharge is not reversed through the
grievance procedure;
(c) is absent for three (3) consecutive working days without notifying
the Company, except for good and sufficient cause; is a reason
that is satisfactory to company.
17
<PAGE>
(d) fails to return to work within three (3) working days after being
notified to report for work by certified mail, except for good and
sufficient cause;
(e) is off work due to lay off in excess of accumulated seniority up to
twenty-four (24) months, after which seniority is broken;
(f) fails to return from any leave of absence within three (3) working
days after the expiration of said leave, except for good and
sufficient cause; or
(g) is off work due to illness or disability, whether personal or
work-related, in excess of twenty-four (24) continuous months.
Section 11.25 (Transfer to Supervision) An employee transferred out of
-------------
the bargaining unit will be allowed to return to the bargaining unit within six
(6) months from his effective date of transfer and retain all his seniority from
his date of hire. If he does not return to the bargaining unit within said six
(6) month period, he will lose all bargaining unit seniority.
Section 11.26 The above option to return to the bargaining unit may only
-------------
be exercised once.
Section 11.27 An employee who elects part-time status shall carry with
-------------
him all accumulated full-time seniority, and, shall thereafter accrue seniority
at one-half
18
<PAGE>
(1/2) the full-time rate. Part-time employees may use their accumulated
seniority against other part-time employees in all respects as defined in this
Article XI, but, in no circumstances may part-time employees, without regard to
seniority, apply their seniority to obtain a preference against full-time
employees.
ARTICLE XII
LEAVES OF ABSENCE
Section 12.1 At the discretion of the Company, an employee may be
------------
granted a leave of absence not to exceed three (3) months without loss of
seniority. Such leave must be requested in writing. Leaves of greater duration
or the extension of a leave granted by the Company, must be agreed to by Company
and Union.
Section 12.2 The Company shall grant leaves of absence without pay and
------------
without loss of seniority or benefits to employees for the purpose of attending
union conventions and conferences, seminars, etc. Such leaves will be limited to
two (2) employees and shall not exceed seven (7) days.
ARTICLE XIII
MILITARY SERVICES
Section 13.1 The Employer and the Union agree to abide by the provisions
------------
of the Vietnam Era Veterans' Readjustment Assistance Act of 1974, at Title 38,
U.S.C. (S) 2021 et seq.
-- ---
19
<PAGE>
ARTICLE XIV
HOURS OF WORK AND OVERTIME
Section 14.1 The normal work day shall be any regular scheduled
------------
consecutive twenty-fourth (24) hour period comprising eight (8) consecutive
hours of work exclusive of lunch period.
Section 14.2 Five (5) consecutive days, starting on Monday of each week,
------------
shall constitute a normal work week.
Section 14.3 The normal shift hours shall be:
------------
First Shift 8:00 a.m. to 4:30 p.m.
Second Shift 4:30 p.m. to 1:00 p.m.
Third Shift 1:00 a.m. to 6:00 a.m.
Section 14.4 Any change in the normal scheduled shift hours must
------------
first be negotiated with the Union.
Section 14.5 All work in excess of forty (40) hours in one work week
------------
shall be paid at the rate of one and one-half (1-1/2) times the employee's
straight time hourly rate.
Section 14.6 Overtime opportunities shall be distributed as equally as
------------
practical within the classification of which the overtime is to be worked;
employees outside the classification in which overtime is to be worked who are
capable of performing the work in the classification will be offered the
opportunity to work such overtime.
Section 14.7 Employees on the second and third shifts shall be paid a
------------
premium of fifteen cents ($.15).
20
<PAGE>
ARTICLE XV
TRANSFERS
Section 15.1 Any employee who is temporarily transferred to a lower
------------
rated job for the convenience of the Company shall continue to receive his
average hourly rate for his regular job.
Section 15.2 Any employee transferred from a lower rated job to a higher
------------
rated shall receive the higher rate of pay for time spent on the job in excess
of two (2) hours.
ARTICLE XVI
REPORTING AND CALLING IN PAY
Section 16.1 Unless having been notified not to report, any employee who
------------
reports to work in accordance with his work schedule and upon his arrival at the
plant finds no work available for which he was scheduled to perform, shall be
paid two (2) hours at his hourly rate. If the Company offers other employment
for that day it will be not less than eight (8) hours at the employee's regular
rate. This provision shall not apply where lack of work is due to an Act of God,
power failure, or other causes beyond the control of the Company.
Section 16.2 Employee's who have been called in for emergency work after
------------
having left the Company's property shall be provided a minimum of two (2) hours
work at the applicable pay rate. If the work for which the emergency
21
<PAGE>
call has been made requires less than two (2) hours to complete, the employee is
free to go home upon completion of the work and still receive his two (2) hours
of pay and night shift premium, if applicable.
ARTICLE XVII
VACATIONS
Section 17.1 Vacation eligibility shall be determined as of June 1 in
------------
any calendar year. Each employee who, as of June 1 in any calendar year, has six
(6) months but less than one (1) year service and has worked eight hundred (800)
hours, shall be eligible for twenty-four (24) hours vacation with pay. Each
employee who has completed, as of June 1 in any calendar year, one (1) year
service but less than two (2) years and has sixteen hundred (1600) hours shall
be eligible for forty (40) hours vacation with pay. Any employee who, as of June
1 in any calender year, has two (2) years service, but less than three (3) years
and has sixteen hundred (1600) hours worked shall be eligible for fifty-six (56)
hours vacation with pay. Any employee who, as of June 1 in a calender year, has
three years service but less than twelve years service and has worked sixteen
hundred (1600) hours shall be eligible for eighty (80) hours vacation with pay.
Any employee who, as of June 1 in a calender year, has twelve (12) years but
less than eighteen (18) years service and sixteen hundred (1600) hours worked
shall be eligible for one hundred twenty (120) hours vacation with
22
<PAGE>
pay. Any employee who, as of June 1 in a calender year, has eighteen (18) or
more years service and sixteen hundred (1600) hours worked, shall be eligible
for one hundred thirty-six (136) hours vacation with pay.
Section 17.2 To be eligible for full vacation pay, an employee must have
------------
worked at least sixteen hundred (1600) hours during the twelve (12) month period
immediately preceding June 1 of a calender year. Any employee who meets the
length of continuous service requirements but works less than sixteen hundred
(1600) hours during the twelve (12) month period immediately preceding June 1 in
a calender year shall be entitled to pro rata vacation pay calculated by
dividing the number of hours the Company has worked during the said twelve (12)
month period by sixteen hundred (1600) and multiplying the quotient by the
amount the employee would have received had he qualified for full vacation pay.
Section 17.3 Full vacation pay shall be computed on the basis of forty
------------
(40) hours at the employee's regular straight time hourly rate of pay, or, for
any one day, eight (8) hours at the employee's regular straight time hourly rate
of pay.
Section 17.4 Vacation pay shall be computed and paid by separate check
------------
at the time vacation is taken, if so requested by the employee at the time his
vacation is scheduled.
23
<PAGE>
Section 17.5 In determining whether an employee has worked sixteen
------------
hundred (1600) hours in a twelve (12) months period, holidays and paid vacations
shall be considered as hours worked.
Section 17.6 All employees shall be required to take not less than one
------------
(1) week of the vacation which he or she is eligible. Those employees entitled
to vacation in excess of one week may elect to be paid for such vacation rather
than actually take it.
Section 17.7 An employee whose vacation period includes a holiday or
------------
holidays, shall have the right to add one (1) day for each holiday to his
vacation period, exclusive of Saturday or Sunday, either immediately before or
immediately following his vacation period provided he so elects in advance of
taking his vacation.
Section 17.8 The Company reserves the right to schedule, upon reasonable
------------
notice, a one (1) week plant shutdown. Employees with one (1) or less weeks
vacation shall be required to take one week of their vacation at that time. The
second week of vacation may be scheduled at the option of the employee, upon 30-
day notice to the Company. Any employee whose eligible vacation time is not
exhausted by the plant shut down may elect to take any remaining vacation one
day at a time, provided sufficient notice in advance is given to the Company.
24
<PAGE>
Section 17.9 Part time employees who have worked eight hundred (800)
------------
hours immediately preceding June 1 of any calender year, are eligible for up to
twenty-four (24) hours vacation with pay, determined by dividing their total
hours of work by forty-eight (48).
ARTICLE XVIII
HOLIDAYS
Section 18.1 All full time bargaining unit employees who have completed
------------
their probationary period shall be entitled to holiday pay for the following
recognized holidays: New Years Day, Good Friday, Memorial Day, Fourth of July,
Labor Day, Thanksgiving Day, the day after Thanksgiving, Christmas Day, and, two
(2) other floating days to be designated by the Company with sufficient advance
notification to employees.
Section 18.2 If any of the designated holidays should occur on Saturday
------------
or Sunday, the same will be observed on Monday or Friday. The Company agrees to
give at least seven (7) days advance notice of the day on which the holiday will
be celebrated.
Section 18.3 To qualify for holiday pay an employee must have completed
------------
his probationary period and have worked his last scheduled day immediately
before and immediately following the holiday. The exceptions under which an
employee will be considered to have completed his schedule will be as follows:
25
<PAGE>
(a) if he is excused from work on the day before and/or the day after
the holiday for any reason by the Company.
(b) if the employee is on vacation.
(c) if an employee is absent on funeral leave or jury duty.
Section 18.4 Each eligible employee will receive eight (8) hours pay at
------------
the employee's regular straight time rate of pay for each holiday.
Section 18.5 Hours paid for but not worked on holiday will not be
------------
considered hours worked for computation of weekly overtime.
ARTICLE XIX
FUNERAL PAY
Section 19.1 Any employee suffering a loss by death of a member of his
------------
or her immediate family shall be allowed up to three (3) days off, with pay, at
the regular straight time hourly rate, not to exceed eight (8) hours per day,
for the purpose of making funeral arrangement and attending the funeral. For the
purpose of this section, immediate family shall be defined as follows: Father,
Mother, Spouse, Child, Father-in-Law, Mother-in-law, Brother, Sister,
Grandchildren, Grandparents, Brother-in-Law, Sister-in-Law, Stepmother,
Stepfather, Stepchildren and Foster Children. The Company may require proof of
death before paying funeral pay.
26
<PAGE>
Section 19.2 A death in an employee's immediate family as defined above,
occurring during the employee's vacation, shall extend his vacation period for
additional three (3) days with pay.
ARTICLE XX
JURY SERVICE
Section 20.1 An employee who is called for jury service shall be excused
------------
from work on days on which he serves which includes required reporting for jury
duty when summoned, whether or not he is used as a juror) and he shall receive,
for each such day of jury service on which he would otherwise have worked, (plus
any holiday in such period which he would not have worked), eight (8) times his
straight-time hourly earnings. The employee shall be required to present proof
of jury service, and to tender to the Company, any amounts received as
compensation for serving as a juror.
ARTICLE XXI
SAFETY AND HEALTH
Section 21.1 The Company recognizes its obligation to provide to each
------------
employee a safe place to work pursuant to the rules and regulations of the
Occupational Safety and Health Act. The Company and the Union and all employees
shall cooperate in the enforcement of all reasonable rules and practices to
insure safe and sanitary working conditions. The Company agrees to provide, at
27
<PAGE>
Company expense, all required personal protective equipment to insure safety and
health.
Section 21.2 There shall be established a Safety and Health committee
------------
consisting of a Company representative and two employee representatives which
shall meet monthly, on the third Thursday of each month, to discuss issues
concerning safety and health.
ARTICLE XXII
MISCELLANEOUS
Section 22.1 (Union Bulletin boards) The Company agrees to furnish one
------------
(1) glass covered bulletin board to be used exclusively by the Union for the
posting of appropriate information relating to Union business and, matters which
specifically relate to information which involves and concerns Union members.
Where appropriate, notices must be approved by the plant manager or his
designated representative before being posted.
Section 22.2 (Supplemental Agreements) The parties may, where
------------
appropriate, and upon mutual agreement, reopen the contract to discuss specific
issues which arise during the life of the Agreement. Any mutual decision to do
so must have approval of an international officers of the Union and appropriate
representatives of the Company.
Section 22.3 (Compliance with State and Federal Law) Any provisions of
------------
this Agreement, or any particular application thereof, which may at any time be
in conflict
28
<PAGE>
with any compulsory State or Federal laws or valid orders issued pursuant
thereto, shall be and are hereby modified to conform to such law or order but
only during the period such law or orders are in force and effect.
Section 22.4 (Copies of the Contract) Company agrees to provide copies
------------
of the collective bargaining agreement to each member of the bargaining unit
and, agrees to provide appropriate numbers to the Union.
ARTICLE XXIII
HEALTH AND WELFARE
Section 23.1 The Company agrees to continue to defray the cost of the
------------
current medical insurance plan during the life of this Agreement and to retain
such plan or its substantial equivalent, during the term of this Agreement.
ARTICLE XXIV
DURATION
This Agreement shall become effective as of the date of the ratification
hereof and shall remain in effect until September 12, 1996, and shall continue
in effect from year to year thereafter unless either party serves upon the other
at least sixty (60) days prior to September 12, 1996, or any annual anniversary
date thereafter, notice of its desire to terminate or amend this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused their names to be
subscribed by their duly authorized
29
<PAGE>
officers and representatives this day of ,
------- ----------------------------
1993.
IMPERIAL ELECTRIC COMPANY UNITED STEELWORKERS OF AMERICA
By: By:
----------------------- ---------------------------
By: By:
----------------------- ---------------------------
By:
---------------------------
By:
---------------------------
By:
---------------------------
By:
---------------------------
By:
---------------------------
By:
---------------------------
By:
---------------------------
30
<PAGE>
APPENDIX A
----------
Job Title Labor Grade
--------- -----------
Maintenance/Master Mechanic 10
Machinist and Set Up 8
Fuse and Test 8
Motor Assembly 7
Varnish 7
Tester 7
Winder 7
Fluidizer 7
Commutator Bracket Assembler (A) 7
Commutator Bracket Assembler (B) 5
Connector 6
Balancer 6
Stator Frame Assembler 6
Machine Operator 5
Welder 5
Brush Board Assembler 5
Armature Process 5
Painter 5
Coiler 4
Armature Core Assembler 4
<PAGE>
APPENDIX B
----------
MAXIMUM HOURLY WAGE RATES
BY LABOR GRADE
Ratification Year 1 Year 2
------------ ------ ------
LABOR GRADE
Current
Maximum +.40 +.35 +.30
------- ----- ----- -----
10 12.90 13.30 13.65 13.95
8 8.65 9.05 9.40 9.70
7 8.05 8.45 8.80 9.10
6 7.80 8.20 8.55 8.85
5 6.90 7.30 7.65 7.95
4 6.25 6.65 7.00 7.30
3 5.00 5.40 5.75 6.05
The above wage rates apply to those employees who are at the top rate within the
labor grades reflected. Employees not top-rated on the first and second
anniversary of the contract, will not receive the increases specified above.
Such employees will remain within the progression schedule and receive the
increases reflected below until they are at the top rate for their labor grade.
6 months from ratification (Sept. 12, 1993) .35
12 months from ratification .30
18 months from ratification .30
24 months from ratification .30
30 months from ratification .30
36 months from ratification .30
32
<PAGE>
APPENDIX C
----------
The Company has certain rules and regulations relating to discipline
which are subject to change from time to time. Employees will be subject to
disciplinary action, which includes discharge in proper cases, for any of the
following conduct:
1. Stealing.
2. Willful destruction of property.
3. Fighting and/or attempting bodily and mental injury to another
employee on Company property.
4. Use of threatening or abusive language toward a fellow employee in a
manner which might reasonably be expected to provoke a disturbance.
5. Engaging in horseplay or disorderly or immoral conduct on Company
property.
6. Failure to ring in and out on time card, or punching another
employee's time card.
7. Coming to work under the influences of alcohol or of any drugs, or
bringing alcoholic beverages or drugs into the Plant.
8. Intentionally giving false or misleading information in applying for
employment as a result of which applicant received employment.
9. Frequent tardiness or absence from work without permission.
33
<PAGE>
10. Any employee who is absent from work for any reason must notify the
factory office promptly. All calls must be made between 8:00 a.m.
and 4:30 p.m., Monday thru Friday.
11. Repeated negligence resulting in excessive scrap or inferior work,
or in breakage of tools, or wasting materials.
12. Deliberate abuse of tools, equipment or wasting of materials.
13. Leaving employee's regular working place or leaving the department
during working hours without authorization.
14. Violation of safety or health rules.
15. Disobedience and insubordination.
16. Tampering with bulletins posted in the Plant.
17. Leaving the Plant other than at regular quitting time without
authorization.
34
<PAGE>
LABOR GRADES
CLASSIFICATIONS LISTED IN LABOR GRADES
#10 MAINTENANCE/MASTER MECHANIC
# 8 MACHINEST & SETUP, FUSE & TEST
# 7 FLUIDIZER, COMMBRACKET ASSEMBLY "A", WINDER, VARNISH,
MOTOR ASSEMBLY, FINAL TEST.
# 6 CONNECTORS, STATER FRAME ASSEMBLY, BALANCE
# 5 MACHINE OPERATOR, COMMBRACKET ASSEMBLY "B", WELDER,
PAINTER,BRUSH BOARD ASSEMBLY, ARMATURE PROCESSOR
# 4 COILER, ARMATURE CORE ASSEMBLY
# 3 UTILITY & HIRE RATE
1st YR. 2nd YR. 3rd YR.
MIN. MAX.
---- ----
#10 $13.30 $13.65 $13.95
# 8 $8.60 - 9.05 $ 8.95 - 9.40 $9.25 - 9.70
# 7 7.00 - 8.45 7.35 - 8.80 7.65 - 9.10
# 6 6.00 - 8.20 6.35 - 8.55 6.65 - 8.85
# 5 5.70 - 7.30 6.05 - 7.65 6.35 - 7.95
# 4 5.70 - 6.65 6.05 - 7.00 6.35 - 7.30
# 3 5.40 - 6.40 5.75 - 6.75 6.05 - 7.05
<PAGE>
[LOGO] IMPERIAL
- --------------------------------------------------------------------------------
ELECTRIC
DATE: 2/2/95
TO: STEVE DENTON
FROM: DENNIS AUGUST
SUBJECT: GRIEVANCE OF 2/1/95
PAGE 1 OF 3 PAGES *INCLUDING THIS COVER SHEET!!!!!!!
___ ___
<PAGE>
FILL OUT IN TRIPLICATE
GRIEVANCE REPORT
USWA Local Union No. 4544-3 Grievance NO.
-------- ------------------------
Location Imperial Electric Date 2-1-95
------------------------------------------ --------------
- --------------------------------------------------------------------------------
================================================================================
EMPLOYEE'S NAME IDENTIFICATION NO. DEPARTMENT JOB TITLE
=====================================================================
Use space below to write in other important Grievance information
This Grievance is filed on behalf of the United Steelworkers of America AFL-C10
- --------------------------------------------------------------------------------
Local Union 4544-3
- --------------------------------------------------------------------------------
================================================================================
Nature of Grievance
The use of Temporaries, when the management was told not to by the grievance
- --------------------------------------------------------------------------------
comm and the Local Union 4544-3 moving full-time employees from there jobs and
- --------------------------------------------------------------------------------
putting temporaries in these jobs
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Settlement requested in Grievance
-----------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Agreement Violation
-------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature of Aggrieved: Signature of Union Representative:
/s/ /s/
- --------------------------------------------------------------------------------
/s/
- --------------------------------------------------------------------------------
<PAGE>
GRIEVANCE CASE NO.
--------------------
Answer of Company Representative Date 2/2/95
----------------------------------------
There is not and has not been a violation of the agreement. This grievance has
- --------------------------------------------------------------------------------
no merit and is denied.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Answer of Company next step Date
-------------------------- --------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Answer of Company next step Date
-------------------------- --------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Answer of Company next step Date
-------------------------- --------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Union Comments:
----------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
/s/
-----------------------------------
Signature of Union Representative
<PAGE>
CLOCK # CLOCK # CLOCK #
001 J. PHILLIPS 030 059
002 031 060
003 F. ALIERS 032 061
004 033 062 J. PEARSON
005 J. MAUGHAN 034 M. BILLIE 063 G. HAYSLIP 2/8/93
006 035 064
007 036 065 DAWN WILSON
008 037 D. COLLINS 066 R. RODRIGUEZ
009 038 067 J. ECKMAN 1/11/9
010 039 P. MAUGHAN 068 A. MCCRAY
011 040 S. SIMMONS 069
012 R. ALIERS 041 D. HAYNES 070
013 042 C. LOPICCOLO 071 M. GUYER
014 043 072 P. DONNER
015 044 S. MCRAE 073 12/2/9
016 M. O'CONNELL 045 074 11/30
017 046 D. HILL 075
018 047 T. KNIGHT 076 S. WYTIAZ
019 048 077
020 049 078
021 W. MCRAE 050 079
022 051 080 J. BLAIR 10/12
023 K. ROSATO 052 M. POLLARD 081 P. THOMPSON
024 053 R. JACOFSKY 082
025 T. DESURE 054 083
026 055 084
027 D. SIMMONS 056 085
028 T. KNIGHT 057 086 D. AUGUST
029 058 087
<PAGE>
CLOCK # CLOCK #
88 K. YEARY 116
89 K. CHEROK 9/16 117
90 118
91 119
92 120 TYSON ALEXANDER 2/15/93
93 121
94 T. GOMBEDA 122 G. PRLC
95 123
96 124
97 125 5/18/84 STEVEN LICHTENSTIGER
98 126 6/13 SHERRI WARD
99 127
100 R. STANLEY 128
101 B. RIVERS 129
102 D. ORNOUSKY 130
103 131 ANDREA COLLINS
104 132
105 133 DAVID SAYERS
106 134
107 135
108 136
109 137
110 138
111 139
112 140 ED MINER 1/16/95
113 141 JUDY LITTEN 1/16/95
114 142 MATTHEW DAVIS
115 143
<PAGE>
EXHIBIT 10.23
WORKING AGREEMENT
BETWEEN
LODGE 2164
INTERNATIONAL ASSOCIATION OF
MACHINISTS & AEROSPACE WORKERS
(AFL - CIO)
AND
THE IMPERIAL ELECTRIC COMPANY
AKRON, OHIO
AND
EFFECTIVE
JUNE 28, 1995
TO
JUNE 27, 2000
<PAGE>
AKRON FACTORY WORKING AGREEMENT
TABLE OF CONTENTS
ARTICLE TITLE PAGE NO.
Preamble - - - - - - - - - - - - - - - - - - - - - - - 1
I Recognition - - - - - - - - - - - - - - - - - - - - - 1
II Union Shop - - - - - - - - - - - - - - - - - - - - - - 1
III Check-Off - - - - - - - - - - - - - - - - - - - - - - 1
IV Hours of Employment- - - - - - - - - - - - - - - - - - 2
V Wages- - - - - - - - - - - - - - - - - - - - - - - - - 4
VI Seniority- - - - - - - - - - - - - - - - - - - - - - - 7
VII Holidays - - - - - - - - - - - - - - - - - - - - - - - 12
VIII Leaves of Absence- - - - - - - - - - - - - - - - - - - 14
IX Rules and Disciplinary Action- - - - - - - - - - - - - 16
X Discharge of Employees - - - - - - - - - - - - - - - - 16
XI Management Prerogatives- - - - - - - - - - - - - - - - 17
XII Productivity - - - - - - - - - - - - - - - - - - - - - 17
XIII Wash-Up Time - - - - - - - - - - - - - - - - - - - - - 18
XIV Information- - - - - - - - - - - - - - - - - - - - - - 18
XV Steward Time - - - - - - - - - - - - - - - - - - - - - 19
XVI Grievance Procedure- - - - - - - - - - - - - - - - - - 19
XVII Arbitration- - - - - - - - - - - - - - - - - - - - - - 21
XVIII Omitted- - - - - - - - - - - - - - - - - - - - - - - - 21
XIX Progression- - - - - - - - - - - - - - - - - - - - - - 22
XX Injured Workman- - - - - - - - - - - - - - - - - - - - 23
XXI Vacations- - - - - - - - - - - - - - - - - - - - - - - 23
XXII Safety and Health- - - - - - - - - - - - - - - - - - - 26
XXIII Casual Help and Student Salesmen - - - - - - - - - - - 27
XXIV Bulletin Boards- - - - - - - - - - - - - - - - - - - - 27a
XXV Strikes- - - - - - - - - - - - - - - - - - - - - - - - 27a
XXVI Insurance- - - - - - - - - - - - - - - - - - - - - - - 28
XXVII Supervision- - - - - - - - - - - - - - - - - - - - - - 29
XXVIII Employee Benefit Plan- - - - - - - - - - - - - - - - - 30
XXIX Jury Duty - - - - - - - - - - - - - - - - - - - - - - 32
XXX Funeral Pay- - - - - - - - - - - - - - - - - - - - - - 32
XXXI Retirement - - - - - - - - - - - - - - - - - - - - - - 32
XXXII General- - - - - - - - - - - - - - - - - - - - - - - - 33
XXXIII Termination- - - - - - - - - - - - - - - - - - - - - - 33
Equal Opportunity Clause - - - - - - - - - - - - - - - 33
Wage Structure - - - - - - - - - - - - - - - - - - - - 34
Basic Groups Classification & Rates- - - - - - - - - - 36
Letterof Understanding - - - - - - - - - - - - - - - - 37
<PAGE>
PREAMBLE
This Agreement made and entered into at Akron, Ohio on this 28th day of June,
1995 by and between the Imperial Electric Company of Akron, Ohio and the
International Association of Machinists & Aerospace Workers (AFL-CIO) and its
affiliated Lodge 2164, hereinafter referred to as the Union. The words used in
this Agreement in the masculine gender shall include the feminine.
That in consideration of the mutual performance and good faith by both parties
to this Agreement, individually and collectively, the said parties hereby and
with each other agree as follows:
ARTICLE I - RECOGNITION
SECTION 1
The Company recognizes the Union as the exclusive collective bargaining agent
for all hourly rated factory employees at its plant at Akron, Ohio, exclusive of
supervisors; foremen; working foremen, not exceed five (5) executives;
superintendents; salesmen or student salesmen, for the purpose of collective
bargaining with respect to wages, rate of pay, hours of employment and working
conditions. "Temporaries" mentioned in Article XXVII Section 2 are excluded
from Union per Paragraph 2, Section 2.
ARTICLE II - UNION SHOP
SECTION 1
It is mutually agreed between the Company and the Union, as a condition of
employment, that all present employees shall become members of the Union thirty
(30) calendar days after the execution of this Agreement and shall remain
members in good standing in the Union. All new employees shall become members of
the Union thirty (30) calendar days, as verified by time cards showing the
employee's attendance, after the date of their employment and shall remain
members in good standing as a condition of employment.
To remain members in good standing in the Union, all members must keep all
obligations paid to the Union, such as monthly dues, initiation fees,
reinstatement fees and assessments.
In the event two (2) or more employees are hired and got to work on the same
day, seniority will be determined alphabetically according to the last name.
Subsequent last name changes will not effect seniority standing.
SECTION 2
Upon notice to the Company from the Union that an employee is not in good
standing in the Union, as defined in Section 1 of this Article, the Company will
terminate his/her employment. The Company shall not be obligated to terminate
the employment of any employee at the request of the Union for any other reason.
ARTICLE III - CHECK OFF
SECTION 1
The Company shall deduct from the second pay check of each month, including
vacation pay, the Union dues of all Union members.
SECTION 2
The Company shall also deduct from the pay check of any new or reinstated
employee the initiation fee of such new employee or the reinstatement fee of
such reinstated employee. All such fees shall be uniform for all employees at
any given time.
The Company shall also deduct any legal assessments which are authorized in
writing by Lodge 2164 or by the Grand Lodge of the International Association of
Machinists & Aerospace Workers.
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SECTION 3
Any and all deductions made by the Company must be authorized in writing by each
individual employee, and such authorization shall continue until revoked, and
may be revoked only at the time and in the manner provided below.
Such authorization shall be irrevocable for a period of one year from the date
appearing on each individual authorization card or until the expiration of the
Agreement between the Company and the Union (whichever is sooner).
Such authorization shall be irrevocable for the term of the contract from the
date appearing on each individual authorization card.
Revocation shall be effective only if the employee gives the Union written
notice by individual registered mail, return receipt requested and it is
received and postmarked during the period specified above.
SECTION 4
All Monies deducted by the Company under the provisions of this Article will be
remitted by check to the Treasurer of the Union within fifteen (15) calendar
days after the deductions are made.
SECTION 5
It is understood and agreed that the Union shall have the right to change the
amount of the dues by giving the Company notice of the change in writing.
All dues, initiation fees, reinstatement fees and assessments shall be the same
for all employees at any given time.
ARTICLE IV - HOURS OF EMPLOYMENT
SECTION 1
The regular work week shall be from 12:01 A.M. Monday to 12:00 midnight Friday,
forty (40) hours per week eight (8) hours per day.
SECTION 2
All work performed in excess of forty (40) hours in any week shall be paid for
at one and one half (1 1/2) times the regular straight time rate.
SECTION 3
Employees shall not claim, or be entitled to, overtime on both daily and weekly
basis.
SECTION 4
Employees who work on Saturday shall be paid at the rate of one and one-half
(1 1/2) times their regular straight-time rate after 40 hours. However, it is
understood and agreed that the Company shall not be obligated to work an
employee on Saturday if the employee has been absent from his work during that
week.
If an employee has been absent and the absence has been occasioned by any of the
following reasons, the absence shall not then be used to deprive the employee of
Saturday work. It is understood and agreed that absence occasioned by any of the
following shall be considered excusable absence; however, in each and every case
the burden of proof rests entirely with the employee.
A. One of the holidays recognized as falling under the scope of this Agreement.
B. If an employee reports to the plant at his/her regular time and without prior
notice to report, is sent home by reason of lack of work. Reasons beyond the
control of the Company, such as fire, flood and other Acts of God being
excluded.
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C. Personal illness with proof. Doctor's certificate required if absent three
(3) days or more.
D. Death in the immediate family.
E. Time actually spent on summons to jury duty.
F. Absence of veterans occasioned by their appearance before examining boards
of, or designated by the Veteran Administration.
G. Union business.
H. Court appearance.
SECTION 5
All work performed on the holiday recognized as falling under the scope of this
Agreement shall be paid for at two (2) times the regular straight time rate, and
all work performed on Sundays shall be paid for at twice (2) the regular
straight time rate. This section does not apply to Watchmen.
SECTION 6 - Omitted
SECTION 7
Any employee notified to report for work and who reports for work but is refused
employment at the time designated, unless the employee is physically unfit for
work, shall be given four (4) hours work or four (4) hour pay at the rate
applicable had they worked. This Section shall not apply where work is not
available by reason or causes beyond the Company's control, such as: power
failure, fire, flood, strike or Act of God; nor where the employee is prevented
from working by reason or causes beyond the Company's control, such as: power
failure, fire, flood, strike or Act of God. This provision does not apply to
Watchmen.
Employees called in to work outside of their regular hours shall receive two (2)
hours pay at the rate applicable had they worked, providing the employee is
physically fit to work. This Section shall not apply where work is not available
by reason or causes beyond the Company's control, such as: power failure, fire,
flood, strike or Act of God.
SECTION 8
The Company shall make every effort to reasonably equally divide all overtime
among employees who are classified in the same job classification.
Nothing in this Section is intended to obligate the Company to work overtime
hours, nor shall the Company be required to offer overtime work to any employee
who is not qualified to perform the work on the job that is being worked
overtime.
Where employees have been transferred to a new job, the Company will not be
obligated to offer them overtime work until they have been on the new job sixty
(60) calendar days.
SECTION 9
When the Company wished to have an employee work beyond his regular quitting
time, the Company will make every attempt to give advance notice where possible.
Since overtime was deemed to not be mandatory, then no posting is required.
SECTION 10
Any employee reporting for work from one (1) to fifteen (15) minutes late will
be "docked" ten (10) minutes. Beyond this, the employee shall be paid for the
actual time worked. Habitual tardiness on the part of any employee will be cause
for discipline and such cases will be handled under provisions of Article IX.
SECTION 11 - Omitted
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ARTICLE V - WAGES
SECTION 1
The basic wage structure, as outlined on Pages 34,35, & 36 shall remain in
effect for the duration on this Agreement.
SECTION 2
The minimum hiring rate shall be at the disposal of the Plant Manager with the
range being as follows: (See Letter of Understanding)
June 1995 to June 1999 - $5.40 & Up
At no time shall the new hires be paid above the pay scale of new hires already
employed at this location except when new hire is hired for specific job
requiring higher skills or more experience than normally required.
SECTION 3 For Progression Rate refer to Article XIX.
SECTION 4 - Omitted
SECTION 5
A night shift premium of twenty-five (25) cents per hour will be included in the
starting wage and carried throughout the employee's time on 2nd or 3rd shift.
The top of the rate will not include a night shift premium. Note: Since the
night premium of twenty-five (25) cents will be added to the employee's wages
from hiring through the time he/she reaches the top of rate. (Top of rate will
not include night premium). It is to be noted that the time required from
starting to top of rate is about twenty-five (25) months on average.
SECTION 6
It is agreed that before the installation of incentive plan, the Company and the
Union shall mutually agree on the terms and conditions thereof.
SECTION 7
The Company shall pay its employees on Friday of each week by check. Barring
circumstances beyond its control, the Company will continue to pay day shift
employees before noon on Friday and afternoon shift employees on Thursday night.
SECTION 8
When an employee is laid off, the laid off employee shall receive all money due
him by the Company within twenty-four (24) hours of the time of his lay-off,
with the exception of his vacation money, which will be held until the following
June 1st, providing the employee is still laid off according to the contract and
providing all tools and other property of the Company, which the employee may
have in his possession, have been surrendered to the Company.
When an employee is dismissed or discharged, apply the above paragraph for all
monies due him, except for vacation pay use Article XI, Section 9.
Employees shall, if possible, give the Company five (5) days notice before
quitting. If an employee gives less than five (5) days notice, then the Company
shall not be obligated to give him his pay before five (5) days from the date of
notice.
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SECTION 9
When an employee is permanently upgraded from a lower paying job to a higher
paying job, the employee's present rate will be transferred to the new job and
continue to increase in that new job at the rate specified for that new job as
long as all the conditions in this contract are met.
When an employee works on a job other than his regular classified job thirty
(30) full continuous days worked, or 240 hours worked, whichever comes first,
and while working thereon he/she is permanently classified on it, he/she will
then be transferred to the job and continue to increase in that new job at the
rate specified for the new job as long as all the conditions in this contract
are met.
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In the event an employee is permanently down-graded from a higher paying job to
a lower paying job, and in the event the employee has had no experience on the
lower paying job, then the employee's rate of pay shall be reduced on the day of
his transfer to the minimum rate of the lower paying job to he has been down-
graded, except that if the employee is down-graded from a job with a rate equal
to the maximum of the radial drill press rate or greater to one of the jobs
listed below, he shall receive the maximum of the rate of such job at the time
of transfer: *See Letter of Understanding on existing elevator employees.
Trucking (all departments)
Bench Hand (all departments)
Clean and Dip Stators and Coils
Paint Sprayer
Paint Castings
Clean and Paint
Crate Builder
Truck Driver
Sweeper
If the employee has had previous experience on the job to which he is assigned,
the Company shall determine his/her rate in light of his/her previous
experience, and the employee shall have the right to process a grievance if
he/she feels his/her rate has not been correctly established.
SECTION 11
In the event an employee is permanently down-graded or up-graded to a job
classification on which he/she formerly worked, then the employee shall take the
same relative position, percentage wise, in the rate range of the job to which
he/she is being down-graded or up-graded as he/she held at the time he/she was
last formerly classified on that same job.
SECTION 12
(REPLACED BY PROGRESS INFORMATION ON CHART PG. 36 & ARTICLE V, SEC. 9)
If an employee is permanently up-graded to a job which has a higher maximum rate
than the job which he/she presently holds, and if in the opinion of the Company,
the employee has had insufficient experience on the new job, then his/her rate
shall be decreased on the day of his/her transfer to the minimum of the rate
range on the job to which he/she is being up-graded. He/she shall then be
eligible for increases in accordance with the established practice of granting
merit increase as an employee learns his/her new work.
SECTION 13
The Company and the Union understand and agree that from time to time
production requirements and other conditions over which neither has any control
may make it necessary to effectuate temporary adjustments in the working force.
When an employee is temporarily transferred to a higher paying job, he/she shall
retain his/her lower rate until such time as he/she has worked on the higher
paying job a total of two hundred twenty (220) hours within a period of nine (9)
consecutive months following the date of his/her first temporary transfer to
such job. Nothing in this Section is intended to limit or restrict the Company
in making temporary transfers regardless of their length or frequency.
SECTION 14
In cases where an employee is transferred or down-graded, and if at the time of
his/her transfer the Company states that the transfer is permanent, the
employee's rate shall then be immediately adjusted to the rate of the job to
which he/she is being transferred in accordance with the provisions of this
Article. If, after accepting the reduction in his/her pay the Company up-grades
this employee back to his/her former job in a shorter period of time than would
have been considered temporary (30 calendar days), then the employee will
receive an adjustment equal to the rate he/she would have received had his/her
rate not been reduced by virtue of the permanent transfer.
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SECTION 15
Employees who have been permanently transferred from a higher paying job to a
lower paying job and have taken the corresponding rate reduction and are later
transferred back to the higher rated job on a temporary basis will then receive
the higher rate of pay for the time actually spent doing the higher paying job.
SECTION 16
In the event the Company finds it necessary to reclassify an employee to a lower
paying job then the affected employee shall have the right to accept the
downgrade or in cases where his/her hourly rate is reduce in excess of twenty-
cents ($0.20) per hour, he/she may request an involuntary layoff.
Any employee who takes such a layoff shall not be subject to recall to any job
except that a job which he/she was holding prior to the proposed down-grade.
However, if, after an employee elects to take an involuntary layoff, a job
becomes available which was not available at the time the employee elected to be
laid off, then such laid-off employee shall have the right to bid on any such
opening provided the job opening pays the same rate or higher than the rate of
the job on which the employee was working at the time he/she was laid off. Such
employee shall accumulate seniority during such layoff for a period of the time
equal to his/her seniority on the date of his/her layoff, but in no case longer
than twenty-four (24) months.
SECTION 17
The Basic wage structure as outlined on Pages 34, 35, 36, 37 and 38 includes the
wage increases which become effective on June 28, 1995.
ARTICLE VI - SENIORITY
SECTION 1
All new hourly employees covered by this Agreement shall be considered temporary
until they have worked thirty (30) calendar days for the Company on a job
included in the bargaining unit. The thirty (30) calendar days worked may be
extended an additional fifteen (15) calendar days by the Company notifying the
Union Committee of their intention. If at the end of this probationary period
the employee's services are found satisfactory his/her seniority shall then date
from the first day of his/her employment.
It is understood and agreed that the Company may, at its sole discretion,
terminate the services of any employee before the expiration of his/her
probationary period and neither the Union nor the employee shall have the right
to process a grievance over any such termination or discharge. Such separation
notices shall read "did not satisfactorily pass probationary period."
SECTION 2
All hourly rated employees who have acquired a seniority status shall work on a
straight plant-wide seniority basis with the Company, providing the employee has
the ability to perform the work available.
SECTION 3
In the laying off of employees or in the recalling of laid off employees the
elected and installed Union Committee of the Local Union, not to exceed a total
of three (3), shall hold seniority rights over all other employees, including
stewards for the period of their elected term of office. This Section applies
only to the Union Committee who are employees of the Company and further applies
only in the case of layoff. Should employment increase to the extent that a
Lodge is reestablished of Imperial Electric Company employees, the language
shall revert back to that of the 1978-1981 Agreement.
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SECTION 4
In decreasing the working force within a department group, the elected and
installed steward within the department group shall hold seniority rights over
all other employees, except the Union Committee described above, and working
foremen, providing the steward can perform the work which is available. The
Section applies only in cases of permanent layoff and a departmental steward
shall not have the right to hold any particular job in his/her department over
an employee with more seniority. Neither shall he/she have the right to exercise
seniority preference in any department group other than the one in which he/she
serves as steward
-The elevator products group shall have one steward.
-The P.M. products group shall have one steward
-The second shift shall have one steward, third shift shall have one
steward.
When any of the above groups reaches 20 employees, a reassignment of an existing
steward should be made to reduce the number of employees per steward, but no new
stewards other than mentioned above will be acme
SECTION 5
Nothing in Sections 3 and 4, shall obligate the Company to retain in their
employ any Union official or steward who is not qualified to perform the work
available. The provisions of Sections 3 and 4 apply only to those officers and
stewards whose names appear on the latest roster submitted by the Union to the
Company.
SECTION 6
In the event of a permanent layoff, all employees shall be laid off in reverse
order to that in which they were hired except as provided in Sections 3 and 4
above. However, it is understood and agreed that nothing in this Section of this
Article shall obligate the Company to continue the employment of any employee
who cannot perform the work available in a reasonably efficient manner.
In such a case where an employee bumps an older employee with less seniority,
the Company has the right to make the decision to let the employee do so
according to experience and ability to do the job with no responsibility to
train the employee for the job that he/she is bumping into.
SECTION 7
When re-hiring takes place, all former employees who have acquired seniority
status and who have been laid off will be recalled in the reverse order to that
in which they were laid off, providing the recalled employee can do the work
available.
SECTION 8
Departmental layoffs, not to exceed five (5) working days, can be made at the
discretion of the Company. Such layoffs shall be restricted so that any one
employee shall not be given more than three (3) temporary layoffs totaling
fifteen (15) working days during any contract year.
Seniority shall not be applicable in cases of temporary layoff, however, it is
agreed that a Union steward or committee man shall be retained on any floor
during a period of temporary layoff, providing other employees represented by
the Union are working on that floor.
SECTION 9
In the event a job is created or a vacancy occurs, the new job or vacancy will
be filled either under the provisions of Section 18 or Section 19 of this
Article. However, in cases where layoffs or cut-backs are in progress, employees
affected will move back to their former job or a job that they can perform in a
reasonably efficient manner and in accordance with their seniority. In such
cases the job posting procedure outlined under Section 19 shall not apply.
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SECTION 10
If an employee is transferred under the provisions of SECTION 9 above, the
Company shall not be obligated to give the employee more than a thirty (30)
calendar day trial period. If at the end of this thirty (30) calendar day period
the Company feels that the employee is not qualified to do the work, then the
employee shall be transferred back to his/her former job classification.
SECTION 11
Seniority shall be broken for the following reason:
A. Voluntarily quitting.
B. Dismissal for cause.
C. Overstaying leave of absence. Item F of this Article VI, SECTION 11, shall
be applicable prior to seniority being broken.
D. Failure to return to work after proper notification as provided herein.
E. All employees hired after December 1, 1963, who work one year or less shall
have their employment terminated after a layoff equal to the time actually
work. Employees who work more than one year shall retain their seniority in
layoff for 24 months.
F. Absence of four (4) calendar days without reporting to the Company except
for good and sufficient cause which the Company deems fit to accept.
SECTION 12 - Omitted
SECTION 13
The Union and the employees involved will be given at least five (5) calendar
days notice of any pending permanent layoff. However, this provision does not
apply to temporary layoff of employees. During the five (5) calendar day period,
any employee who has received a notice of layoff, and who feels he/she is being
improperly laid off, shall have the right to file a request with the Company to
be considered for another job which he/she feels he/she may be entitled to hold
by virtue of his/her seniority, experience and ability. If the employee is
dissatisfied with the action taken by the Company, on his/her request, then
he/she shall have the right to resort to the grievance procedure.
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SECTION 14
All employees may be required to take a physical examination by the Company
physician at the time of any layoff. Upon the request of the employee, the
Company will provide them with a copy of the physician's report.
SECTION 15
Any employee, including those returning from leaves of absence, who has not been
actively on the payroll of the Company for sixty (60) days and is recalled to
work, shall take a physical examination by the Company's physician, and in the
event such employee questions the findings of the Company physician, the
employee shall then have the right to be examined by another reputable physician
who may be agreed upon between the parties. whose decision shall be accepted.
Such a returning employee who refuses to submit to a physical examination upon
being called back to work automatically forfeits his/her seniority.
SECTION 16
Laid off employees, when recalled to work, must be notified by certified mail
and a copy of the notification will be furnished to the Union at the same time.
Any laid off employee who is notified to return to work must communicate his/her
intentions to the Company within three (3) work days from the date he/she
receive the notification and must report for work not later than seven (7) work
days from the date he/she receives the notification.
Provided further, that if an employee is prevented from reporting because of
physical disability, the reporting time may be extended by mutual agreement
between the Company and the Union. However, this shall not prevent the Company
from filling the job which is open until such time as the recalled employee is
able to return to work.
SECTION 17
All recall notices will be mailed by the Company to the last address in the
Company's personnel records, and the responsibility of advising the Company of
any change of address shall rest entirely with the laid off employee.
SECTION 18
The Company will fill certain skilled jobs through the job posting procedure
outlined in this Agreement. Certain skilled jobs as outline in this section may
be filled by the Company choosing qualified employees without job posting rather
than hiring skilled employees from the outside. However, this shall not preclude
or restrict the Company form hiring skilled employees for the following jobs
when qualified and experienced employees are not immediately available from the
existing working force:
Die Setter Engine Lathe Operator
Electrician Shaft Grinder
Turret Lathe Operator Machine Repair
Boring Mill Operator Tool Maker
Bearing Lathe Operator Motor Tester
Tracer Lathe Operator Inspector
Balance Machinist Set Up & Run
Master Mechanic A & B Fuse & Test
SECTION 19
The purpose of this section 19 is to provide the opportunity to the Company and
the Union to encourage promotions of longer service employees
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to higher paying or more preferable jobs. It is understood and agreed that this
does not in any way preclude or limit the Company's right to hire skilled
employees as outlined under Section 18 of this Article VI, nor does it preclude
or limit employee's rights under Section 9 of this Article.
A. Such job opening or vacancy shall be posted by the Company for two (2)
working days (48) hours for the purpose of informing all employees of the job
opening or vacancy. All such postings will be made in duplicate and at the
end of posting period, a copy of the posting will be furnished to the Union
showing the job posted, date of posting, date posting was removed and the
names of employees who bid on the job.
B. Subject to the restrictions outlined in this Article VI, any employee shall
have the right to bid on a posted job. The Company shall, within three (3)
working days after the removal from posting. award the job giving
consideration to the bidders on the basis of the following factors:
Seniority
Previous experience on the job
Schooling
C. The Company shall have the right to delay, not longer than thirty (30)
calendar days, the transfer of the successful bidder to the new job until
his/her old job can be filled by either an experienced employee or an
employee trained to fill the job.
D. The Company shall have the right to select an employee of its own choice to
fill any such opening or vacancy until the job is permanently filled. The
Company shall also have the right for periods not to exceed ninety (90)
calendar days, to fill openings and vacancies created by leaves of absence,
temporary illness, vacations, etc., without following the job posting
procedure.
E. Should any existing opening or vacancy still remain unfilled after completing
the job posting procedure, then the Company shall have the right to fill the
job as it sees fit.
F. Where a job opening or vacancy is filled on the basis of the procedure, then
the employee selected shall be given a fair trial on the job to demonstrate
his/her ability to perform the work. While on such trial period, the employee
shall be considered on such job temporarily. If, after a fair trial period,
it is decided the employee does not qualify, he/she shall be returned to
his/her former job and classification. However, if the successful bidder does
not qualify after the trial period the next senior bidder shall then be given
a trial providing he/she is qualified under Article VI, Section 19, Paragraph
B.
G. Any employee who bids on and is awarded a job in Basic Group 1, as set forth
in Schedule B attached, shall be automatically prohibited from bidding on any
other jobs posted within twelve (12) months of the date he/she was awarded
the job under the posting procedure, unless the successful bidder has not
worked on the job for a period of four (4) weeks, or the job no longer
exists.
Any employee who bids on and is awarded a job in Basic Group 2, as set forth in
Schedule B attached, shall be automatically prohibited from bidding on any other
jobs posted within six (6) months, unless approved by the Company, except the
following jobs on which he/she shall be prohibited for the period of time
specified on that job, unless the successful bidder has not worked on the job
for a period of four (4) weeks, or the job no longer exists.
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DC Winder & Connector 12 Mos. Elevator & PM
AC Connector 12 Mos. Elevator
Solder & Band, Fuse & Test 12 Mos. Elevator & PM
Test & Finish Stators & Armatures 12 Mos. Elevator & PM
AC Winder 12 Mos. Elevator
Chief Clerk 12 Mos. Elevator & PM
Brush Holder Assembly (all) 12 Mos. Elevator & PM
AC & DC Motor Assembler (all) 12 Mos. Elevator & PM
Fluidize PM Armatures 12 Mos. PM
Radial Drill 8 Mos. Elevator
Saw & Center & Rolling Machine 8 Mos. Elevator & PM
Any employee who bids on and is awarded a job in Basic Group 3, as set forth in
Schedule B attached, shall be automatically prohibited from bidding on any other
jobs posted within four (4) months unless approved by the Company except the
following jobs on which they shall be prohibited for the period of time
specified on that job, unless the successful bidder has not worked on the job
for a period of four (4) weeks, or the job no longer exists.
Tape Field Coils 6 Mos. Elevator
Tape AC Coils 6 Mos. Elevator
Spread & Form Coils, Wind Coils 6 Mos. Elevator & PM
Hosing & Testing Armature Coils 6 Mos. Elevator
Insulate Stators & Armatures 6 Mos. Elevator
Cut Insulation 6 Mos. Elevator & PM
Tool Crib Attendant 6 Mos. Elevator & PM
Loop Winding - AC & DC 6 Mos. Elevator & PM
There shall be no exceptions on the following jobs:
Trucking Paint Casting Paint
Sprayer Bench Work
Crate Builder Clean & Tape Stators
Clean & Paint Armatures & Rotors
H. If the Union or one of its members feels that the Company has not made a fair
determination under this procedure, then they shall have the right to process a
grievance through the grievance procedure.
I. Employees who work on a job on temporary basis and who later bid on that job
will not be given preferred consideration over a more senior employee who
bids on that job.
J. In the event an employee becomes partially incapacitated so that he/she is
unable to perform his/her regular job in a reasonably efficient manner, then
the Company and the Union Committee will attempt to place the employee on an
existing job which he/she is able to perform in a reasonable efficient
manner. No new jobs will be created. In such cases, the job posting procedure
need not necessarily be followed.
ARTICLE VII - HOLIDAYS
SECTION 1
It is agreed that as a matter of general policy work will not be performed on
any of the following holidays; New Year's Day, Presidents Day (third Monday in
February), Memorial Day, Forth of July, Labor Day, Thanksgiving Day and the day
after, Christmas. All employees qualifying for holiday pay in accordance with
the eligibility requirements of Section 3 shall be paid a full straight time pay
of eight (8) hours for each of the above mentioned holidays, as well as two (2)
additional holidays referred to in this section.
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Two (2) floating holidays are allowed during the contract year. The first of
these floating holidays is to be mutually agreed upon by the Company and the
Union. The second floating holiday shall be schedule at the sole discretion of
the Company.
SECTION 2
If an employee works on any of these holidays, the employee shall be paid two
(2) times his/her regular pay. This section does not apply to watchmen. In the
event any of the above listed holidays fall on Sunday, the Company will accept
Friday or Monday, whichever has the greatest local acceptance.
SECTION 3
Eligibility for holiday pay shall be determined on the basis of the following
provision:
A. The holiday pay outlined in the Agreement will be paid only to those hourly
rate factory employees who have been in the service of the Company forty-five
(45) calendar days or longer prior to the holiday in question.
B. So as to qualify for this holiday pay, an employee must be actively on the
Company's payroll and must actually work the full shift on the day preceding
the holiday and the day following the holiday. In the event the holiday falls
on Friday, the "following day" will be interpreted to mean Monday, if the
plant is working a regularly scheduled five day, forty hour week, and on
Saturday if the plant is working a regularly scheduled six day, forty-eight
week.
C. Any employee who is absent for any of the following reasons, the day before
and/or the day following a holiday shall be considered to have worked and
shall not be deprived of holiday pay under the provisions of Paragraph B,
above. Excusable absences are as follows:
(1) Personal illness with burden of proof upon the employee that the Company
deems fit to accept.
(2) Death in the immediate family.
(3) Jury duty if such duty actually prevents the employee from working.
(4) Veterans appearing before examining boards of or designated by the
Veterans Administration.
(5) Union business that meets all requirements of this contract.
(6) If any employee reports to the plant at his/her regularly scheduled
time, and without prior notice not to report is sent home by reason of
lack of work.
(7) Layoff during the five (5) day period preceding the day on which the
holiday falls and on the next scheduled work day following the holiday.
(8) Reasonable tardiness and reasonable excuse that the Company deems fit to
accept.
(9) Court appearances.
SECTION 4
Any employee who is absent from work because of personal illness and
who because of such illness has been granted written leave of absence, shall be
entitled to pay for any holiday, covered by the terms of this Agreement,
providing the holiday falls within thirty (30) calendar days of the date the
employee was first absent from work. Any holiday falling after the first thirty
(30) calendar days of absence shall not be paid for by the Company and after an
employee has been on a leave of absence for more than thirty (30) calendar days,
because of illness, the employee shall not be entitled to pay for holidays which
fall after the thirty (30) day leave of absence or any extension thereof.
It is understood and agreed that the provisions of the first paragraph of
Section 4 above, apply only to those employees who qualify for holiday pay under
the provisions of Article VII of this Agreement and is confined
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solely to those employees who have been granted a written leave of absence
because of personal illness. It is further agreed that the responsibility of
making application for a leave of absence rests entirely with the employee.
SECTION 5
If the Company should decide to operate the plant on any of the holidays covered
by this Agreement, the employees who do not work shall be entitled to pay for
the holiday not worked, providing they qualify for holiday pay under the
provisions of this Article.
SECTION 6
In a situation such as outlined in Section 5 above, should an employee choose to
work on a holiday, he/she would be paid at a rate of two (2) times his/her
regular straight time rate for the holiday worked. Such pay would represent all
compensation which he/she would be eligible to receive for the particular
holiday in question, and nothing in this Agreement shall be interpreted to mean
that any employee can work and receive premium pay and then receive and
additional day's pay under the terms of the Agreement covering pay for holidays
not worked.
SECTION 7
It is understood and agreed that employees shall receive pay for holiday as
outlined in this Agreement even though the holiday in question shall fall on
Saturday. It is further agreed that all holiday pay shall be on the basis of
eight (8) hours at regular straight time rates. Employees working regularly on
the night shift shall receive pay per the night shift schedule.
ARTICLE VIII - LEAVES OF ABSENCE
SECTION 1
A leave of absence for personal reason for a period not to exceed forty-five
(45) calendar days may be granted by the Company upon the application of the
employee to, and approval by, the Vice President of Mfg., or equivalent. Such
leaves of absence shall not be renewed and seniority will be accumulated during
the leave.
SECTION 2
Employees requesting formal leaves of absence in excess of forly-five (45)
calendar days shall first make application to their foremen or supervisor on the
form provided. Such leaves of absence may be approved if the services of the
employee are not immediately required. Such leaves of absence will be submitted
to both the Company and the Union for approval, and if approved, copies of the
leave will be furnished by the Company to the Union and to the employee
receiving the leave of absence. Such leaves of absence may be extended, but only
if approved in writing by both the Company and the Union. Seniority will
continue to accumulate during the period of such leaves.
SECTION 3
An employee will be considered on a sick leave of absence up to thirty (30)
calendar days, only if the employee furnishes the Company's Personnel Department
with satisfactory medical evidence. This leave will commence as of the first day
of such continuous absence due to illness or injury. This leave will be extended
for up to ninety (90) additional calendar days, making a maximum of one hundred
twenty (120) calendar days, provided the continued absence is supported by
satisfactory medical evidence. If the sickness and/or convalescence continues
beyond the one hundred twenty (120) calendar days, the leave may be extended up
to an additional ninety (90) calendar days with the consent of both the Company
and the Union.
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Seniority shall accumulate during the period of such leave. Any further sick
leave shall be discussed between the Company and the Union in light of
circumstances.
SECTION 4
In cases where employees are injured while at work or are suffering from legal
occupational disease, then such employees shall automatically be granted an
indefinite sick leave and seniority will accumulate for the full period of legal
temporary disability.
SECTION 5
Any employee elected to a permanent Union office, or as a delegate to any labor
activity necessitating a leave of absence, shall be granted such leave not to
exceed elected or appointed term of office, and shall at the end of the term in
the first instance, or at the end of the mission in the second instance, be
guaranteed re-employment if there is sufficient work for which he/she is in line
at the then current rate of pay. Seniority will continue to accumulate during
the period of the leave.
SECTION 6
It is agreed and understood that no more than two employees at any one time will
be granted leaves of absence, as outlined in Section 5 above, and no more than
one employee from any one department will be granted a leave of absence during
the term of the Agreement. The Company may require a thirty (30) calendar day
notice before granting a leave as provided under Section 5.
SECTION 7
Maternity leave of absence shall be granted in accordance with procedure
outlined in Section 3 above.
SECTION 8
All leaves of absence, including sick leaves, granted in accordance with the
above provisions, are subject to the following conditions:
A. All leaves of absence are granted without pay.
B. Any employee on leave may return to work in line with his/her seniority
before the expiration of his/her leave, providing he/she gives the Company
twenty-four (24) hours notice prior to the beginning of his/her regular
shift.
C. Any employee who fails to return to work at the expiration of his/her leave
shall be considered as having voluntarily quit.
D. If, upon the expiration of a leave of absence, work is not available for the
employee in line with his/her seniority, or if the employee would have
otherwise been subject to layoff according to seniority during the period of
the leave, the twenty-four (24) month period which breaks seniority shall
start from the date he/she would have been laid off, providing he/she had
been notified at the last address shown in the Company's records of his/her
layoff.
E. Any employee who obtains a leave of absence and then accepts employment
elsewhere will be considered as having voluntarily quit unless at the time
the leave is granted, the circumstances are such that the leave specifically
gives him permission to work
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ARTICLE IX - RULES AND DISCIPLINARY ACTION
SECTION 1
The Union recogmzes the Company's right to establish and enforce reasonable shop
rules, subject to the grievance procedure and the terms of the Agreement. It is
further agreed that these rules will not be used to discriminate against any
employee.
SECTION 2
The Union recognizes the Company's right to reprimand, discipline, and/or
discharge employees for just cause. The fact that Article X of the contract
which expired on November 30, 1961, has been deleted from contract shall not be
interpreted to mean or imply that the Company has in any way forfeited or
modified its right to reprimand, discipline and/or discharge employees for just
cause. No inference shall be made to the detriment of the Company or the Union
from the fact that the provisions of Article X of the contract which expired
November 30, 1961, have been deleted from this contract.
SECTION 3
The Union and/or the employee involved reserves the right to appeal any action
taken by the Company, under this Article, through the grievance and arbitration
procedures of the contract.
SECTION 4
If the Company takes disciplinary action against any of the employees, it shall
immediately notify the President, or Union Shop Committee in his/her absence,
and give him a complete statement of the circumstances that brought about such
disciplinary action.
SECTION 5
The fact that any employee who, prior to the date of the signing of this
Agreement, has a reprimand against his/her record, did not file a grievance to
have the reprimand removed shall not constitute an acknowledgement on his/her
part that the reprimand was justified.
ARTICLE X - DISCHARGE OF EMPLOYEE
SECTION 1
The Chairman of the Union, or his/her appointed representative, shall be
notified when any member of their organization covered by the Agreement is
dismissed.
SECTION 2
All grievance resulting from discharges must be presented directly to
the Company within three (3) working days of the date of notification of the
discharge. Any such grievance shall be heard in Step C of the grievance
procedure within ten (10) calendar days of the date of dismissal, and if it is
subsequently determined that the employee was wrongfully dismissed, he/she will
then be reinstated and paid for time lost, not to exceed ten (10) calendar days,
at his/her regular rate of pay; provided further, that if the case goes to
arbitration, that the decisions of the arbitrator shall be final and binding,
including the questions of lost time pay which shall not necessarily be limited
to the ten (10) calendar days.
SECTION 3
It is understood and agreed that written grievances involving the discharge of
employees will be heard only in Step C of the grievance procedure.
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ARTICLE XI - MANAGEMENT PREROGATIVES
SECTION 1
The Company retains exclusive control over the functions of Management and
direction of its working forces, such as it exercised before ever entering into
any contract with the Union, except such functions as are relinquished or
substantially limited by the express terms of this contract.
SECTION 2
The Union recognizes the Company's right to move machinery, supplies
and equipment in or out of its factory at any time it sees fit, and the Union
agrees not to interfere with the Company if and when the Company deems it
necessary to move machinery, equipment or supplies in or out of its factory. The
Union further recognizes the Company's right to locate its factories where the
Company wishes and to determine the type and volume of the products to be
manufactured in each of its factories. The Company agrees that it will not use
this Section to circumvent or weaken the Union. However, it is understood and
agreed that certain changes, adjustments and alterations will be made in
effectuating the multi-plant operations of the Company.
SECTION 3
The Union recognizes the Company's right to place timekeepers throughout the
factory and the Union further recognizes the Company's right to time study all
jobs and expressly agrees that there shall not be any interference from the
Union or its members when jobs are time-studied.
SECTION 4
The Union recognizes the Company's right to work employees overtime in
accordance with the terms of this Agreement.
ARTICLE XII - PRODUCTIVITY
SECTION 1
In ratifying this Agreement, the International Association of Machinists &
Aerospace Workers (AFL-CIO) and Lodge 2164 recognize that a high level of wages
can be maintained only by attaining a high level of productivity. The Union and
its members will cooperate in attaining such a level of productivity as is
consistent with the safety, health and welfare of the employees. The right of
the Company to establish, determine, maintain and enforce standards of
production is fully recognized. A grievance shall be processed for an employee
by the Union on any standard unfair. Continued failure of an employee to produce
on the basis of established standards will be considered due cause for
discipline, including discharge, unless the failure is due to causes beyond
his/her control.
SECTION 2
The Company shall not be required to retain in its employment any employee who
refuses to meet established standards or engages in any attempt or participates
in any plan to control or limit the amount or speed of production. The above
provision shall in no way deprive an employee of his/her right to file a
grievance under the grievance procedure of this contract.
SECTION 3
The Company shall continue its program of establishing job standards. When
standards have been established on all operations and jobs, the program will
then be submitted to the Union at which time the Union reserves the right to
bargain on the basic elements of the procedures and further reserves the right
to negotiate for an incentive system.
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SECTION 4
It is recognized that the Company's job standard program has not been negotiated
with the Union and nothing in this Article is intended to imply that the Union
has accepted the job standard program of the Company.
SECTION 5
Seven (7) working days before the Company suspends or discharges an employee for
failure to meet established production standards, the Union will be notified of
such impending action, during which seven (7) working day period the Company
will make available to the Union, upon request, pertinent time study data
relating to the production standard involved. The Union, during this seven (7)
working day period, shall have the right to call in an industrial engineer from
the Grand Lodge to review the standard in question.
SECTION 6
The Union reserves the right to have a qualified representative of the Grand
Lodge examine any time standard that may be in dispute. The Company agrees to
provide this Grand Lodge representative with any data which may relate to such
dispute, and will also grant this representative the right to time study the
disputed job if he/she so desires. The Union shall exercise such right between
the Step B and Step C meeting of the Grievance Procedure.
SECTION 7
Prior to putting a job standard into effect, the Company will make available to
the Committee the number of pieces required per hour or the number of hours per
job of such job standards.
SECTION 8
All timing shall be on a fair and equitable basis. As nearly as possible, timing
shall be based on the skill of average experienced operators, so that their
standards will be established in the respective departments.
SECTION 9
Nothing in Article XII is intended nor shall it be construed to take away from
the Company or the Union any of the rights granted under Section 1 of this
Article.
ARTICLE XIII - WASH UP TIME
SECTION 1
The Company shall grant to all of its employees five (5) minutes wash up time at
the close of each shift and five (5) minutes wash up time immediately preceding
the lunch period. The Company and the Union will cooperate in the strict
enforcement of this privilege and employees who abuse this privilege will be
subject to discipline under the provisions of Article IX.
ARTICLE XIV - INFORMATION
SECTION 1
The Company will provide the Union each thirty (30) calendar days a complete
tabulation, showing all payroll changes made during the preceding thirty (3)
calendar day period, which involves employees represented by the Union.
The Company will also provide the Union with an up-to-date seniority list three
(3) time a year.
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ARTICLE XV - STEWARD TIME
SECTION 1
The Union Committee which meets with the Company on Grievances and Contract
Negotiations shall not exceed three (3) in number. However, if the bargaining
unit shall increase by 15 or more employees, then the Union shall have the
privilege of negotiating an increase in the size of the Grievance Committee.
It is agreed that departmental stewards shall have the right to handle
grievances in their respective departments during working hours. Any department
steward shall notify his/her Forman before leaving his/her job and will ring a
non-productive time card identifying the grievance, and the time will be paid by
the Company and charged to Union grievance time. It is further agreed that the
chief steward and the Chairman of the Union Committee shall be privileged to
consult a departmental steward on grievances after notifying his/her foremen and
ringing out a non-productive time card and identifying the grievance, and such
time will be paid by the Company. If it appears to the Company that these
privileges are being abused by the departmental stewards or the chief steward,
then the Company may cancel this privilege upon notifying the Union. If such a
cancellation should occur, then this matter shall be subject to negotiations
upon the request of either.
SECTION 2
The Company will pay for not more than fifteen (15) hours per month for the time
consumed by the Union Shop Committee as a whole in negotiating with Management
on any matter arising out of this contract, including the processing of
grievances. If part of this fifteen (15) hours is not used in any month, then
the unused hours will accumulate for the duration of the contract year. Any of
the unused time of the contract year will be applicable to time spent by the
committee in contract negotiations.
SECTION 3
It is recognized that from time to time Officers of Shop Committeemen of the
Union may ask permission to be absent from work, without pay, to handle Union
business relating to the contract. The Company will not unreasonably withhold
permission provided that no more than two (2) Officers or Committeemen require
to be off at the same time and limit such time to no more than eight (8) hours
per month. The Union and the Company will cooperate in the implementation of
this provision. During their absence from their jobs, by an Officer(s) or
Committeemen the Company may fill their respective position in any manner.
ARTICLE XVI - GRIEVANCE PROCEDURE
SECTION 1
It is mutually agreed that a prompt adjustment of grievances is desirable in the
interest of good relations between the employees and the Company.
SECTION 2
Should any difference arise between the Company and the Union or its members
employed by the Company, concerning the meaning or application of the terms of
this Agreement, there shall be no slowdown, suspension of work, stoppage of
work, or lock-out on account of such differences, pending final settlement
thereof under the procedure provided below. At least three (3) work days prior
to the meetings which are provided under Step C of this grievance procedure,
each party will submit to the other party a written agenda covering all of the
grievances which are to be considered at the meeting in question. Once a
grievance has been conclusively
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answered in Step C of the grievance procedure, then that grievance will not be
included on the agenda for another Step C meeting.
Step A - Within five (5) work days from the time the incident occurred or became
known to the aggrieved individual, he/she, by himself/herself or with his/her
departmental steward, shall make an effort to adjust the difference in an oral
manner with the Foremen under whom the aggrieved employee works. The Foremen
shall give his/her answer within three (3) work days. ("Work days" shall mean
all days except Saturday, Sundays, holidays and other days the plant may be shut
down).
Step B - If the grievance is not settled in Step A, the grievance shall then be
reduced to writing and presented by a member of the Grievance Committee to the
General Foreman or other factory supervisor designated by the Company within
three (3) work days from the Foreman's Step A answer. The written grievance will
set forth (1) a statement of the grievance clearly indicating the question
raised by the grievance, (2) the remedy or correction which is desired, (3)
whenever possible, the section or sections of this Agreement relied upon or
claimed to have been violated. The General Foreman or other factory supervisor
designated by the Company shall give his/her answer to the Committee in writing
within three (3) work days from the time he/she receives the written grievance.
If the Company representative's answer is not satisfactory, the grievance may be
appealed to Step C by a written appeal within five (5) work days from the time
the answer is given by the Company representative in Step B.
Step C - Grievances appealed from Step B within the required time, shall be
placed on the agenda for the next Step C meeting and referred to the Vice
President of Manufacturing for the Company and the Grand Lodge or Business
Representative for the Union. Step C meetings will be held at thirty (30) day
intervals to consider Step C grievances. The Vice President of Manufacturing
shall give a written answer within five (5) work days from the date of meeting
unless extension of time for the answer is requested and mutually agreed to by
the Union and the Company.
SECTION 3
Any grievance which is deadlocked in Step C must be appealed to arbitration
within ten (10) work days from the date of deadlock (except in case of discharge
which must be appealed to arbitration within five (5) work days after receipt of
the Company's answer in Step C of the grievance procedure) and failure by either
party to inform the other party in writing of their intention to arbitrate
within the ten (10) working days specified, (or five (5) work days in case of
discharge) shall automatically cause the grievance to be forfeited.
SECTION 4
Special Step C grievance meeting may be held at a time and place agreeable to
the parties, between the Union Committee and the Vice President of
Manufacturing. A Grand Lodge or Business Representative may sit in this meeting.
SECTION 5
Any grievance not appealed from a decision from one step of the procedure to the
next step within the prescribed time limits shall be considered settled on the
basis of the last decision and not subject to further appeals. The time
limitations for the appeal from one step of the grievance procedure to the next,
may be extended by mutual agreement between the parties in writing.
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ARTICLE XVII - ARBITRATION
SECTION 1
If the Company and the Union fail to arrive at a settlement of any dispute
arising out of the interpretation or application of the contract terms, or if
the Company and the Union are unable to settle a grievance after following the
grievance procedure as outlined above, then either party shall have the right to
request that the difference of dispute be referred to a Board of Arbitration,
composed of one representative selected by the Union, one representative
selected by the Company, and a third impartial person mutually agreed upon
between the first two.
SECTION 2
In the event the Company and the Union are unable to agree on said third
impartial person within five (5) working days, then the Conciliation Division of
the United States Department of Labor shall be requested to name such third
person.
SECTION 3
The Arbitration Board shall render a decision within ten (10) days of the
submission of the dispute to it, and such decision shall be final and binding
upon both parties, subject, however, to the restrictions outlined herein. The
Arbitrator or Board of Arbitrators shall not have power to add to, subtract from
or modify any of the terms of this Agreement. However, they shall have the power
to modify disciplinary suspensions. Rulings of the arbitrator or arbitrators,
subject only to the requirements of the law and the terms of the contract, shall
be binding upon both parties.
The expense of the third impartial arbitrator, if any, including a reasonable
compensation to the arbitrator, shall be borne equally by the parties, and each
party shall bear the expense and fees of the arbitrator selected by them. In the
event it is necessary to rent a room for an Arbitration hearing, the cost of the
meeting room will be shared equally by the Company and the Union.
SECTION 4
It is specifically agreed that the question of general wages and merit increases
shall not be subject to arbitration. If the Union and the Company fail to agree
on grievance involving a merit increase in STEP C of the grievance procedure,
then the Union upon the approval of the Grand Lodge, shall have the right to
strike over such grievance.
All grievances must be submitted to arbitration within the time limit specified
in Section 5 of the Grievance Procedure.
ARTICLE XVIII -
SECTION 1
Per Letter of Understanding, production rates and economic conditions will be
discussed to coordinate rate changes.
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ARTICLE XIX - PROGRESSION
SECTION 1
It is agreed that the following progression schedule shall be in effect with
regard to increases in rates of pay.
SECTION 2
There are two progressions discussed in this contract:
A) The progression through the range at hiring.
See table on "Operations Classification and Rates". Pg 36
B) The progression through job minimum to job maximum.
See table on "Operations Classification and Rates". Pg 36
A new hire that is hired below the minimum rate of a classification must first
go through the " hire progress". Each classification has a hire rate minimum and
hire rate maximum. The progress through this range also has a time limit listed
on the chart. The per hour listed is to show a guide line for the Plant Manager
along with the time table guide line.
Once the new hire has gone through the "hire process" they then must go through
"the-minimum-of job to-maximum-of job" progression. Each job classification is
shown with its minimum and maximum rate and time table for each increase, see
table on "Operations Classification and Rates".
In any case, the Plant Manager does have the right to increase the rate of
progress as a result of extraordinary circumstances in the Plant Manager's
opinion.
SECTION 3
It is understood and agreed that the progression schedule outlines in Section 2
above, in no way obligates the Company to give an employee an increase unless
the employee has actually continuously worked on the job during the time period
specified and shows satisfactory progress.
Disciplinary action will be used for employee showing unsatisfactory progress.
SECTION 4
All pay raises will be granted on Monday only. In a given week, all raises due
on Monday, Tuesday and Wednesday will be effective on Monday of given week. All
raises due on Thursday and Friday of given week will be effective on Monday of
the following week.
ARTICLE XX - INJURED WORKMAN
SECTION 1
Any employee injured in the course of his/her employment to such an extent that
he/she is unable to finish the day's work shall be pad for that portion of the
day that he/she was unable to work, providing a reputable physician indicates
that he/she is unable to finish his/her regular shift.
SECTION 2
Any employee injured in the course of his/her employment to such an extent that
he/she is unable to work and thus qualifies for State Worker's Compensation,
shall be paid by the Company for the period of waiting time not covered by
Worker's Compensation, but in no event to exceed a total of five (5) days, eight
(8) hours per day, at the employee's regular straight time earnings.
SECTION 3
It is agreed and understood that the Company, in granting the above pay, in no
way is obligated to pay an employee for time lost except in those cases where
the employee actually qualifies and receives State Worker's Compensation.
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SECTION 4
In the event an employee who is injured is covered by Section 2 of this Article,
it is understood and agreed that any benefit which he/she may receive under the
provision of Section I shall be counted as part of the five (5) days' pay which
will be paid by the Company.
SECTION 5
It is specifically understood and agreed that the term "in the course of his/her
employment," as used in Section 2, shall relate only to the time that the
employee spends in the actual performance of his/her duties for the Company, and
shall not in any way be interpreted to mean time going to and from work.
SECTION 6
The Company will assign a management employee to provide emergency
transportation for employees who sustain injury while a work in the plant which
require emergency doctor or hospital treatment.
ARTICLE XXI - VACATIONS
SECTION 1
Employees will be eligible for a vacation with pay upon the consideration that
the employee has worked a minimum of 1,600 hours preceding June 1st of any year
unless otherwise specifically provided in this Article.
SECTION 2
It is understood and agreed that the 1,600 hours minimum requirements applies
only when the factory has worked a normal forty (40) hour week during the twelve
month period preceding June 1st. If the hours in the factory are reduced below
forty (40) hours, or increased above forty (40) hours, the minimum hour
requirements shall be increased or decreased by the same percentage.
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SECTION 3
Vacations are not accumulative from year to year; they must be taken within the
current vacation season. The company shall have the right to close the plant and
grant all vacations at one time. The Company shall have the further right to
work a skeleton crew during the shut-down and such skeleton crew shall not
exceed eight (8) employees. In selecting those employees to make up the skeleton
crew, the Company shall, whenever practical, give consideration to employees
with greater seniority.
This shutdown shall occur between July 15 and August 15 inclusive. All
employees, except those covered by paragraph one of this Section 3, shall be
required to take their vacation during the shutdown.
SECTION 4
In calculating the 1,600 hours of work required in Section I of this Article,
holidays recognized as falling under the scope of this Agreement which are not
worked shall be counted as time worked, providing the factory is not operating
on these holidays. If the factory does work on any of these holidays and then
the employee is absent from work, the time shall not be counted in computing the
1,600 hours.
It is further agreed that the time an employee actually spends on his/her
vacation shall be counted as time worked in computing the 1,600 hours
requirement for the following year's vacation.
SECTION 5
Subject to the provisions of Section I of this Article, paid vacations shall be
granted as follows:
A. Any employee who, on June 1st of any year, has been in the continuous service
of the Company for a period of six months, but less than one (1) year, and who
has worked a minimum of 800 hours during the period of their employment, prior
to June 1, shall be granted a one-half (1/2) week vacation. The minimum hour
requirement outlined in Section 1 have been divided in half by virtue of the
fact the employees covered by this paragraph A receive a one-half (1/2) week
vacation.
B. Any employee who, on June 1, of any year, has been in the continuous employ
of the Company for one (1) year, but less than two (2) years, and who has
qualified under the requirements of Section 1, shall be granted a one (1) week
vacation.
C. Any employee who, on June 1, of any year, has been in the continuous employ
of the Company for two (2) years, but less than twelve (12) years, shall be
granted a two (2) week vacation, provided they have qualified under the
requirements of Section 1.
D. Any employee who on June 1, of any year. has been in the continuous employ of
the Company for twelve (12) years, but less than sixteen (16) years, and who has
qualified under the minimum hour requirements of Section 1, shall be granted a
three (3) week vacation.
E. Any employee who on June 1, of any year, has been in the continuous employ of
the Company for sixteen (16) years, but less than eighteen (18) years, and who
has qualified under the minimum hour requirements of Section 1, shall be granted
a three (3) week vacation and two (2) days vacation.
F. Any employee who on June 1, of any year, has been in the continuous employ of
the Company for eighteen (18) years, but less than twenty (20) years, and who
has qualified under the minimum hour requirements of Section 1, shall be granted
a three (3) week vacation and three (3) days vacation.
G. Any employee who on June 1, of any year, has been in the continuous employ of
the Company for twenty (20) years, but less than twenty five (25) years, and who
has qualified under the minimum hour requirements of Section 1, shall be granted
a four (4) week vacation. Three (3) weeks of such vacation shall be taken as
provided in Section 3, and it shall be the sole discretion of the Company as to
whether the employee will be permitted to take the additional week off work and
if so, the company will
Page 24
<PAGE>
determine the time, or the Company may require the employee to work and pay him
one (1) week vacation pay in addition to his/her regular rate of pay for the
time worked, in lieu of the time off.
Page 24(a)
<PAGE>
SECTION 6
"One week" shall be defined to mean each individual employee's average work week
worked during the twelve (12) month period preceding June Ist, not to exceed
forty four (44) hours, but not less than forty (40) hours. Vacation time not
worked and paid holidays specified in Article VII, Section 1, are included as
time worked.
SECTION 7
Employees who are entitled to vacation pay shall be paid their regular straight
time hourly rate they were receiving at the time they started their vacation,
but not less than their rate on June 1st of the vacation year. Night shift
employees shall receive as part of their vacation pay, the night shift premium
as outlined in the contract.
SECTION 8
In the event the Company elects to stagger vacations, then consideration shall
be given in determining vacation time to the Company's production requirements
and the wishes of the individual employee. However, it is understood that the
final decision in this matter rests with the Company. In cases where two or
more employees request a vacation at the same time, first consideration will be
given to the employee with the greatest seniority.
SECTION 9
If an employee is discharged for cause prior to June 1st of any year, he/she
shall have automatically forfeited all vacation rights, regardless of whether or
not he/she has qualified under the 1,600 hour minimum requirements. If an
employee is discharged after June 1st and has actually qualified for vacation
under the minimum hour requirements, but has not yet taken his/her vacation,
then he/she shall be paid at the time of discharge the vacation due to him.
SECTION 10
If an employee has more than one (1) year's service with the Company and has
actually earned and received the paid vacation and before earning and receiving
the second vacation quits his/her employment with proper notice, then the
employee shall be entitled to receive his/her accumulated vacation, based upon
an accumulation of one-twelfth (1/12) year per month.
SECTION 11
It is further agreed that if an employee has actually earned a vacation and
should die before the vacation is actually taken, then the Company shall pay the
deceased employee's estate the vacation pay which the employee has earned.
SECTION 12
In cases of illness where the employee has been given a sick leave under the
terms of this Agreement and is absent from work to such an extent that he/she
does not qualify under the minimum hour requirements for his/her vacation, then
the employee shall receive a pro-rated vacation based upon the time which he/she
actually worked. In calculating the amount of vacation due an employee under
these circumstances, the amount of time
Page 25
<PAGE>
worked as compared to the 1,600 hour minimum requirement shall be used in
determining the percentage of the vacation to which he/she is entitled.
SECTION 13
Employees who are granted leaves of absence under the terms of this Agreement
shall not be entitled to receive their vacation if they do not meet the minimum
hour requirements specified under this plan. However, any employee who is on a
leave of absence because of personal injury suffered while actually performing
his/her work for the Company shall be entitled to receive credit for the period
of time that he/she loses, in determining his/her vacation eligibility. Provided
further, that such an employee shall not receive more than a total of one paid
vacation under this Section; however, should an employee's absence extend into
another year, then he/she would be eligible for a pro-rated vacation based on
the hours that he/she work during that year.
SECTION 14
If one of the holidays as outlined under Article VII falls during an employee's
vacation period, then the employee shall be entitled to an extra day vacation
with pay in lieu of the paid holiday.
SECTION 15
In the event an employee who has more than one (1) year's service with the
Company and has actually earned and received one paid vacation, and who fails to
qualify during any vacation year because of a layoff shall be entitled to an
accrued vacation on the following basis:
A. Such a laid off employee, if not on the Company payroll at vacation time,
shall be paid his/her accrued vacation by allowing one-twelfth (1/12) of the
vacation to which he/she would have been entitled for each month worked toward a
vacation.
B. Such an employee who has been laid off during this vacation year but who has
been recalled to work and is working at vacation time will be paid his/her
accrued vacation on the same basis of one-twelfth (1/12) for each month worked
and will be required to take time off in direct proportion to the vacation pay
received, unless the plant is closed in which case, the employee would be
required to take time off to the extent of the vacation shut down.
SECTION 16
In the event the Company elects to shut the plant down for vacation, in all
cases where the employees are not eligible for vacation pay and there is no work
available for them, the Company agrees to give such employees an involuntary
layoff.
SECTION 17
Employees with two (2) or more years of seniority who are discharged shall be
paid their accrued vacation, based upon the formula of one-twelfth (1/12) of the
applicable full vacation for each full month he/she has worked on a new vacation
year. This does not apply to employees who are discharged for theft.
ARTICLE XXII - SAFETY AND HEALTH
SECTION 1
All reasonable provisions for the safety and health of its employees that are
now observed by the Company will be continued.
SECTION 2
The Company and the Union will strive to better the conditions as to safety,
sanitary facilities, heating and ventilating within the plant.
SECTION 3
The Company will, within a reasonable time, after the signing of this
Page 26
<PAGE>
Agreement, arrange to provide soap and towel or other appropriate drying
facilities for its employees.
SECTION 4
The Company, the Union and the employees recognize that present sanitary
condition in the plant are not the best due in part to the age of the facility;
however, efforts will be made by the parties involved to better the conditions.
ARTICLE XXIII - CASUAL HELP AND STUDENT SALESMEN
SECTION 1
Temporary jobs, such unloading cars and trucks, etc., may be performed by casual
labor when unskilled and common labor in the plant are not available for the
job. Such casual labor, however, shall not be employed longer than seven (7)
consecutive working days, except upon agreement between the Union and the
Company. Such casual labor shall be paid a rate of not less than the Federal
minimum wage.
SECTION 2
The Union shall not bargain for or represent casual help, and all question
covering wages, hours and working conditions of casual help shall be determined
between the casual worker and the Company.
SECTION 3
The Company reserves the right to train its salesmen on regularly scheduled
production work in the factory for a period of not to exceed six (6) months per
man. Such student salesmen will not be required to join the Union.
At no time shall there be more than three (3) such student salesmen in training
simultaneously. Work done by these student salesmen or casual laborers shall not
cause any regular employee to be laid off or displaced or deprive a regular
employee of regular work or overtime work.
SECTION 4
Article XXXII, Section 2 (Old Contract) did not preclude Company from
hiring part time employees as part of the Bargaining Unit. When a part time
position is available, an employee who elects part time status, or is hired as
part time, shall carry with him all accumulated full time seniority and shall
thereafter accrue seniority at one-half (1/2) the full time rate. Part time
employees may use their accumulated seniority against other part time employees
in all respects, but in no circumstances may part time employees apply their
seniority to obtain a preference against full time employees. Part time
employees are not eligible for holiday pay.
Part time employees are eligible for vacation pay based on the following: Part
time employees who have worked eight hundred (800) hours immediately preceding
June 1, of any calendar year, are eligible for up to twenty four (24) hours
vacation with pay determined by dividing their total hours of work (January to
June) by forty eight (48).
Hospitalization is available only if part time employee meets Federal standard
hours-worked-per-week requirements on a regular basis and also meets
hospitalization write up on required hours-worked-per-week. Pension contribution
does not apply to part time workers. Union dues apply as required by Union
rules. Limit part time employees to total of 6.
This new language reveals our current accepted practices.
Page 27
<PAGE>
ARTICLE XXIV - BULLETIN BOARD
SECTION 1
The Company will permit the Union to erect and maintain one bulletin board in
the factory for the exclusive use of the Union.
SECTION 2
The Union agrees to confine the use of this board to the posting of bonafide
Union notices. No material of a political, religious or derogatory nature, or
which is in conflict with the provisions of the Agreement shall be placed on
this bulletin board.
ARTICLE XXV - STRIKES
SECTION 1
It is agreed that during the period of this contract, the Union will not cause,
sanction or approve any strike, slowdown, sit-down, boycott, any curtailment of
work, restriction of or interference with production or picket the Company's
plant or premises over any matter which is made the subject of arbitration. As
to such matters as are not made the subject of arbitration, the Union will not
cause, sanction or approve any strike, slowdown, sit-down, boycott, work
stoppage of any of the Company's operation, curtailment of work, restriction of
or interference with production, or picket any part of the Company's plant or
premises until all the bargaining procedure as outlined in the Agreement has
been exhausted and not even then unless sanctioned by the Grand Lodge.
Page 27(a)
<PAGE>
ARTICLE XXVI - INSURANCE
SECTION 1
Insurance coverage presently in effect, or the equivalent thereof, shall be
provided by the Company for the term of this Agreement. Employee cost shall be
as described below.
Table of Employee Premium Participation
- --------------------------------------------------------------------------------
Duration - - - - June 28, 1995 through end of Contract
Single - - - - $7.50 /Mo.
Dependent - - - $20.00 /Mo.
- --------------------------------------------------------------------------------
The above coverage to provide:
Group Life
Accidental Death & Dismemberment
Accident & Sickness Weekly Benefits in amount of:
June 28,1995 through end of Contract - - -$132.50 /Wk.
as outlined in Benefit Services Agency, Inc. for Imperial Electric Company
Machinists Only Plan, except as modified in Section 1
SECTION 2
For new employees the Company will pay:
1. Life, accidental death and dismemberment, also accident and sickness
weekly benefits insurance, effective the first (Ist) of the month
following ninety (90) days of employment.
2. Medical expense benefit insurance as noted in Section 1, effective the
first (1st) of the month following thirty (30) day employment.
All new employees will, as a condition of employment, pay for insurance note in
one (1) above, from the first (1st) of the month following thirty (30) days
employment until the Company assumes the cost as noted in one (1) above at cost
stipulated in Section 1.
SECTION 3
It is agreed that when an employee is absent from work because of personal
illness, and when such personal illness is covered by a written leave of
absence, that the Company shall continue to carry the employee's Benefit
Services, Inc. Plan for Imperial Electric Company -Machinists Only polices for a
period of not to exceed six (6) months. After this period, the employee shall be
solely responsible for paying the premiums of the Benefit Services, Inc. Plan,
and it shall be the responsibility of the employee to make arrangements with the
Company to pay these premiums in advance.
SECTION 4
The Company agrees to continue the medical expense benefits of the Benefit
Services, Inc. Plan for Imperial Electric Company - Machinist Only, as noted in
Section 1 for employee who retire for a period not to exceed three (3) month
after date of retirement.
Page 28
<PAGE>
ARTICLE XXVII - SUPERVISION
SECTION 1
For the purposes of this Agreement, the factory supervision shall be divided
into two groups, namely; salaried supervisors and working foremen.
SECTION 2
The Company agrees that supervisors, or other salaried employees, will not
perform work of the same nature as that of the employees they supervise except
(1) for instructions; (2) for experimental purpose (work in Engineering lab is
always exempt); (3) in any effort in the elimination of a work hazard or in the
creation of a safe working condition; (4) in an emergency; and (5) when
inadequate numbers of Bargaining Unit members respond to offers to perform
overtime work; or (6) inadequate numbers of Bargaining Unit workers are
available due to absenteeism; or (7) the Company's inability to recruit unit
workers fast enough to keep up with customer demands.
The Company may in lieu of using salaried employees also use outside sources
such "Temporaries" as a form of recruitment. "Temporaries" should not exceed 30%
of the work force. The Company will, upon request from the Union, review the
situation and status of the "Temporaries" who have worked for the Company for
more than three (3) months. At that time the Company will make every effort to
hire as permanent or part time any temporary employee who meets companies
qualifications for hiring and who is free of any outside contractual agreement
with other employers.
Page 29
<PAGE>
SECTION 3
In the event the Company promotes a factory employee to the position
of salaried supervisor or working Foreman, the employee shall no longer be
eligible for membership in the Union. If the Company desires to demote said
employee and discontinue his/her service as a Foreman or Supervisor or work
Foreman, or if the Foreman or Supervisor or work Foreman desires to resign
his/her position as Foreman or Supervisor or working Foreman, he/she may be
returned to his/her previous status as a factory employee and shall make
application to the Union for reinstatement. If the local Union denies such an
employee reinstatement, then he/she shall have the right to appeal to the Grand
Lodge.
SECTION 4
The Company may, at its discretion, appoint working Foremen who will
do both supervisory and production work. These working Foremen shall not exceed
a total of five (5) at any one time, and all such working Foremen will not be
eligible for membership in the Union. In the event the company elevates a
factory employee to the position of working Foreman, then he/she shall
automatically leave the Bargaining Unit.
SECTION 5
Any such factory employee who may be elevated to the position of working Foreman
or salaried Supervisor shall retain all the seniority he/she accumulated in the
Bargaining Unit, but shall not continue to accumulate seniority during the
period he/she serves as a working Foreman or salaried Supervisor.
Any such employee shall have thirty (30) calendar days from the date he/she is
promoted to the position of working Foreman or salaried Supervisor to decide
whether he/she wishes to continue on the worldng Foreman or salaried
Supervisor's job or return to his/her former job in the Bargaining Unit. If
he/she return to the Unit prior to the expiration of his/her thirty (30)
calendar day period his/her seniority shall continue unbroken and uninterrupted.
SECTION 6
The Company shall have the right to use the working Foreman as described above
in any department so long as the number of employees in that department does not
exceed a total of eight (8) on any shift, excluding the working Foreman.
SECTION 7
It is agreed that working Foremen shall not be given special consideration in
the distribution of overtime, and it is specifically agreed that they will not
be used to deprive a regular employee of overtime.
A working Foreman shall not be used in a department other than his/her own, in
the capacity of a working Foreman, to replace a regular employee or to deprive
such an employee of overtime.
Working Foremen and salaried Supervisors shall not be used in the same
department, except when a working Foreman is being trained to replace the
salaried Supervisor.
Page 29(a)
<PAGE>
SECTION 8
Nothing in this Article is intended to give the Union the right to bargain for
either salaried Supervisors or working Foremen, and it is specifically
understood and agreed that all such employees are exempt from the Bargaining
Unit and are not subject to any of the provisions of this contract except those
outlined in this Article.
SECTION 9
In the event a salaried Supervisor is reclassified to the position of working
Foreman, then his/her seniority shall be determined in accordance with the
provisions of Section 5 of this Article.
SECTION 10
When permanent reductions in the working force are being made, the working
Foreman in the department affected shall not be used to replace an employee
under his/her supervision with more seniority than the working Foreman. He/she
shall have the right to replace any production employee with less seniority and
shall also have the right to remain in the department in the lowest paying
classification available even though he/she displaces an employee who has more
seniority.
SECTION 11
Hourly rated members of the Bargaining Unit may, at the request of the Company,
substitute for a Foreman or Supervisor who may be temporarily absent. Such
Bargaining Unit employees shall not discipline or discharge employees while
serving as a Supervisor.
SECTION 12
Working foremen will not be used by the Company as pace setters in establishing
job standards.
ARTICLE XXVIII - PENSION PLAN
SECTION 1
The Company shall contribute to the I.A.M. National Pension Fund, Plan B, during
this contract for each hour which employees in all job classifications covered
by this Agreement, are entitled to receive pay under this Agreement as follows:
$0.35 per hour during year January 19, 1992 through June 30, 1997
$0.45 per hour during years June 28, 1997 through June 27, 2000
The above is valid only with a 5 Year contract agreement that is effective
through June 27, 2000
SECTION 2
The Company shall continue contributions base on a forty (40) hour work week
while an employee is off work due to a paid vacation and paid holidays.
SECTION 3
The Company shall commence contributions at the completion of the employee's
probationary period, but no later than sixty (60) calendar days after date of
hire. Temporary employees will be excluded for a period of ninety (90) days
after date of hire.
Page 30
<PAGE>
SECTION 4
The I.A.M. Lodge and the Company adopt and agree to be bound by, and hereby
assent to, the Trust Agreement, dated May 1, 1960, as amended, creating the
I.A.M. National Pension Fund and Plan rules adopted by the Trustees of the
I.A.M. National Pension Fund in establishing and administering the foregoing
Plan pursuant to the said Trust Agreement, as currently in effect and as the
Trust and Plan may be amended from time to time.
SECTION 5
The parties acknowledge that the Trustees of the I.A.M. National Pension Fund
may terminate the participation of the employees and the Company in the Plan if
the successor bargaining agreement fails to renew the provisions of this pension
Article, other than to increase the Contribution Rate or to add job
classifications or categories of hours for which contributions are payable.
SECTION 6
This Article contains the entire agreement between the parties regarding
pensions and retirement under this Plan and any contrary provision in this
Agreement shall be void. No oral or written modification of this Agreement shall
be binding upon the Trustees of the I.A.M. National Pension Fund. No grievance
procedure, settlement or arbitration decision with respect to the obligation to
contribute shall be binding upon the Trustees of said Pension Fund.
SECTION 7
The administration and operation of the I.A.M. National Pension Fund shall be
the sole responsibility of the Administrator of said Plan and the Company shall
have no responsibility for such administration and operation other than those
obligations specifically imposed upon it hereunder in this Article XXVIII.
Page 31
<PAGE>
ARTICLE XXIX - JURY DUTY
SECTION 1
Any employee covered by this Agreement who is required to serve as a juror,
during the term of this Agreement, will be paid by the Company for such jury
time upon the following terms and conditions.
A. Any employee notified to report for jury duty must immediately notify the
Company and cooperate with the Company should they seek to have the employee
excused from jury duty.
B. Any employee, required to serve as a juror, on a day that he/she is scheduled
to work will be paid by the Company the difference between the pay he/she
receives for serving as a juror and his/her straight time hourly rate for
his/her regular work day not to exceed eight (8) hours.
C. Employees must secure from the Jury Commissioner a receipt for all time spent
as a juror and all payments made by the Company under this Article will be based
upon these receipts.
D. Employees who are excused from jury duty prior to 2:00 PM must immediately
return to work and cannot claim jury pay for any time after they have been
excused.
E. Afternoon Shift employees who serve as jurors will receive jury pay on the
same basis as though they were working on the day shift. They shall not receive
night shift bonus as part of their jury duty pay.
ARTICLE XXX - FUNERAL PAY
SECTION 1
Employees who are absent from work due to a death in their immediate family will
be paid for such absence on the following terms and conditions:
A. The immediate family shall mean: mother, father, spouse, mother-in-law,
father-in-law, step-mother, step-father, brothers, sisters or children of the
employee.
B. Funeral pay shall commence on the day following the death and shall end at
the conclusion of the third calendar day thereafter.
C. Employees shall be paid only for the actual working days lost up to a maximum
of three (3) and shall not be paid for any of the three (3) days that may
fall on days which the plant or the employee is not scheduled to work.
D. All funeral pay shall be based on the employee's straight time hourly rate at
the time of the absence, not to exceed eight (8) hours.
E. The Company may, if it so desires, require proof of death before paying
funeral pay.
ARTICLE XXXI - LONGEVITY
SECTION 1
Employees age sixty two (62) or older who retire after January 19, 1978, and who
have fifteen (15) years of continuous employment with the Company at that age
shall receive a one thousand ($1000.00) Life
Insurance Policy, paid for by the Company.
Page 32
<PAGE>
ARTICLE XXXIII - GENERAL
SECTION 1
No pay for lunch period 2nd or 3rd shift witless granted as exception by Plant
Manager.
SECTION 2 Replaced by Article XXIII, Section 4 (new).
SECTION 3
With the new product being manufactured in the Akron Plant, the Shipping Dept.
hours will be as required, but in all cases there will be a first shift of eight
(8) hours if required. Each shift will match the regular 1st and 2nd shift as
close as possible (some flexibility is required by the nature of the new product
where factory stock of finished motors is not normal, thus motors have to be
built to meet a shipping schedule, not put on a shelf). Shipping could occur
later in evening than now is nonnal.
SECTION 4
In cases of discharge, the Chairman of the Union will be notified and consulted
before the discharge. This does not take away or in any way restrict the
Company's right to discharge for just cause.
SECTION 5
The Company agrees not to bring into its plant any subcontractors to do work in
the plant unless the Company does not have the qualified personnel andJor
equipment to do the job in a reasonable efficient manner.
This does not in any way affect any work in the plant of office which is now
being subcontracted nor does it prohibit the Company from subcontracting work
outside the plant. When work which is normally done in the plant is
subcontracted outside, the Company will notify the Union and will explain the
reasons therefor.
ARTICLE XXXIII - TERMINATION
SECTION 1
The foregoing Agreement supersedes all previous signed Agreements between the
Company and the Union on any and all matters.
SECTION 2
Any and all issues between the Company and the Union are herewith closed until
midnight;
SECTION 3
This Agreement shall remain in full force and effective lentil midnight, the
18th day of __________________and shall be continued in full effect for and
additional twelve (12) months unless either party gives the other party, by
certified mail, a signed and written notice of its desire to cancel this
Agreement or to negotiate changes and modifications in this Agreement.
SECTION 4
Upon receipt of this notice from either party, as outlined under Section 3 of
this Article, a conference will be arranged within ten (10) days.
EQUAL OPPORTUNITY CLAUSE
The Company and the Union agree that there shall be no discrimination against
any employee in respect to hiring, termination, upgrading, transfer, or other
employment practices, or in Union membership on account of age, race, sex,
color, national origin, or religion.
Page 33
<PAGE>
SCHEDULE B
BASIC GROUP 1
8 - Wind Field Coils
8 - AC Connectors, Grade A
8 - Die Setter
8 - Electrician
8 - AC Winders, Grade A
8 - Sheet Metal Worker and Layout
8 - Commutator Assembly
8 - DC Winders and Connectors, Grade A
8 - DC Motor Assembly
8 - Coil Assembly
9 - Welders
9 - Inspector - Electrical
9 - Inspector - Department 6
9 - Inspector - Machine Shop
9 - Turn Armatures and Rotors
9 - Turret Lathe Operator
9 - Boring Mill Operator
9 - Bearing Lathe Operator
9 - Engine Lathe Operator
9 - Milling Machine
9 - Shaft Grinder
9 - Stator Core Assembly
9 - Welder - Carbon Arc
9 - Balance
9 - Testing Motors
9 - Machine Repair
9 - Tool Maker
BASIC GROUP 2
7 - DC Winders & Connectors, Grade B
7 - AC Connectors, Grade B
7 - Cut Insulation
7 - Die Grinder
7 - Wind Interpole Coils
7 - AC Motor Assembly
7 - Solder and Band Armatures
7 - Test and Finish - Stators ~ Armatures
7 - Truck Driver
7 - Watchman
7 - Rotor and Armature Assembly
7 - Drill Presses
7 - Maintenance Workers
7 - AC Winders all Frame thru 50's, Grade B
8 - Radial Drill
8 - Rotor and Armature Assembly and Electric Arc Welding
8 - Saw and Centering and Rolling Machine
8 - Chief Clerk - Stockroom
8 - Brushholder Assembly
Page 34
<PAGE>
SCEIEDULE B (cont'd.)
BASIC GROUP 3
5 - Insulate Stators and Armatures
4 - Sweeper
5 - Taping Field Coils
5 - Taping AC Coils
5 - Trucker
5 - Spread and Form Coils
5 - Hosing and Testing Armature Coils
5 - Notching Press - Buffing Comm Bars
5 - Clerk - Stockroom
6 - Clean and Dip - Stators and Coils (Department 3)
6 - Clean and Paint - Armatures and Rotors (Department 7)
5 - Bench Hands - Including Disc Grinder
5 - Insulate Stators and Armatures and Cut Insulation
6 - Undercut, Polish and Clean
6 - Bench Work - File Slots
6 - Tool Crib Attendant
6 - Key Seater
6 - Loop Winding - AC & DC
6 - Paint Casting
6 - Punch Press
6 - Paint Sprayer
6 - Crate Builder
Page 35
<PAGE>
THE PM & ELEVATOR OPERATION CLASSIFICATIOIN AND RATES
FOR ELEVATOR DESCRIPTION OF EACH GRADE,
REFER TO PAGES 34 & 35
Grade 10 Grade 9 Grade 8
-------------------------------------------------------
Description MASTER SETUP MACHINE & SETUP
----- --------------
MECHANIC A MAINTENANCE B MOTOR ASSY.
----------
All Around Operate at FINAL TEST and
Operate Least 5 INSPECTION
All Around D Different
Maintenance Type Operations
- --------------------------------------------------------------------------------
June 28,1995 TOP 12.00 9.75 9 30
7.50 7.00 6.50
PROGRESS $0.25 Every $0.20 Every $0.20 Every
2nd Month 2nd Month 2nd Month
- --------------------------------------------------------------------------------
- -
HIRE 5.50 to 7.50 5.50 to 7.00 5.50 to 6.50
or Required or Required
HIRE 6 Months 6 Months 4 Months
PROGRESS To Hire To Hire To Hire
Top Top Top
$0.35/Mo. $0.25/Mo. $0.25/Mo.
- --------------------------------------------------------------------------------
- -
SEPT. 28,1996 12.50 10.25 9.80
7.50 7.00 6.50
($0.50 TOP) ($0.40 TOP) ($0.50 TOP)
- --------------------------------------------------------------------------------
- -
DEC. 28, 1997 13.00 10.65 10.15
7.50 7.00 6.50
($0.50 Top) ($0.40 TOP) ($0.35 TOP)
- --------------------------------------------------------------------------------
- -
BELOW THIS LINE VALID ONLY IF CONTRACT IS 5 YEARS
3/28/l999 13.40 11.05 10.50
7.50 7.00 6.50
RATE ($0.40 Top) ($0.40 TOP) ($0.35 TOP)
INCREASE
- --------------------------------------------------------------------------------
- -
12/28/97
PENSION $0.10/HR. $0.10/HR. $0.10/HR.
Page 36
<PAGE>
THE PM & ELEVATOR OPERATION CLASSIFICATIOIN AND RATES
FOR ELEVATOR DESCRIPTION OF EACH GRADE,
REFER TO PAGES 34 & 35
Grade 7 Grade 6 Grade 5 Grade 4
----------------------------------------------------
Description BALANCE VARNISH PAINT COIL
WIND FRAME ASSY. ARM. PROCESS BR.BRD.ASSY.
FLUIDIZE MACHINE OPER COMM. BRKT B
CONNECT ONLY SHIPPING
FUSE-TEST ARM CORE ASSY PACKAGING
COM. BRKT. WELDER
ASST, A
- --------------------------------------------------------------------------------
June 28,1995 TOP 8.90 8.50 8.10 7.75
6.25 6.00 5.80 5.80
PROGRESS $0.20/2 Mo. $0.20/2 Mo. $0.20/2 Mo. $0.15/2 Mo.
- --------------------------------------------------------------------------------
- -
HIRE 5.50 to 6.25 5.50 to 6.00 5.50 to 5.80 5.50 TO 5.80
HIRE 4 Months 3 Months 2 Months 2 Months
PROGRESS To Hire To Hire To Hire To Hire
Top Top Top Top
$0.20/Mo. $0.15/Mo. $0.15/Mo. $0.15/Mo.
- --------------------------------------------------------------------------------
- -
SEPT. 28,1996 9.25 8.80 8.35 8.00
6.25 6.00 5.80 5.80
($0.35 TOP) ($0.30 TOP) ($0.25 TOP) ($0.25 TOP)
- --------------------------------------------------------------------------------
- -
DEC. 28, 1997 9.60 9.05 8.60 8.25
6.25 6.00 5.80 5.80
($0.35 Top) ($0.30 TOP) ($0.25 TOP) ($0.25 TOP)
- --------------------------------------------------------------------------------
- -
BELOW THIS LINE VALID ONLY IF CONTRACT IS 5 YEARS
-------------------------------------------------
3/28/1999 9.95 9.30 8.85 8.50
6.25 6.00 5.80 5.80
RATE ($0.35 TOP) ($0.30 TOP) ($0.25 TOP) ($0.25 TOP)
INCREASE
- --------------------------------------------------------------------------------
- -
12/28/97
PENSION $0.10/HR. $0.10/HR. $0.10/HR. $0.10/HR.
Page 36 (Cont'd)
<PAGE>
LETTER OF UNDERSTANDING
As a result of the negotiations of June 1995, the following agreement was
reached to accommodate seven (7) existing elevator product employees. The
following table places them inside a rating that will allow them to operate as
elevator or P.M. employees. Their present pay rates are recorded and frozen and
the rate changes for the future are recorded.
NAME T.ERVINE J.MOLESSA C.NICHOLAS T. MILLER
- ------------------------------------------------------------------------
NOW AT 12.00 10.06 9.60 8.53
SIGNING
JUNE '95
- ------------------------------------------------------------------------
PROGRESSION NONE NONE NONE TO 8.80
- ------------------------------------------------------------------------
ON
09/26/96 12.50 10.25 9.80 8.80
- ------------------------------------------------------------------------
ON
12/26/97 13.00 10.65 10.15 9.05
- ------------------------------------------------------------------------
QUALIFY
FOR LABOR 10 9 8 6
PM
GRADE AS
OF SIGNING
- ------------------------------------------------------------------------
ELEVATOR ELEVATOR ELEVATOR ELEVATOR
JOB or or or or
DESCRIPTION PM PM PM PM
- ------------------------------------------------------------------------
NAME M.NICHOLAS G.MURPHY J.THOMS
- ----------------------------------------------------------
NOW AT 8.48 9.75 10.06
SIGNING
JUNE '95
- ----------------------------------------------------------
PROGRESSION TO 8.80 NONE NONE
- ----------------------------------------------------------
ON
09/26/96 8.80 9.80 10.06
- ----------------------------------------------------------
ON
12/26/97 9.05 10.15 10.30
- ----------------------------------------------------------
QUALIFY
FOR LABOR 6 8 8 SPEC'L
PM
GRADE AS
OF SIGNING
- ----------------------------------------------------------
ELEVATOR ELEVATOR ELEVATOR
JOB or or or
DESCRIPTION PM PM PM
<PAGE>
The above are free to bid on any job opening in the PM operation. The PM
operation description & rates are on page
Michael Nicholas and Thomas Miller will take a cut in pay if transferred to PM
per chart on Page 37. As elevator employees, follow elevator pay. All other
elevator employees covered Page 37.
New or revised Articles in this contract take precedence over any conflicting
paragraph left over from old Contract that was not removed due to oversight. New
and revised Articles and Sections reveal the intent of this Contract. Old
conflicting paragraphs do not carry the current negotiated intent. For example,
Progress Chart, Page 36 and revised Article V, Section 9. take precedence over a
typical old paragraph of Article V, Section 12.
In section of the new Contract where stronger language has been added affecting
absenteeism or any time off, the Company intends to enforce those new adders in
an attempt to keep absenteeism to a minimum.
In trying to blend language into this Contract to cover a new product (PM) which
is slightly different than the elevator product, a description of jobs sometimes
is not clear. For the PM, we will use the established definition used in the
Cuyahoga Falls plant. For instance, armature processing (a grade 6 job) is
intended to mean all of the final operation on the armature just prior to final
assembly of the motor. Armature processing includes, turn epoxy off the arm core
OD, undercut, turn and polish commutator. This processing could also extend to
cover "press on bearings" and "press on fans" and any other associated final
processing of armature as required. Many other operation descriptions follow the
same kind of separate meeting.
The general rate increases shown on the chart on pages 36, 37, 38 for 9/26/96,
for 12/26/97 and for 3/26/99 apply to the top of the rate only. There will be no
adjustment for those employees in progress until they reach top
The new PM product is of the nature that it is considered a repeatable product.
This type of product produces excellent comparative data. In the Union
negotiating meetings, I spoke about our method of establishing a benchmark of
acceptance for each job by a shared observation and common sense. Once those
type of "standards" are established, we will not accept a variation greater than
10% on a continuous basis.
Our first attempt to solve the excess negative variation problem will be to
discuss it in a Union meeting where the production data is being reviewed. If
that meeting, along with peer pressure, doesn't solve the problem along with
Management discussing the negative variation with the particular employees, then
dismissal is necessary.
The details of the above paragraph were covered completely by Company in
negotiation meetings. The Company will repeat the details in each production
review meeting with the Union and the Company will also repeat the details to
the affected parties before taking such serious action as termination. The total
time required to solve a negative variance problem should not take longer than
the three procedures outlined above.
a) Identify
b) Talk to Union
c) Talk to employee
Not necessarily in the above order.
Page 37 (a)
<PAGE>
LETTER OF UNDERSTANDING (CONT'D)
THE FOLLOWING IN VALID ONLY IF 5 YEAR CONTRACT
- ----------------------------------------------
NAME T.ERVINE J.MOLESSA C.NICHOLAS T.MILLER
- ------------------------------------------------------------------------
3/99 13.40 11.05 10.50 9.30
INCREASE $0.40 TOP $0.40 TOP $0.35 TOP $0.25
- ------------------------------------------------------------------------
12/97
PENSION $0.10/HR. $0.10/HR $0.10/HR. $0.10/HR
NAME M.NICHOLAS G.MURPHY J.THOMS
- --------------------------------------------------------------
3/99 9.30 10.50 10.50
INCREASE $0.25 TOP $0.35 TOP STD. NO SPEC.
$0.20
- ------------------------------------------------------------------------
12/97
PENSION $0.10/HR. $0.10/HR. $0.10/HR.
The seven existing elevator employees are shown in the above chart for the
convenience of understanding their transition into the PM group, should it
occur. As long as the elevator group can support them with jobs, they will
remain there; however, they can bid on a PM job should they desire to do so.
When the elevator jobs can no longer support them; then, they will be
transferred into the PM job rating listed on the chart. As with any job being
able to perform in a reasonable and efficient manner. Because they will hold
higher rates as shown in the chart on line one (1), they must be aware that
requirement to meet our economic requirements will still be there.
In this summary statement let us both (Union and Management) look at the
objective here. We are experimenting with the PM product line in the Akron
plant. The rules are simple. We must be able to meet our economic requirements.
The Company will help attain these acceptable costs by continuing every effort
to share the burden of cost reduction among all departments; however, in the end
the test as to whether this project in Akron is a success or failure rests
heavily on the product being made in a efficient manner.
In the first fifteen (15) months of this project, there will be extraordinary
pressure on the project if the seven (7) elevator employees are transferred to
the PM project because of the lack of elevator work. Their "red circle" higher
wages during those early stages (up to two (2) years) of the PM experiment will
require an extraordinary effort on their part should their transfer to the PM
group occur during this critical period. After the first two (2) years, the PM
and elevator wages will start to blend together. The pressure to succeed may
subside slightly at that point, but we can never let our guard down, lest a
competitor will move into the niche market we now enjoy.
The Company will review, with the Union, the cost per piece required to remain
competitive with competition outside the Akron plant. This joint effort of
reviewing the requirements to succeed will go a long way to keeping the PM
project active in Akron.
We have shown our confidence in the Akron group by moving the project forward
through the renovation of the Akron machine shop and the continued purchase of
machinery and equipment that is required for the project even though we do not
have a working agreement as of this June 25th date.
Page 38
<PAGE>
EXHIBIT 10.24
A G R E E M E N T
BETWEEN
MERKLE-KORFF INDUSTRIES
AND
INTERNATIONAL UNION OF
ELECTRONIC, ELECTRICAL, SALARIED,
MACHINE AND FURNITURE WORKERS
A.F.L. - C.I.O.
LOCAL 1199
OCTOBER 1, l995
<PAGE>
INDEX
-----
PAGE
----
ARTICLE I - Recognition. . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - Union Shop & Checkoff. . . . . . . . . . . . . . . . 2
ARTICLE III - Hours & Overtime. . . . . . . . . . . . . . . . . . . 4
ARTICLE IV - Holidays. . . . . . . . . . . . . . . . . . . . . . . 5
Voting Pay. . . . . . . . . . . . . . . . . . . . . . 6
Funeral Pay. . . . . . . . . . . . . . . . . . . . . . 6
Jury Pay. . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE V - Vacations. . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE VI - Seniority. . . . . . . . . . . . . . . . . . . . . . . 9
Layoff and Recall. . . . . . . . . . . . . . . . . . . 9
Temporary Transfer. . . . . . . . . . . . . . . . . . . 10
Permanent Transfer. . . . . . . . . . . . . . . . . . . 10
Termination of Seniority. . . . . . . . . . . . . . . . 10
Leave of Absence. . . . . . . . . . . . . . . . . . . . 11
Probationary Employment. . . . . . . . . . . . . . . . 11
ARTICLE VII - Insurance. . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VIII - Wages. . . . . . . . . . . . . . . . . . . . . . . . . 15
General Increases. . . . . . . . . . . . . . . . . . . 15
(Progression Chart). . . . . . . . . . . . . . . . . . 15
(Second Shift Premium). . . . . . . . . . . . . . . . . 16
ARTICLE IX - Bulletin Board. . . . . . . . . . . . . . . . . . . . . 16
ARTICLE X - Grievance Procedure. . . . . . . . . . . . . . . . . . 16
ARTICLE XI - Safety and Health. . . . . . . . . . . . . . . . . . . 19
ARTICLE XII - Duration of Agreement. . . . . . . . . . . . . . . . . 19
Exhibit A. . . . . . . . . . . . . . . . . . . . . . . 21
<PAGE>
MERKLE-RORFF INDUSTRIES
PREAMBLE
--------
Agreement effective the 1st Day of October, 1995, between Merkle-Korff
Industries, 1776 Winthrop Drive, Des Plaines, Illinois, 60018, hereinafter
called the Company, and the International Union of Electronic, Electrical,
Salaried Machine & Furniture Workers, AFL-CIO), in behalf of, and in conjunction
with Local 1199, hereinafter called the Union.
ARTICLE I - RECOGNITION
- -----------------------
SECTION 1.
----------
The Company recognizes the Union as duly authorized and sole collective
bargaining representative for all production and maintenance employees, truck
drivers and production support tool room employees excluding office employees,
model shop employees, engineering department employees, professional employees,
all other employees, guards and supervisors as defined in the Act. The Company
recognizes the Union as the duly authorized and sole collective bargaining agent
at the above address or within a radius of fifty miles from the plant.
SECTION 2.
----------
There shall be no discrimination, interference, restraint or coercion by
the Company or any of its officials against any employee because of membership
in the Union, election or appointment to office or position in the Union, or
activity in behalf of the Union.
SECTION 3.
----------
The Union agrees not to engage in any Union activity on Company time or
property in any way which shall interfere with production except as specifically
provided in this contract. It is understood that the Union shall not hold Union
meetings so as to interfere with scheduled operations of the Company.
SECTION 4.
----------
The products to be manufactured, the schedules of production, the
methods, machine tools and ways of manufacture and the direction of the forces
except as expressly provided in this Agreement are exclusively a function of
Management.
<PAGE>
SECTION 5.
----------
The Company may appoint one non-bargaining unit Foreman or Assistant
Foreman on each shift to perform bargaining unit work.
In addition, the Company may appoint a Foreman or Assistant Foreman to
perform work covered by this Agreement if necessary for the following purposes:
(1) Instruction of employees.
(2) Investigation, or testing of new processes,
equipment or methods and experimental work.
(3) In the event of an emergency (where an emergency
arises, or experimental work is performed), it
shall be discussed with the Union.
SECTION 6.
----------
The Union will assist and cooperate in the attainment and maintenance by
all employees of a fair day's work.
SECTION 7.
----------
The provisions of this contract shall be applied to all employees
without discrimination on account of sex, race, color, creed or national origin.
Wherever the word "he" or any other masculine word form is used in this
Agreement, that provision also shall apply to female employees.
SECTION 8.
----------
The Company shall supply a copy of the checkoff list to the Chief
Steward.
ARTICLE II - UNION SHOP AND CHECKOFF
- ------------------------------------
SECTION 1.
----------
All employees shall, as a continuing condition of employment with the
Company, become members in the Union on the 60th day following the beginning of
their employment, or 60 days after the effective date of this Agreement,
whichever is the later, and shall maintain such membership in the Union during
the life of this Agreement.
SECTION 2.
----------
The Company shall deduct Union dues, including initiation fees, upon
receipt of written authorization for such deductions.
2
<PAGE>
Such deductions shall be made from the first full week's pay of each month and
promptly remitted by the Company to the I.U.E. Local 1199. A uniform initiation
fee for new members shall be remitted in the same manner as dues collected.
The Union shall indemnify and save the Company harmless against any and
all claims, demands, suits or other forms of liability that shall arise out of
or by reason of any action taken or not taken by the Company for purpose of
complying with any provision of this Article II.
The written authorization referred to in the previous paragraph shall be a
signed card in the following form:
ASSIGNMENT AND AUTHORIZATION FOR CHECKOFF OF MEMBERSHIP DUES FOR LOCAL
UNION NO. 1199, INTERNATIONAL UNION OF ELECTRONIC, ELECTRICAL, SALARIED MACHINE
& FURNITURE WORKERS, AFL - CIO.
TO: MERKLE-KORFF INDUSTRIES - DES PLAINES, ILLINOIS
I hereby assign to Local Union No. 1199, International Union of
Electronic, Electrical, Salaried Machine & Furniture Workers (AFL-CIO), from
wages to be earned by me as my membership dues uniform initiation fees and
uniform monthly dues in such amounts of uniform initiation fees or uniform
monthly dues as may be fixed under and pursuant to the constitution of
International Union of Electronic, Electrical, Salaried Machine & Furniture
Workers (AFL-CIO) and certified to the Company in writing by the Secretary-
Treasurer of the Union.
I authorize and direct you to deduct such amounts from my pay for each
month and to remit the same promptly to the Secretary-Treasurer of said Union.
This assignment authorization and direction shall be irrevocable for a
period of one (1) year from the date hereof, or until the termination of the
Agreement between the Company and the Union dated as of September 30, 1995,
whichever occurs sooner, and shall be renewed from year to year thereafter;
provided, however, that it may be revoked by me between September 15 and
September 30 of any contract year by giving written notice to the Company that
it is no longer authorized to make such deductions.
- ----------------------- ----------------------
Signature of Employee Address of Employee
- ---------------------- -----------------------
WITNESS Employees Clock No.
3
<PAGE>
Unless otherwise specified, this assignment and authorization shall
become effective at the expiration of the employee's probationary period under
the Agreement between the Company and the Union, dated September 30, 1995.
ARTICLE III - HOURS AND OVERTIME
- --------------------------------
SECTION 1.
----------
The standard workweek shall be forty (40) hours per week, eight (8)
hours per day, from Monday to Friday, inclusive.
SECTION 2.
----------
Each shift shall have a scheduled starting and quitting time except in
the case of emergency work, maintenance and repairs.
SECTION 3.
----------
All work performed in excess of eight (8) hours in any single day and in
excess of forty (40) hours in any given week shall be paid for at one and a half
times the regular straight-time rate. It is understood that overtime shall not
be paid twice for the same hours worked. Time and one-half shall be paid for all
work performed on Saturdays as such. The Company shall have the right to require
reasonable assignments of overtime work, and such assignments shall be performed
by an employee unless he has good cause for refusal thereof. An employee who has
good cause for refusal thereof shall not be discriminated against or
disciplined. Employees who say they will report for Saturday overtime work and
do not do so will be charged with an unexcused absence unless they can show good
cause for their failure to report.
SECTION 4.
- ----------
Double time shall be paid for all work done on Sundays and triple time
for the holidays hereinafter listed.
SECTION 5.
- ----------
Overtime work shall be equalized among employees in the plant performing
similar work provided the employees involved have the skill, ability and
knowledge to perform the required work. If seven (7) or more employees on a
shift are working overtime, a steward shall be assigned to perform the required
work provided he has the skill, ability and knowledge to perform the available
work. Part-time students shall not share in overtime unless all other qualified
employees have been offered the opportunity to work overtime and part-time
students shall be subject to ARTICLE II, SECTION 1, hereof, probationary
employees will not work overtime
4
<PAGE>
unless all other qualified non-probationary employees have been offered the
opportunity to work said overtime.
SECTION 6.
----------
Any employee who reports to work at his regular starting time and has
not been previously notified by the Company not to report and any employee who
is called in to work outside of his regular shift or schedule shall receive not
less than four (4) hours work or pay for four hours work at his regular rate of
pay unless failure to work is due to the fault of the employee, an act of God,
or any causes beyond the control of the Company, provided, however, the employee
shall perform any work the Company shall give him. The Company shall not be
obligated under this paragraph if it notified the employee not to report to work
either personally or by telephone message or by letter or telegram sent to the
last known address of the employee, not less than twelve (12) hours before the
regular starting time.
ARTICLE IV - HOLIDAYS
- ---------------------
SECTION 1.
----------
Holidays recognized as commanding under the scope of this Agreement are:
New Year's Day Thanksgiving Day
Good Friday Friday After Thanksgiving
Memorial Day Christmas Eve
Independence Day Christmas Day
Labor Day Birthday or Floating Holiday*
When a holiday falls on a Saturday or Sunday, the Company, in its sole
discretion, shall designate whether the holiday shall be recognized on the
Friday preceding or Monday following the holiday.
* The Company shall notify the employees as of January 1st of each year
whether the tenth Holiday will be a floating Holiday, and when it will be
scheduled, or whether the tenth holiday shall be a Birthday Holiday, in which
case the holiday is to be taken on the employees birthday.
SECTION 2.
----------
Except as otherwise provided in Section 4 below for employees with less
than one year of service, all regular full-time nonprobationary employees
covered by the Agreement shall receive pay for holidays when not worked at eight
(8) times the employee's straight-time hourly rate, provided the employee works
the regularly scheduled workday before and the regularly scheduled workday after
the holiday, unless the employee can show good cause
5
<PAGE>
for not working such days. If an eligible employee is excused because of illness
or injury or if the employee is on layoff in any workday of seven calendar days
before a holiday or any day of seven calendar days after a holiday, the employee
will receive holiday pay. If an eligible employee due to illness, injury or
layoff is unavailable for work more than seven calendar days prior to the
holiday, he shall be ineligible for holiday pay.
SECTION 3.
---------
When a holiday falls on Thursday, the employee can upon approval of
written request, be granted the day off following the holiday, without pay,
without forfeiting his holiday pay.
SECTION 4.
---------
During an employee's first twelve calendar months of employment, he will
be credited with eight hours of "holiday pay" for each full calendar month of
service. If at the time a holiday listed in ARTICLE IV, SECTION 1, occurs, an
employee has earned sufficient holiday pay credit (i.e., eight hours credit for
each holiday), and he has met all the eligibility requirements set forth in
ARTICLE IV, SECTION 2, he shall receive pay for the holiday. After the employee
has been employed twelve full calendar months, he shall receive holiday pay in
accordance with ARTICLE IV, SECTION 2.
SECTION 5.
---------
Each employee who is an eligible voter shall be entitled to take up to
two (2) hours off from work at the beginning or end of his shift to vote in one
Federal Election, if such occurs during the term of the contract. The employee
will be paid for his time lost from work at his regular straight-time rate. The
employee must have worked the remaining hours of his shift to be eligible for
such pay.
SECTION 6.
---------
For attending funeral services and rendering comfort and assistance to
his family, up to three days off with eight hours per day straight-time pay
will, when required, be granted when a death occurs in the immediate family.
"Immediate family'' shall be construed to mean parent, spouse, child, legally
adopted child, brother, or sister. Up to one (1) day off with eight hours per
day straight-time pay will be granted in such circumstances in case of death of
the employee's mother-in-law or father-in-law.
SECTION 7.
---------
All employees covered by this Agreement who have a minimum of six (6)
months continuous service with the Company will receive a
6
<PAGE>
bonus of four (4) hours of pay at their base rate for their birthday. Such
payment will not constitute hours worked for overtime purposes.
SECTION 8.
---------
Each employee who is called to appear before a Jury Commissioner and who
responds to such call shall be paid two (2) hours' pay at such employee's
occupational hourly rate, in addition to his pay for actual hours worked on that
day.
SECTION 9.
---------
Employees who actually perform jury service shall be paid the difference
between the amounts paid as jurors and their regular occupational hourly rate,
based on eight (8) hours per day and forty (40) hours per week, subject to a
maximum of eighty (80) straight-time hours' pay per calendar year to a maximum
of one hundred sixty (160) straight-time hours for grand jury service.
SECTION 10.
----------
Subject to the provisions of Section 1 of this Article, eligible
employees will receive their Birthday off as a paid Holiday. If an eligible
employee declines times off for the Birthday Holiday and the Company agrees, he
shall receive regular straight-time pay for working his Birthday and shall
receive the equivalent of 8 hours straight-time pay as a bonus in lieu of the
time off. This is aside from any other pre-existing bonus provision.
ARTICLE V - VACATIONS
- ---------------------
SECTION 1.
----------
All Employees who have worked for the Company one (1) year as of June 30
of any year shall receive a vacation check amounting to forty (40) times their
current hourly rate as of June 30 of that year.
SECTION 2.
---------
All employees who have worked for the Company three (3) years or more as
of June 30 of any year shall receive a vacation check amounting to eighty (80)
times their current hourly rate as of June 30 of that year.
SECTION 3.
---------
All employees who have worked for the Company ten (10) years or more as
of June 30 of any year shall receive a vacation check
7
<PAGE>
amounting to one hundred twenty (120) times their current hourly rate as of June
30 of that year.
SECTION 4.
---------
All employees who have worked for the Company seventeen (17) years or
more with a seniority date of August 31, 1976 or before, shall receive a
vacation check amounting to one hundred sixty (160) times their current hourly
rate as of June 30 of that year.
All employees who have worked for the Company twenty (20) years or more
with a seniority date of September 1, 1976 or later, shall receive a vacation
check amounting to one hundred sixty (160) times their current hourly rate as of
June 30 of that year.
SECTION 5.
---------
All employees hired prior to September 1, 1982, who have worked for the
Company twenty-five (25) years or more as of June 30 of any year shall receive a
vacation check amounting to two hundred (200) times their current hourly rate as
of June 30 of that year.
SECTION 6.
---------
All employees who have worked for the Company less than one year and
more than ninety (90) days as of June 30 of any year shall receive one-half
day's pay for each full calendar month of employment based on a forty (40) hour
vacation week at their current hourly rate as of June 30 of that year.
SECTION 7.
---------
To be eligible for a vacation check, an employee must work at least
seventy-five percent (75%) of his scheduled hours during the 12-month period
preceding June 30. Time lost due to illness or accident that is an industrial
case shall be counted as hours worked for the year in which said illness or
accident occurs. If the accident or illness is caused away from the plant and is
not an industrial case, employees with three (3) or more years seniority shall
receive, for one vacation period only, a pro-rata vacation check based on actual
time worked.
SECTION 8.
---------
The Company reserves the right to shut the plant for a vacation period.
Employees entitled to more than two (2) weeks vacation may choose whether they
want to work additional vacation time and be paid therefor, or take their
vacation.
8
<PAGE>
SECTION 9.
----------
If an employee leaves the Company before the start of the vacation
period, he shall be entitled to pro-rata vacation pay. In order to receive such
pro-rata vacation pay in a timely manner, the employee is expected to provide
the Company with 2 weeks advance notice of his quitting.
SECTION 10.
-----------
The estate of any employee who dies during the year shall receive a pro-
rata amount of his vacation check based on the actual time worked.
SECTION 11.
----------
Employees entitled to more than two (2) weeks vacation who take part of
their vacation in advance of a vacation period shutdown will be paid for such
vacation when they take it.
ARTICLE VI - SENIORITY
- ----------------------
SECTION 1.( a)
--------------
Seniority is defined as length of service with the Company. Seniority
shall be applied in all cases of layoff and recall on a plant-wide basis
provided the employee has the skill, ability, knowledge and experience to
perform the required work. In the event of a layoff, the employee who has been
laid off shall replace the least senior person in the plant provided the laid-
off employee has the ability, skill, knowledge and experience to perform the
required work.
SECTION 1.(b)
------------
Section l(a) shall not apply in respect to layoffs of 24 hours or less.
SECTION 2.
---------
All employees shall be rehired in reverse order to that in which they
were laid off before any new employees are hired provided the laid-off employees
have the ability, skill, knowledge and experience to perform the required work.
The Company will carry laid-off employees who are laid off on a reserve
list according to the schedule as follows:
Up to 3 years seniority - A period equal to one-fourth the length of
seniority or 3 most whichever is less
3 years seniority or over - 1 Year
9
<PAGE>
SECTION 3.
---------
Employees with greater seniority shall be given preference in filling
vacancies provided they are qualified to fill the job and provided further that
this shall not be applicable to people excluded from the bargaining unit. Such
vacancies shall be posted on Bulletin Boards for a period of 48 hours. All
requests of applicants shall be submitted to the designated management
representative. Final results of the review of qualifications will be made known
to the Chief Steward. The Company reserves the right to determine the
qualifications of any applicant and to fill such vacancies with the person or
persons it believes most qualified.
The Company also reserves the right to determine the capability and
performance of the person or persons filling such vacancies during a
probationary period of thirty (30) working days. An employee filling a vacancy
pursuant to this Section wishing to return to the job from which he bid during
such 30-day period may do so, in which case he shall lose his right to bid for
any job for a 6-month period thereafter; it being understood that such employee
will be returned to a job that is available.
SECTION 4.
---------
Employees temporarily transferred from a higher-rated job to one of
lower rate shall receive their regular rates of pay. Employees temporarily
transferred from a lower-rated job to the higher-rated job shall receive their
regular rate of pay. The word "temporary" is used in this Section to mean
employment for four weeks or less.
SECTION 5.
---------
Employees permanently transferred (for a period of more than four weeks)
to a higher-rated job shall receive the rate of pay for the new job. Employees
permanently transferred for a period of more than four weeks to a lower-rated
job in accordance with the seniority provisions of this contract shall receive
the rate of pay for the job from which he was transferred or the maximum of the
range for the lower-rated job, whichever is lower. No employee will suffer a
rate reduction as a result of a job combination in his job. This will not apply
to employees affected by a layoff or job elimination put into effect by the
Company.
SECTION 6.
---------
Continuity of service and relationship between employer and employees
shall be terminated when:
(a) An employee voluntarily leaves the Company's employ.
10
<PAGE>
(b) An employee who has been laid off because of lack of work
fails to report when recalled within a period of three (3)
days, unless good cause can be shown for not reporting.
(c) An employee is discharged for cause. (Any rules effectuated
by the Company must be reasonable.) The Union may file
a grievance if it believes the rules are unreasonable.
(d) An employee fails to report to work after a termination of a
leave of absence.
(e) An employee is absent for three (3) working days for any
reason other than sickness, unless good cause can be shown.
(f) An employee is absent for more than three (3) working days
and fails to notify the Company unless good cause can be
shown for not reporting.
(g) An employee is absent from work for any reason for longer
than the periods set forth in Section 2 above based on
the employee's seniority.
SECTION 7.
---------
Written request for a 30 calendar days leave of absence may be granted
to employees for good and sufficient reasons if such leaves will not jeopardize
the effective operations of the plant. Such leaves of absence shall be without
loss of seniority, provided, however, that such employees shall not accept
employment elsewhere. During such leaves of absence, including military leaves
of absence, an employee's progression time will resume upon the day of return to
work. Such leaves of absence may be extended from time to time and, if extended,
sick leave seniority will accumulate a maximum of 6 months only.
SECTION 8.
---------
New employees and those hired after a break in continuity of service
will be regarded as probationary employees for the first sixty (60) days of
employment and will receive no continuous service credit during such period.
Probationary employees may be laid off or discharged as exclusively determined
by the Company, and shall not have recourse to the grievance and arbitration
procedure. This provision will not be used for purposes of discrimination,
because of membership in the Union. Probationary employees continued in the
service of the Company subsequent to sixty (60) days from date of original
hiring shall receive full and continuous service credit from date of original
hiring.
11
<PAGE>
SECTION 9.
---------
A member of the Union being elected or appointed to any Union convention
or conference necessitating temporary leave of absence shall upon proper
certification by the Union to the Company be granted a leave of absence by the
Company and such employees or employee shall, at the end of the leave of
absence, be reinstated to former position with full seniority status and all
rights. These leaves of absence shall not be more than twenty-eight (28) days
for any two employees in any one year.
SECTION 10.
----------
The Company will abide by the applicable Federal and State laws
pertaining to employees returning from military service.
SECTION 11.
----------
Upon one (1) month written notice, an employee shall be granted a leave
of absence when assigned to Union duties. Such leave of absence shall be for a
period of not more than one (1) year. The Company shall be given one (1) month
notice prior to the employee's return to work.
SECTION 12.
----------
In the event of a layoff, the Company shall give the Chief Steward or
Assistant Chief Steward, 24 hours before the layoff, a list of those people
affected.
SECTION 13.
----------
When the work force in any department is to be reduced, the department
steward in that department shall, if the reduction in force continues to the
point at which he would otherwise be laid off, be retained at work in the
department in which he is employed provided he can perform the work of the job
available. One (1) Local Union officer or Chief Steward shall have top plant-
wide seniority for the purpose of layoffs and recalls only, provided they are
qualified and able to do the work required.
ARTICLE VII - INSURANCE
- -----------------------
SECTION 1.
---------
Effective October 1, 1995, employees under this Agreement shall be
covered under the United Furniture Workers Insurance Fund ("Fund") in accordance
with the provisions in this Article VII and attached Exhibit A. New employees
will be eligible for coverage on the 1st day of the month following sixty (60)
calendar days of employment.
12
<PAGE>
The Company will contribute the following maximum amount for monthly
single nondependent insurance to the Fund:
Effective 10/1/95 through 9/30/96: $170.60
Effective 10/1/96 through 9/30/97 184.20
Effective 10/1/97 through 9/30/98 198.90
The Company will contribute the following maximum amount for monthly
family coverage of employee and their dependents for eligible employees:
Effective 10/1/95 through 9/30/96: $379.75
Effective 10/1/96 through 9/30/97 410.05
Effective 10/1/97 through 9/30/98 442.75
Employees shall have deducted from their paycheck each week the
following amounts depending on whether the employee is receiving single or
dependent coverage:
Effective On: Employee Weekly Contributions
------------ -----------------------------
Single Dependent
------ ---------
October 1, 1995 $ 4.37 $27.48
October 1, 1996 6.87 29.98
October 1, 1997 9.87 32.98
All bargaining unit employees must be covered by the health insurance
plan and make the appropriate contributions for said coverage. If the employee
terminates his/her employment before making the full monthly contribution, that
amount shall be deducted from his/her last paycheck.
The Company's maximum obligation during the life of the collective
bargaining agreement shall be to pay the following amounts:
Single Family
------ ------
October 1, 1995 $151.67 $260.67
October 1, 1996 154.43 280.14
October 1, 1997 156.13 299.84
The Company shall pay the full insurance premium cost for each month on
or before the 10th day of the month. The contract rate as set forth above shall
remain as indicated for the length of the Contract.
13
<PAGE>
The Company and the employees shall begin making contributions and/or
have amounts deducted from their checks for insurance beginning on the 1st day
of the month following sixty (60) calendar days of employment. The employee
shall begin receiving benefits on the 1st calendar day in which a contribution
has been made on his behalf.
The Company's sole liability and obligation shall be for the payment of
the monthly contributions set forth above and the Company in no way guarantees
payment of the benefits established by the Insurance Fund.
The Company shall make contributions only for the month in which the
employee is actively at work as of the first day of the calendar month. If the
employee is on layoff or on occupational injury as of the first of any month, no
contributions shall be made for the employee for that month.
The Company agrees to make available to the Insurance Fund, upon
appropriate written notice, any records which are necessary to verify the amount
owed by the Employer to the Fund.
The agreement shall provide that all monies paid into the Fund will be
vested and remain exclusively in the "Trustee" of the Fund. The Fund or the
Union may take appropriate legal action to collect delinquent payment including
submission of the case to arbitration or instituting any other legal action in
an appropriate court of law.
During the first year of this Agreement the Company shall institute a
125 cafeteria plan program for employees to use for payment of their health
insurance premiums.
During the term of this Agreement, the Company shall pay for a
Prescription Drug Card provided through the UFWA Insurance Program with a $ 5.00
deductible per use. The maximum cost to the Company is fifty cents per month for
single coverage and $ 1.15 per month for family coverage. The costs for the Card
is included in the costs set forth above.
SECTION 2.
---------
The Company will pay up to 13 weeks premium for the group insurance plan
for eligible employees on medical leave for any illness or accident.
14
<PAGE>
ARTICLE VIII - WAGES
- --------------------
SECTION 1. (a)
--------------
All non-probationary employees who are on the Company's active payroll
as of the first full pay period after October 1, 1995, shall have their
straight-time hourly rate of pay increased by 3.5%.
All non-probationary employees who are on the Company's active payroll
as of the first full pay period after October 1, 1996, shall have their
straight-time hourly rate of pay increased by 3.5%.
All non-probationary employees who are on the Company's active payroll
as of the first full pay period after October 1, 1997, shall have their
straight-time hourly rate of pay increased by 3%.
SECTION 1. (b)
--------------
All of the aforesaid increases shall be rounded to the nearest full
cent.
SECTION 2.
---------
The following labor grades and wage rates will be effective and remain
unchanged throughout the life of this contract.
Effective October 1, 1995
_________________________
LABOR
GRADE START 1 MONTH 6 MONTHS 12 MONTHS 18 MONTHS
- ----- ----- -------- -------- --------- ---------
1 $6.78 $7.38 $8.18 $8.90 $10.05
2 6.38 6.90 7.51 8.31 9.58
3 6.05 6.51 6.90 7.51 8.83
4 5.30 5.65 6.25 6.90 7.98
5 4.67 4.81 5.09 5.36 5.65
Effective October 1. 1996
-------------------------
LABOR
GRADE START 1 MONTH 6 MONTHS 12 MONTHS 18 MONTHS
- ------ ----- ------- -------- --------- ---------
1 $7.02 $7.64 $8.47 $9.21 $10.40
2 6.60 7.14 7.77 8.60 9.92
3 6.26 6.79 7.14 7.77 9.14
4 5.49 5.85 6.47 7.14 8.26
5 4.83 4.98 5.27 5.55 5.85
15
<PAGE>
Effective October 1. 1997
-------------------------
LABOR
GRADE START 1 MONTH 6 MONTHS 12 MONTHS 18 MONTHS
- ----- ----- ------- -------- --------- ---------
1 $7.23 $7.87 $8.72 $9.49 $10.71
2 6.80 7.35 8.00 8.86 10.22
3 6.45 6.99 7.35 8.00 9.41
4 5.65 6.03 6.66 7.35 8.51
5 4.97 5.13 5.43 5.72 6.03
SECTION 3.
---------
If after the institution of the above-mentioned wage rates, any
employees have rates that are higher than those provided by the labor grade in
which they are classified, these rates shall be considered as "ringed rates" and
shall not be considered as setting a new maximum for that labor grade.
SECTION 4.
---------
Rates of pay for employees working on the second shift shall be higher
by five percent (5%) than the rates of pay for jobs in the same classification
on the day shift.
ARTICLE IX - BULLETIN BOARD
- ---------------------------
SECTION 1.
---------
The Company will provide the Union a bulletin board which may be used by
the Union for posting notices approved in advance by the Management. The
bulletin board shall be used by the Union for posting notices of Union elections
and appointments, and of Union social or recreational activities.
ARTICLE X - GRIEVANCE PROCEDURE
- -------------------------------
SECTION 1.
---------
Any dispute which may arise between the Company and the Union as to:
A. Whether any employee has been coerced into membership into the Union,
or
B. As to the meaning and application of this Agreement shall be regarded
as a grievance and shall follow the procedure outlined in ARTICLE X
of this Agreement.
16
<PAGE>
SECTION 2.
---------
Any employee or group of employees shall be entitled to present
grievances directly or through the Union to the Company as he or she may choose
from time to time.
SECTION 3.
---------
Any and all disputes and differences whatsoever between the Company and
the Union or any of its members or employees of the Company concerning the
meaning or application of this Agreement shall be settled in the following
manner.
STEP 1.
------
The aggrieved employee and the steward shall take the matter up with the
Foreman in the employee's department within five (5) working days after the
occurrence of the event on which the grievance is based, or, if the Union or
employee could not reasonably have known of the occurrence of the event within
such period of time, then within five (5) working days after the Union or
employee first learned of the occurrence of the event on which the grievance is
based.
STEP 2.
------
If no settlement is reached with the foreman, the grievance shall be
reduced to writing on forms furnished by the Company and shall be dated and
signed by the aggrieved employee and his steward. Two (2) copies thereof shall
be presented by the Chief or Assistant Chief Steward to the designated
management representative for further attempts to reach a mutually satisfactory
settlement. The designated management representative shall also sign grievance.
Grievances not satisfactorily settled in STEP 2 shall be referred to Third (3rd)
Step procedure. This meeting shall be held within three (3) working days after
notification by either party. Second Step grievances will be presented within
seven (7) calendar days after the First Step answer.
STEP 3.
-------
If the matter is not settled in the foregoing steps, it shall be
referred to a meeting of the grievance committee of the Union and the designated
representatives of the Company. An International Union Representative may be
present in the meetings of STEP 3 of the grievance procedure. Any settlement of
STEPS 2 or 3 shall be binding upon the Company, the Union, and the aggrieved
employee or employees.
17
<PAGE>
In the event retroactive pay is agreed upon by the parties at any step
of the grievance or arbitration procedure on the settlement of any grievance, it
shall, as a maximum, be limited to and commence as of the date of the signed
grievance. Third Step grievance will be presented within three (3) working days
after the Second Step answer.
STEP 4.
------
If the matter is not settled in STEP 3, either party, but not an
individual employee or employees, may submit the dispute to arbitration by
serving a written request to arbitrate, setting forth the facts and issues, upon
the other party by Certified Mail, return receipt requested, within ten (10)
working days after the answer is given at STEP 3 hereof. The parties shall then
select an arbitrator. If the parties fail to agree on the selection of an
arbitrator, such arbitrator shall be selected in accordance with the rules of
the American Arbitration Association then in effect. The provisions of this
Agreement shall be the sole source of any rights which either party may assert
in arbitration. The arbitrator shall have no power to amend, add to, subtract
from, or change the terms of this Agreement and shall be authorized only to
interpret the existing provisions of this Agreement, and apply them to the
specific facts of the grievance or dispute. The decision of the arbitrator
within the limits herein prescribed shall be final and binding on all parties to
the dispute, including the employee or employees involved. The fee of the
arbitrator shall be borne equally by the Company and the Union. No other joint
expenses shall be incurred except by mutual written agreement of the parties.
SECTION 4.
---------
The Company agrees to recognize a Union Grievance Committee of not more
than two (2) members.
SECTION 5.
---------
Members of the Grievance Committee shall be compensated at their
straight-time rate of pay for such time lost from work as they are actually
engaged in meetings with the Company's representative or officials. It is
understood that under no circumstances will such employee be compensated at
overtime premium rates for time so spent.
18
<PAGE>
SECTION 6.
---------
The Chief Steward will be granted reasonable time during regular working
hours, with pay, to investigate or settle grievances. Before negotiating in the
adjustment of a complaint, the steward will report to his foreman, punch out his
daily job card, and report back and punch in on his return to work.
SECTION 7.
---------
Meetings will be held between management and the Union as required, with
both parties showing understanding of either party's request that a particular
meeting be rescheduled.
SECTION 8.
---------
During the term of this Agreement there shall be no lockout by the
Employer, and no strikes, stoppages of work, or slowdowns by the Union unless
(1) the Employer refuses to carry out the grievance procedure as set forth in
this Agreement as certified in writing by an arbitrator or (2) if following an
arbitration award under this contract, the arbitrator certifies in writing to
the parties that the Employer after reasonable opportunity to do so has failed
or refused to comply with said award.
ARTICLE XI - SAFETY AND HEALTH
- ------------------------------
SECTION 1.
---------
The Company will adhere to Federal and State Laws regarding safety and
health, and shall provide without cost to the employees gloves and
nonprescription safety glasses where the Company requires their use. This
Section shall be subject to the grievance procedure hereof.
SECTION 2.
---------
The Company agrees to maintain an advisory Safety Committee at all
times. The Safety Committee shall consist of Company representatives and two
representatives of the bargaining unit including one (1) union steward.
ARTICLE XII - DURATION OF AGREEMENT
- -----------------------------------
This Agreement shall remain in full force and effect through Midnight
September 30, 1998, and shall thereafter be continued for successive periods of
one year unless notice of termination, alteration or modification in writing by
Registered Mail is given by either party at least sixty (60) days before the
next annual
19
<PAGE>
expiration date of the Agreement. Upon receipt of such notice, a conference
shall be arranged within ten (10) days.
INTERNATIONAL UNION OF ELECTRONIC,
ELECTRICAL, SALARIED MACHINE &
FURNITURE WORKERS, AFL-CIO MERKLE-KORFF INDUSTRIES
BY: /s/Roger D. Deel BY:/s/ John W. Brown
----------------------------- ---------------------------
JOHN W. BROWN
/s/ N. Bailey PRESIDENT C.O.O.
-----------------------------
----------------------------
----------------------------
INTERNATIONAL UNION OF ELECTRONIC,
ELECTRICAL, SALARIED MACHINE & FURNITURE
WORKERS, AFL-CIO
BY:/s/ Mitchell
_______________________________
20
<PAGE>
EXHIBIT A
Effective October 1, 1995, the Company will pay to the United Furniture
Workers Insurance Fund, 1910 Air Lane Drive, Nashville, TN., 37210, the amount
set forth in Article VII.
Title to all monies paid to the Insurance Fund will be vested and remain
exclusively in the "Trustees" of the Insurance Fund and the parties hereto agree
that either the Union or the Insurance Fund or both shall have the right, and
full discretion, to take any action necessary to collect any contributions or
monies due and owing to the Insurance Fund and to secure delinquent reports with
such action, including but not limited to submitting the matter to arbitration
pursuant to the arbitration provisions of this agreement or instituting legal
action in the courts. In the event of any such arbitration or legal action,
instituted by the Union or the Insurance Fund against the Employer to collect
delinquent contributions or to secure delinquent reports, it is hereby agreed
that the Employer shall be liable for a maximum amount of damages equal to the
existing prime rate at the First National Bank of Chicago plus 2%, plus up to a
maximum of 20% liquidated damages plus reasonable attorneys' fees, provided that
no amount shall be due and owing until the Employer has been given written
notice by certified mail of any delinquencies and the Employer fails to pay the
unpaid balance due fourteen days after receipt of said notice.
Employees will be contributing contributions in accordance with Article
VII of this Collective Bargaining Agreement.
The contributions shall be paid for the purpose of providing to the
employees such death benefit, accident and sickness benefit and various health
insurance benefits as are outlined in the booklet to be distributed to all
eligible employees by the United Furniture Workers Insurance Fund.
The Employer agrees to make available to the Union and/or the United
Furniture Workers Insurance Fund, upon written notice, any and all books and
records of the employer necessary to verify amount owed by Employer.
21
<PAGE>
Exhibit 10.25
PRODUCTS SUPPLY AGREEMENT
-------------------------
This Products Supply Agreement (this "Agreement") is made and entered into
---------
this 8th day of March, 1996, between Barber-Colman Company, a Delaware
corporation ("BCC"), and BCM Holdings, Inc., an Illinois corporation
("Holdings").
--------
WHEREAS, pursuant to the Asset Purchase Agreement dated as of February 8,
1996, as amended (the "Purchase Agreement"), among Colman Motor Products, Inc.,
------------------
a Delaware corporation ("CMP"), Colman OEM, Inc., an Illinois corporation
---
(together with CMP, the "Sellers"), and Holdings, Sellers have sold and
-------
transferred to Holdings the Assets (as defined in the Purchase Agreement), which
Assets relate to the conduct or operation of Sellers' business of designing and
manufacturing subfractional horsepower motors, subfractional horsepower
gearheads and subfractional horsepower gearmotors (the "Business"), all as more
--------
specifically set forth in the Purchase Agreement;
WHEREAS, prior to the date hereof the Business has produced for BCC and its
Affiliates from time to time certain standard and nonstandard products which BCC
and its Affiliates have used for internal consumption and for incorporation into
their respective products; and
WHEREAS, Holdings and BCC desire to enter into an arrangement pursuant to
which Holdings will manufacture and sell to BCC, and BCC will purchase from
Holdings, certain subfractional horsepower motors, subfractional horsepower
gearheads and subfractional horsepower gearmotors all upon the terms and
subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
I. SUPPLY/PURCHASE OBLIGATIONS
---------------------------
1.1. Products and Quantities. (a) On the terms and subject to the conditions
-----------------------
herein during the Term (as defined in Section 3.1), (i) for each of the first
-----------
two Periods during the Term, Holdings will sell to BCC, and BCC will purchase
from Holdings, Products (as defined in Section 4.6) in a minimum amount of the
-----------
Commitment Amount (as defined in Section 4.6), and (ii) for each of the
-----------
remaining Periods thereafter, Holdings will sell to BCC, and BCC will purchase
from Holdings, 100% of the requirements of BCC and its Affiliates for the
Products, up to and including the Commitment Amount.
<PAGE>
(b) If BCC breaches its obligations under Section 1.1(a) for any Period, BCC
--------------
shall be liable for, and shall pay to Holdings, an aggregate amount equal to
(i) .258 multiplied by (ii) the excess of (A) the aggregate amount of Products
-------------
that BCC was required under Section 1.1(a) to purchase from Holdings during the
--------------
Period in question over (B) the aggregate amount of BCC's purchases of Products
during such Period.
1.2. Specifications. Holdings shall manufacture and deliver the Products in
--------------
accordance with the electrical, mechanical, physical, environmental and other
specifications listed in the applicable product catalog of the Business as in
effect on the date a particular Purchase Order is placed with Holdings, or if
the Product is a non-standard product, then according to the specifications
provided by BCC to Holdings from time to time (the "Specifications"). In the
--------------
event of an improvement or a technical change in the nature of the Products
required by BCC or any of its Affiliates, Holdings shall be required to provide
Products which meet such improved or changed Specifications. If Holdings is
unable within a reasonable period of time to provide Products conforming to the
improved or changed Specifications as required by this Section 1.2, then the
-----------
Commitment Amount that BCC is obligated under Section 1.1(a) to purchase will be
--------------
reduced accordingly, so long as a third party is able to supply such Products or
similar products conforming to the improved or changed Specifications.
1.3. Maintenance of Standards. If Holdings fails to maintain the quality,
------------------------
delivery or performance standards currently applicable to the Products, or fails
to achieve specified standards of quality or performance with respect to new
variations of the Products, then BCC shall not be required to purchase such
Products failing to meet such quality, delivery or performance standards and
the Commitment Amount that BCC is obligated under Section 1.1(a) to purchase
--------------
will be reduced accordingly.
1.4. Ordering. Each order by BCC for Products (a "Purchase Order") will
-------- --------------
specify the Products, the quantity, the appropriate Specifications corresponding
to such Products (if necessary), and the desired date of delivery, provided that
the number of days from the date of the Purchase Order through the date of
delivery is within the Lead Times. Holdings will either accept or, if such
Purchase Order does not meet the requirements of this Section 1.4, reject such
-----------
Purchase Order in writing, within 30 days of receipt thereof. If Holdings does
not so accept or reject the Purchase Order in writing within such 30-day period,
such order will be deemed accepted. Notwithstanding the foregoing, the parties
may agree to use a blanket purchase agreement with specific agreed call out
schedules in lieu of the foregoing ordering mechanism.
1.5. Delivery; Lead Times. (a) All Products will be delivered freight paid
--------------------
F.O.B. destination.
-2-
<PAGE>
(b) BCC reserves the right to inspect the Products and to confirm the quantity
of the Products within 30 days from the date of delivery. Any claims for
discrepant deliveries shall be reported by BCC to Holdings in writing within
such 30-day period. If BCC fails to make such a claim within the time specified,
such order will be deemed accepted by BCC. Upon Holdings receiving Notice from
BCC of such discrepancy, Holdings shall, at its expense, promptly correct such
discrepancy.
(c) Holdings shall manufacture and deliver the Products according to the lead
times set forth on Exhibit A attached hereto (the "Lead Times"), unless the
--------- ----------
Purchase Order specifies a longer period of time. Holdings undertakes to keep
BCC regularly informed of difficulties that Holdings expects in meeting BCC's
needs for prompt delivery in accordance with the Lead Times.
II. ADDITIONAL TERMS
----------------
2.1. Forecast: Pricing. (a) As soon as practicable after the date hereof, but
------------------
no later than 30 days after the date hereof, BCC will deliver to Holdings a
forecast setting forth BCC's anticipated requirements for the Products over the
succeeding six-month period, including quantity, Specifications, and delivery
requirements (the "Forecast"), which Forecast will be updated, as necessary, by
--------
BCC by the 15th day of each calendar month during the Term. The Forecast shall
be used for purposes of facilitating Holdings' manufacturing plans, but shall
not be binding upon BCC. Should BCC request deliveries of Products in amounts
materially greater than such estimates, Holdings will use commercially
reasonable efforts to provide delivery of such additional Products within the
Lead Times. but shall not be bound to make delivery within the Lead Times.
(b) The initial Unit Selling Price for each Product is listed in Exhibit A
---------
attached hereto. During the initial Period beginning the date hereof, Products
to be purchased by BCC from Holdings pursuant to this Agreement shall be sold to
BCC at the initial Unit Selling Prices therefor. Such Unit Selling Prices shall
be adjusted annually and from time to time, as set forth below in this Article
-------
II.
- ---
2.2. Annual Adjustment of Unit Selling Prices. (a) Holding's chief financial
----------------------------------------
officer (the "Financial Officer") shall review the Unit Selling Price and Cost
-----------------
of Sales (as defined below) for each Product promptly after the end of each
fiscal year of Holdings; provided, however, that the first such review shall be
-------- -------
conducted after April 6, 1996. The Financial Officer shall reasonably determine
in good faith, based upon a review of the books and records of Holdings and
Holding's audited financial statements for such fiscal year, the Cost of Sales
for each Product during such fiscal year, and shall
-3-
<PAGE>
calculate the Unit Selling Price for each Product in accordance with the
following formula (the "Adjustment Formula"):
------------------
Cost of Sales
----------------
Unit Selling Price = 1-.258
After calculating the Unit Selling Price for each Product, the Financial
Officer shall deliver a notice to BCC (an "Adjustment Notice") setting forth in
-----------------
reasonable detail (a) the Holding's proposed adjusted Unit Selling Prices (the
"Adjusted Prices") for the Products to take effect on the Adjustment Date (as
---------------
defined below), (b) the Cost of Sales for each Product used to calculate the
Adjusted Prices, and (c) the elements of the Cost of Sales for each Product. The
Adjustment Notice shall include a certification by the Financial Officer that
the Adjusted Prices were calculated in accordance with the Adjustment Formula.
For purposes hereof, "Cost of Sales" shall mean, with respect to any Product,
-------------
the cost of sales for such Product as determined by Holdings using the same
methodology that was used in calculating cost of goods sold of Products sold by
the Business prior to the date hereof; provided, however, that Cost of Sales
-------- -------
shall not incorporate increases in the components of the cost of goods sold
other than (i) costs increases that are generally applicable to other
manufacturers in the subfractional horsepower motors industry (the "Industry"),
--------
such as increased raw material costs, or (ii) cost increases contemplated by
Section 2.3; it being the understanding and agreement of the parties hereto that
- -----------
the Unit Selling Prices of the Products should be generally competitive with the
prices of comparable products sold by others in the Industry.
(b) BCC shall have 30 days after receipt by it of an Adjustment Notice to
review and object to the Financial Officer's calculations of the Adjusted Prices
or to any of the elements underlying such calculations. If BCC does not deliver
to Holdings a notice (the "Objection Notice") stating that BCC objects to such
----------------
Adjusted Prices within such 30-day period, then such Adjusted Prices shall be
deemed accepted by BCC. If BCC does so object, the parties in good faith shall
attempt to resolve their differences. Failing such a resolution within 30 days
after delivery of the Objection Notice, a nationally recognized independent
accounting firm that is not the regular auditing firm for BCC, Holdings or any
of their respective Affiliates (the "Firm") shall determine the Adjusted
----
Prices. The cost of such determination by the Firm shall be divided equally
between the parties.
For purposes hereof, the "Adjustment Date" shall mean the 45th day after
---------------
receipt by BCC of an Adjustment Notice; provided, however, that if BCC shall be
-------- -------
deemed to have delivered an Objection Notice pursuant to this Section then the
-4-
<PAGE>
"Adjustment Date" shall be the tenth day after the resolution by the parties or
---------------
determination by the Firm of the Adjusted Prices.
2.3. Cost Increases Resulting from Design or Other Change: Cost Decreases. If
--------------------------------------------------------------------
Holdings has incurred an increase in Cost of Sales for any Product as the direct
result of a design, engineering or other change in respect of such Product
requested by BCC, then Holdings may make an adjustment to the Unit Selling Price
for such Product to reflect the reasonable increase due to such change. If
Holdings has achieved a decrease in Cost of Sales for any Product for any
reason, then Holdings shall make an adjustment to the Unit Selling Price for
such Product to reflect the reasonable decrease due to such reason. Such cost
increase or cost decrease, as the case may be, shall be put in effect pursuant
to and in accordance with the Adjustment Notice mechanism set forth in Section
-------
2.2.
- ---
2.4. Terms of Sale. Holdings will invoice BCC for Products delivered to BCC
--------------
hereunder at the time of delivery. Each invoice will be itemized in reasonable
detail. BCC will pay to Holdings the amount of such invoice within 45 days of
the date of such invoice.
2.5. Warranty. (a) Holdings warrants that for a period of two years from the
--------
date of delivery to BCC the Products will be free from defects in material and
workmanship and shall meet the applicable Specifications. Upon BCC providing
Holdings' reasonable verification that a particular Product did not meet such
warranty, Holdings, shall, at its own expense and at its option, promptly refund
or replace any such defective Product.
(b) EXCEPT AS EXPRESSLY PROVIDED IN SECTIONS 2.5(a), AND 2.5(c): (i) HOLDINGS
--------------- ------
MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, AS TO
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR ANY OTHER MATTER WITH
RESPECT TO THE PRODUCTS, WHETHER USED ALONE OR IN COMBINATION WITH OTHER ITEMS;
(ii) BCC AGREES THAT ITS EXCLUSIVE REMEDY FOR ANY BREACH OF THE WARRANTY OF
HOLDINGS SET FORTH IN SECTION 2.5 (a) IS AS SET FORTH IN THE SECOND SENTENCE OF
---------------
SECTION 2.5(a); AND (iii) BCC FURTHER AGREES THAT IN NO EVENT SHALL HOLDINGS BE
- ---------------
LIABLE FOR INCIDENTAL, CONSEQUENTIAL, SPECIAL, INDIRECT OR EXEMPLARY DAMAGES,
WHETHER ON THE BASIS OF NEGLIGENCE, STRICT LIABILITY OR OTHERWISE. Except as
expressly provided in Sections 2.5(a) and 2.5(c), Holdings will not be liable
--------------- ------
for any personal injury or property damage resulting from the handling,
possession, use or sale of the Products by BCC or any third party.
-5-
<PAGE>
(c) In addition to the foregoing, Holdings will warrant the Products sold to
BCC or its Affiliates to the same extent as Holdings warrants such Products sold
to third parties.
2.6. Raw and Packaging Materials. Holdings will purchase and supply all raw
---------------------------
materials and packaging materials necessary for the manufacture of the Products.
Holdings will be responsible for the sampling and testing of all such raw
materials and packaging materials and for ensuring an adequate inventory of such
and materials to supply BCC's Products requirements scheduled in accordance with
Section 1.5.
- ------------
III. TERM, TERMINATION AND CONFIDENTIALITY
-------------------------------------
3.1. Term. The term of this Agreement will commence on the date hereof and
----
will expire five years from the date hereof unless sooner terminated pursuant to
Section 3.2 (the "Term").
- ----------- ----
3.2. Termination. (a) This Agreement may be terminated by either party at any
-----------
time and at its option if the other party should fail to perform any material
provision of this Agreement or commit a material breach of contract and such
failure or breach is not remedied within 30 days after prior Notice thereof.
(b) This Agreement shall terminate automatically without any further action by
either party if the other party should stop its payments generally, cease or
threaten to cease to carry on its business, become insolvent, make an authorized
assignment or bulk sale of its assets, propose a compromise or arrangement with
its creditors or otherwise take advantage of any law for the relief of debtors,
a receiver is appointed for any of the other party's assets, or any step or
proceeding is taken to have the other party declared bankrupt or be liquidated,
dissolved, wound up or reorganized.
(c) Holdings may terminate this Agreement at any time upon not less than 180
days' Notice to BCC.
(d) This Agreement may be terminated by BCC at any time and at its option upon
a breach or attempted breach by Holdings of Section 4.5.
-----------
(e) Termination under this Section 3.2 will be effected by Notice given by the
-----------
terminating party to the other party, except with respect to a situation
described in Section 3.2(b) where no Notice shall be required.
--------------
3.3. Rights Subsequent to Termination. Any termination of this Agreement shall
--------------------------------
not affect any of the rights of either party hereto which shall have arisen
prior to such termination.
-6-
<PAGE>
3.4. Confidentiality. (a) The parties acknowledge and agree that during
---------------
performance under this Agreement, each may receive and have access to the other
party's Confidential Information. The party receiving the Confidential
Information (the "Receiving Party") shall keep all such information
confidential and shall protect and safeguard the Confidential Information to
prevent the unauthorized use, dissemination or publication of the Confidential
Information, except as may be necessary by reason of legal, accounting or
regulatory requirements beyond the reasonable control of the Receiving Party.
All Confidential Information shall remain the exclusive property of the party
disclosing such information (the "Disclosing Party"). No license or right,
express or implied, is hereby conveyed or granted to any Receiving Party for any
invention, patent application, patent, copyright, know-how, trade secret, other
intellectual property right or application therefor of any Disclosing Party or
any of its Affiliates.
(b) The obligations imposed on each party under this Section 3.4 shall survive
-----------
for a period of three years following termination hereof, notwithstanding any
termination of this Agreement.
IV. MISCELLANEOUS
-------------
4.1. Notices. All notices, consents, requests, waivers or other communications
--------
required or permitted under this Agreement (each a "Notice") shall be in
------
writing and shall be (a) hand delivered, (b) sent by nationally recognized
overnight courier, or (c) sent by registered or certified mail, postage prepaid,
return receipt requested, and in each case addressed as follows:
If to Holdings, to: c/o Jordan Industries, Inc.
ArborLake Centre, Suite 550
Deerfield, Illinois 60015
Attention: Thomas H. Quinn, President and
Joseph C. Linnen, Manager of
Business Development
with a copy to: Bryan Cave LLP
1200 Main Street
Kansas City, Missouri 64105
Attention: G. Robert Fisher, Esq.
If to BCC, to: c/o Siebe Inc.
33 Commercial Street (B52-SI)
Foxboro, Massachusetts 02035-2099
Attention: Vice President - Finance
-7-
<PAGE>
with a copy to: Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: Sanford Krieger
or to such other address as shall be furnished by either of the parties in a
Notice. Any Notice shall be effective and deemed given upon receipt.
4.2. Force Majeure. Holdings shall not be liable for any failure to perform
-------------
its obligations under this Agreement to the extent that such performance has
been prevented, hindered or delayed as a result of:
(a) fire, explosion, breakdown of machinery, plant failure, strike, lockout,
labor dispute, casualty or accident, lack or failure in whole or in part of
transportation facilities, epidemic, cyclone, flood, act of God, drought, faulty
deliveries or delayed deliveries from subsuppliers, or lack or failure in whole
or in part of sources of supply of labor, raw materials or power;
(b) war or other international hostilities, civil war or other hostilities,
civil commotion, acts of public enemies, foreign or domestic blockages or
embargo;
(c) any law, order, proclamation, regulation, or deviance, demand, or
requirement of any government or any subdivision, authority or representative of
any such government; or
(d) any other acts whatsoever, whether similar or dissimilar to those
enumerated, beyond the control of Holdings.
Should Holdings wish to claim relief from its obligations hereunder by reason
of such prevention, restriction or interference, Holdings shall give Notice to
BCC, without delay, of the occurrence of such event or circumstance. The parties
promptly shall attempt to mitigate the effect of such event or circumstance, but
if such event or circumstance shall continue in existence for six months or
longer, either party may at any time thereafter terminate this Agreement upon
Notice to the other party.
In the event that Holdings' obligations are suspended or terminated pursuant
to the foregoing, the Commitment Amount shall be reduced accordingly.
4.3. Entire Agreement. This Agreement, including the exhibits attached hereto,
----------------
contains a complete statement of all the arrangements between the parties with
respect to its subject matter, supersedes and cancels any previous agreements
between them relating to that subject matter, whether written or oral, and
cannot be amended,
-8-
<PAGE>
modified or terminated except in a written document executed by each of the
parties hereto.
4.4. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Illinois, without giving effect to its
principles governing conflicts of law.
4.5. Binding Nature and Assignment. (a) Holdings shall not assign (including
-----------------------------
by operation of law or otherwise) this Agreement or its rights or obligations
hereunder in whole or in part without the prior consent of BCC; provided,
--------
however, that Holdings may assign its rights under this Agreement upon Notice to
- -------
BCC (i) to any of its Affiliates (it being understood and agreed, however, that
BCC shall be entitled to terminate this Agreement if such assignee under this
clause (i) shall cease at any time to be an Affiliate of Jordan Industries,
Inc., an Illinois corporation, or The Jordan Company, a New York general
partnership); or (ii) to the banks or other institutional lenders providing the
Purchaser Financing (as defined in the Purchase Agreement), provided that such
assignment is solely in connection with and as security for the Purchaser
Financing or any refinancing thereof. Any attempted assignment by Holdings of
this Agreement or any rights or obligations of Holdings hereunder in violation
of this Section 4.5(a) shall be null and void ab initio.
------------- -- ------
(b) BCC may, upon Notice to Holdings, assign any of its rights or obligations
under this Agreement to any of its Affiliates.
(c) Subject to the foregoing in this Section 4.5, this Agreement shall be
------------
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
4.6. Certain Definitions. (a) All capitalized terms used herein and not
-------------------
defined in this Section have the meanings assigned to them herein. When used
herein, the following terms shall have the meaning specified below:
"Affiliate" means with respect to any specified person, each person that
---------
Controls, is Controlled by or is under common Control with such specified
person. Without limiting the generality of the foregoing, "Affiliate" also shall
---------
mean, with respect to Holdings, each person that Controls, is Controlled by or
is under common Control with Jordan Industries, Inc., an Illinois corporation,
or The Jordan Company, a New York general partnership.
"Business Day" means any day on which banks are open or are authorized to open
------------
in the State of New York.
-9-
<PAGE>
"Commitment Amount" means, for each full Period, aggregate purchases of
-----------------
Products totaling $2,000,000; provided, however, that such amount shall be
-------- -------
reduced as provided herein; provided further, however, that such amount shall
-------- ------- -------
be appropriately prorated for any partial Period.
"Confidential Information" means any and all proprietary information that is
------------------------
disclosed by the Disclosing Party to the Receiving Party excluding the
information that: (i) is generally known in the industry in which the Disclosing
Party or its Affiliates does business; (ii) in any way does not relate to the
Disclosing Party's products, processes, services, inventions (whether patentable
or not), formulas, techniques or know-how, distribution systems and methods,
research, development, manufacturing, purchasing, accounting, engineering,
marketing, merchandising, pricing and selling; (iii) at the time of receipt is
known to the Receiving Party as shown by its written records; or (iv) becomes
known to the Receiving Party through others legally in possession of such
information and not under an obligation of confidence in respect of such
information.
"Control" of a person means the possession, directly or indirectly, of the
-------
power to direct or cause the direction of its management or policies, whether
through the ownership of voting securities, by contract or otherwise.
"Period" means the one-year period commencing on each March 8 and ending on
------
the next following March 7.
"person" means an individual, a corporation, a joint venture, a partnership, a
------
firm, an association, a limited liability company, a business trust or any other
legal entity.
"Products" means the specific subfractional horsepower motor and gearmotor
--------
products listed on Exhibit A attached hereto.
---------
"Unit Selling Price" means, for any Product, the unit selling price for such
------------------
Product as deterrnined in accordance with Article II.
(b) References in this Agreement to Articles, Exhibits and Schedules are to
articles and sections of, and exhibits to, this Agreement, unless otherwise
indicated.
4.7. Counterparts. This Agreement may be executed with counterpart signature
------------
pages or in counterparts, with the same force and effect as if all the
signatures were on one instrument.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
BCM HOLDINGS, INC.
By: /s/ Joseph C. Linnen
-------------------------
Joseph C. Linnen
Vice President
BARBER-COLMAN COMPANY
By: /s/ Paul Schuler
--------------------------
Paul Schuler
Treasurer
-11-
<PAGE>
EXHIBIT A
Date: 2/05/96
Initial
Unit
Selling
B-C PART NO. (CMP PART NO.) DESCRIPTION PRICE* LEAD TIME
================================================================================
(In Weeks)
ADDH-58-1 Stator Assembly 8
ADDH-59-3 Rotor Assembly 6
ADDH-59-4 Rotor Assembly 4
ADDH-60-900 Bearing Frame 6
LTSF-229-1 (A710-0300) Rotor Assembly 8
BDDH-36-5 (A780-352-9) Frame Assembly 4
LTSF-229-3 (A710-945) Rotor Assembly 4
FHAS-1002 (A710-949) Rotor Assembly 4
YAB-2331-2 (A720-146-9) I Bar W/Rivets 4
YAB-2330-10 (A720-145-9) A Bar W/Rivets 4
BDDH-3-3 Stator Assembly 4
BDDH-43-1 Stator Assembly 4
BDDH-44-1 Stator Assembly 4
BDDH-47-3 Stator Assembly 4
BDDH-50-1 Stator Assembly 6
BDDH-51-1 Stator Assembly 6
BDDH-52-3 Stator Assembly 6
BDDH-53-3 Stator Assembly 8
BDHE-32-910 Bobbin Assembly 6
BDHE-34-910 (A710-990) Rotor Assembly 8
BDHE-34-920 (A710-991) Rotor Assembly 8
BDHE-81-900 Solenoid Winding 6
BYRB-285-2 Self-Aligning Bearing 8
CDDH-6 Stator Assembly 4
CDDH-7 Stator Assembly 4
CDDH-9 Stator Assembly 8
CDDH-90 Stator Assembly 8
CDDH-91 Stator Assembly 8
CDDH-92 Stator Assembly 8
CYRD-339 Washer 8
DYAB-6107 Motor 6
DYAB-6107-1 Motor 4
DYAB-6107-2 Motor 6
DYAB-6107-3 Motor 6
DYAB-6107-10 Motor 8
DYAB-6328 Motor 8
DYAB-6328-2 Motor 6
DYAB-6328-3 Motor 6
DYAB-6328-8 Motor 6
DYAB-6328-9 Motor 6
DYAB-6328-15 Motor 6
DYAB-11052 Motor 6
<PAGE>
Date: 2/05/96
Initial
Unit
Selling
B-C PART NO. (CMP PART NO.) DESCRIPTION PRICE* LEAD TIME
================================================================================
(In Weeks)
DYAE-6330-0-1 Motor 6
DYAE-6330-1-1 Motor 6
DYAE-6330-2-1 Motor 4
DYAE-6330-5-1 Motor 6
DYAE-6330-6-1 Motor 6
DYAE-6330-7-1 Motor 6
DYAE-6330-10-1 Motor 6
DYAE-6330-11-1 Motor 6
DYAE-6330-13-1 Motor 6
DYAE-6330-14 Motor 6
DYAE-6330-22 Motor 6
DYAE-6330-25 Motor 6
DYAE-6330-26 Motor 6
DYAE-6392-0-1 Motor 4
DYAE-6392-1-1 Motor 6
DYAE-6392-3-1 Motor 6
DYAE-6484-0-1 Motor 6
DYAE-6485-0-1 Motor 4
DYAE-6485-4 Motor 6
DYAE-6485-5 Motor 6
DYAE-6486-0-1 Motor 8
DYAE-6491-0-1 Motor 6
DYAE-6491-1-1 Motor 8
DYAE-6493-0-1 Motor 8
DYAE-11207-0-1 Motor 8
DYAE-13629 Motor 8
DYAE-13629-1 Motor 8
DYAE-13629-2 Motor 8
KYAB-6109 Motor 4
KYAB-6109-1 Motor 4
KYAB-6109-2 Motor 6
KYAB-6109-3 Motor 8
KYAB-6109-6 Motor 8
KYAB-6109-7 Motor 8
KYAB-6109-8 Motor 6
KYAB-6109-9 Motor 8
KYAB-6329 Motor 4
KYAB-6329-1 Motor 8
KYAB-6329-2 Motor 8
KYAB-6329-5 Motor 8
KYAB-9785 Motor 8
KYAB-13138 Motor 8
<PAGE>
Date: 2/05/96
Initial
Unit
Selling
B-C PART NO. (CMP PART NO.) DESCRIPTION PRICE* LEAD TIME
================================================================================
(In Weeks)
KYAB-13143 Motor 8
KYAB-13146-1 Motor 8
KYAB-13148 Motor 6
KYAB-13149 Motor 8
KYAB-13150 Motor 8
KYAB-13151 Motor 8
KYAB-13151-1 Motor 8
KYAB-13151-2 Motor 8
KYAE-13151-10 Motor 8
KYAE-11021-1-1 Motor 6
KYAE-11021-3-1 Motor 8
KYAE-11021-4-1 Motor 8
KYAE-11021-5-1 Motor 8
KYAE-11021-6-1 Motor 4
KYAE-11021-7-1 Motor 8
KYAE-11021-8-1 Motor 8
KYAF-6252-1 Motor 6
KYAF-6252-2 Motor 8
KYAF-6293-1 Motor 6
V-4209-10 Gear Cluster 8
* -Confidential treatment requested for this information
<PAGE>
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ ---------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed charges:
Interest expense......... $ 0 $ 0 $ 0 $ 0 $ 1,902 $ 0 $ 6,684
Rental expense included
in fixed charges........ 280 280 291 297 282 211 418
------ ------ ------ ------- ------- ------- -------
Total fixed charges..... 280 280 291 297 2,184 211 7,102
------ ------ ------ ------- ------- ------- -------
Earnings:
Pre-tax (loss) income.... 5,988 7,045 8,265 12,092 12,405 11,888 5,685
Plus: fixed charges...... 280 280 291 297 2,184 211 7,102
------ ------ ------ ------- ------- ------- -------
Total earnings.......... $6,268 $7,325 $8,556 $12,389 $14,589 $12,099 $12,787
------ ------ ------ ------- ------- ------- -------
Ratio of earnings to fixed
charges.................. 22.4 26.2 29.4 41.7 6.7 57.3 1.8
====== ====== ====== ======= ======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 22
SUBSIDIARIES OF THE REGISTRANT
Subsidiary State of Incorporation
- ---------- ----------------------
Motors and Gears Industries, Inc. Delaware
Merkle-Korff Indutries, Inc. Illinois
BCM Holdings, Inc. Illinois
The New Imperial Electric Company Delaware
The New Scott Motors Company Delaware
New Gear Research, Inc. Delaware
<PAGE>
Exhibit 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Historical Financial Data" and "Experts" and to the use of our report dated
February 23, 1996, except for Note 9, as to which the date is March 8, 1996,
on the consolidated balance sheet of Motors and Gears, Inc. (formerly MK
Group, Inc.) as of December 31, 1995, and the related consolidated statements
of income, changes in shareholder's equity, and cash flows for the period from
September 23, 1995 to December 31, 1995; our report dated February 23, 1996 on
the combined balance sheet of Merkle-Korff Industries, Inc., Mercury
Industries, Inc., and Elmco Industries, Inc. as of December 31, 1994, and the
related combined statements of income and retained earnings and cash flows for
the years ended December 31, 1993 and 1994 and the period from January 1, 1995
to September 22, 1995; our report dated January 19, 1996 on the balance sheets
of Barber-Colman Company - Barber-Colman Motors Division as of March 31, 1995
and December 31, 1995, and the related statements of divisional operations and
cash flows for the year ended March 31, 1995 and the nine month period ended
December 31, 1995; our report dated October 1, 1996 on the consolidated
balance sheets of The Imperial Electric Company and subsidiaries as of
December 31, 1994 and 1995, and the related consolidated statements of income,
shareholder's equity, and cash flows for each of the three years in the period
ended December 31, 1995; and our report dated November 25, 1996 on the
supplemental consolidated balance sheet of Motors and Gears, Inc. (formed as a
result of the combination of Motors and Gears, Inc. and The Imperial Electric
Company and subsidiaries) as of December 31, 1995, and the related
supplemental consolidated statement of income, shareholder's equity, and cash
flows for the period from September 23, 1995 to December 31, 1995; in the
Registration Statement (Form S-4 No. 333- ) and related Prospectus of
Motors and Gears, Inc. for the registration of $170,000,000 of its 10 3/4%
Series B Notes due 2006.
Ernst & Young LLP
Chicago, Illinois
January 2, 1997
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the use of our report dated February 23, 1996, on the
consolidated financial statement schedule of Motors and Gears, Inc. (formerly
MK Group, Inc.) as of December 31, 1995, and for the period from September 23,
1995 to December 31, 1995; and on the combined financial statement schedule of
Merkle-Korff Industries, Inc., Mercury Industries, Inc., and Elmco Industries,
Inc. as of December 31, 1994, and for the years ended December 31, 1993 and
1994 and the period from January 1, 1995 to September 22, 1995; in the
Registration Statement (Form S-4 No. xx-xxxxxx) and related Prospectus of
Motors and Gears, Inc. for the registration of $170,000,000 of its 10 3/4%
Series B Senior Notes due 2006.
Ernst & Young LLP
Chicago, Illinois
January 2, 1997
<PAGE>
EXHIBIT 25
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM T-1
----------
STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE
TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
----------
/ / CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)
FLEET NATIONAL BANK
---------------------------------------------------------
(Exact name of trustee as specified in its charter)
<TABLE>
<S> <C>
Not applicable 04-317415
- ------------------------------- -----------------------------
(State of incorporation (I.R.S. Employer
if not a national bank) Identification No.)
One Monarch Place, Springfield, MA 01102
- ---------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Pat Beaudry, 777 Main Street, Hartford, CT 06115 (860) 728-2065
--------------------------------------------------------------
(Name, address and telephone number of agent for service)
Motors and Gears, Inc.
---------------------------------------------------
(Exact name of obligor as specified in its charter)
<TABLE>
<S> <C>
Delaware 36-4109641
- ------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1751 Lake Look Road, Deerfield, Illinois 60015
- ---------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
10 3/4% Series B Senior Notes due 2006
------------------------------------------------------------------
(Title of the indenture securities)
<PAGE>
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject,
The Comptroller of the Currency,
Washington, D.C.
Federal Reserve Bank of Boston
Boston, Massachusetts
Federal Deposit Insurance Corporation
Washington, D.C.
(b) Whether it is authorized to exercise
corporate trust powers:
The trustee is so authorized.
Item 2. Affiliations with obligor and underwriter. If the obligor or
any underwriter for the obligor is an affiliate of the trustee,
describe each such affiliation.
None with respect to the trustee.
Item 16. List of exhibits.
List below all exhibits filed as a part of this statement of
eligibility and qualification.
(1) A copy of the Articles of Association of the trustee as
now in effect.
(2) A copy of the Certificate of Authority of the trustee
to do business.
(3) A copy of the Certification of Fiduciary Powers of the
trustee.
(4) A copy of the By-Laws of the trustee as now in effect.
(5) Consent of the trustee required by Section 321(b)
of the Act.
(6) A copy of the latest Consolidated Reports of Condition and
Income of the trustee published pursuant to law or the
requirements of its supervising or examining authority.
NOTES
In as much as this Form T-1 is filed prior to the ascertainment by the trustee
of all facts on which to base answers to Item 2, the answers to said Items are
based upon imcomplete information. Said Items may, however, be considered
correct unless amended by an amendment to this Form T-1.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939,
the trustee, Fleet National Bank, a national banking association organized and
existing under the laws of the United States, has duly caused this statement of
of eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Hartford, and State of
Connecticut, on the 27th day of November 1996.
FLEET NATIONAL BANK,
AS TRUSTEE
By: /s/ Jacqueline Connor
-------------------------
Its: Assistant Vice President
<PAGE>
EXHIBIT 1
ARTICLES OF ASSOCIATION
OF
FLEET NATIONAL BANK
FIRST. The title of this Association, which shall carry on the business of
banking under the laws of the United States, shall be "Fleet National Bank."
SECOND. The main office of the Association shall be in Springfield, Hampden
County Commonwealth of Massachusetts. The general business of the Association
shall be conducted at its main office and its branches.
THIRD. The board of directors of this Association shall consist of not less than
five (5) nor more than twenty-five (25) shareholders, the exact number of
directors within such minimum and maximum limits to be fixed and determined from
time to time by resolution of a majority of the full board of directors or by
resolution of the shareholders at any annual or special meeting thereof. Unless
otherwise provided by the laws of the United States, any vacancy in the board of
directors for any reason, including an increase in the number thereof, may be
filled by action of the board of directors.
FOURTH. The annual meeting of the shareholders for the election of directors and
the transaction of whatever other business may be brought before said meeting
shall be held at the main office or such other place as the board of directors
may designate, on the day of each year specified therefore in the bylaws, but if
no election is held on that day, it may be held on any subsequent day according
to the provisions of law; and all elections shall be held according to such
lawful regulations as may be prescribed by the board of directors.
FIFTH. The authorized amount of capital stock of this Association shall be eight
million five hundred thousand (8,500,000) shares of which three million five
hundred thousand (3,500,000) shares shall be common stock with a par value of
six and 25/100 dollars ($6.25) each, and of which five million (5,000,000)
shares without par value shall be preferred stock. The capital stock may be
increased or decreased from time to time, in accordance with the provisions of
the laws of the United States.
No holder of shares of the capital stock of any class of the Association shall
have any pre-emptive or preferential right of subscription to any shares of any
class of stock of the Association, whether now or hereafter authorized, or to
any obligations convertible into stock of the Association, issued or sold, nor
any right of subscription to any thereof other than such, if any, as the board
of directors, in its discretion, may from time to time determine and at such
price as the board of directors may from time to time fix.
<PAGE>
The board of directors of the Association is authorized, subject to limitations
prescribed by law and the provisions of this Article, to provide for the
issuance from time to time in one or more series of any number of the preferred
shares, and to establish the number of shares be included in each series, and to
fix the designation, relative rights, preferences, qualifications and
limitations of the shares of each such series. The authority of the board of
directors with respect to each series shall include, but not be limited to,
determination of the following:
a. The number of shares constituting that series and the distinctive
designation of that series;
b. The dividend rate on the shares of that series, whether dividends shall be
cumulative, and, if so, from which date or dates, and whether they shall be
payable in preference to, or in another relation to, the dividends payable
to any other class or classes or series of stock;
c. Whether that series shall have voting rights, in addition to the voting
rights provided by law, and, if so, the terms of such voting rights;
d. Whether that series shall have conversion or exchange privileges, and, if
so, the terms and conditions of such conversion or exchange, including
provision for the adjustment of the conversion or exchange rate in such
events as the board of directors shall determine;
e. Whether or not the shares of that series shall be redeemable, and, if so,
the terms and conditions of such redemption, including the manner of
selecting shares for redemption if less than all shares are to be redeemed,
the date or dates upon or after which they shall be redeemable, and the
amount per share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates;
f. Whether that series shall be entitled to the benefit of a sinking fund to
be applied to the purchase or redemption of shares of that series, and, if
so, the terms and amounts of such sinking fund;
g. The right of the shares of that series to the benefit of conditions and
restrictions upon the creation of indebtedness of the Association or any
subsidiary, upon the issue of any additional stock (including additional
shares of such series or of any other series) and upon the payment of
dividends or the making of other distributions on, and the purchase,
redemption or other acquisition by the Association or any subsidiary of any
outstanding stock of the Association;
h. The right of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Association and
whether such rights shall be in preference to, or in another relation to,
the comparable rights of any other class or classes or series of stock; and
i. Any other relative, participating, optional or other special rights,
qualifications, limitations or restrictions of that series.
Shares of any series of preferred stock which have been redeemed (whether
through the operation of a sinking fund or otherwise) or which, if convertible
or exchangeable, have been converted into or exchanged for shares of stock of
any other class or classes shall have the status of authorized and unissued
shares of preferred stock of the same series and may be reissued as a part of
the series of which they were originally a part or may be reclassified and
reissued as part of a new series of preferred stock to be created by resolution
or resolutions of the board of directors or as part of any other series or
preferred stock, all subject to the conditions and the restrictions adopted by
the board of directors providing for the issue of any series of preferred stock
and by the provisions of any applicable law.
Subject to the provisions of any applicable law, or except as otherwise provided
by the resolution or resolutions providing for the issue of any series of
preferred stock, the holders of outstanding shares of common stock shall
exclusively possess voting power for the election of directors and for all
purposes, each holder of record of shares of common stock being entitled to one
vote for each share of common stock standing in his name on the books of the
Association.
Except as otherwise provided by the resolution or resolutions providing for the
issue of any series of preferred stock, after payment shall have been made to
the holders of preferred stock of the full amount of dividends to which they
shall be entitled pursuant to the resolution or resolutions providing for the
issue of any other series of preferred stock, the holders of common stock shall
be entitled, to the exclusion of the holders of preferred stock of any and all
series, to receive such dividends as from time to time may be declared by the
board of directors.
Except as otherwise provided by the resolution or resolutions for the issue of
any series of preferred stock, in the event of any liquidation, dissolution or
winding up of the Association, whether voluntary or involuntary, after payment
shall have been made to the holders of preferred stock of the full amount to
which they shall be entitled pursuant to the resolution or resolutions providing
for the issue of any series of preferred stock the holders of common stock shall
be entitled, to the exclusion of the holders of preferred stock of any and all
series, to share, ratable according to the number of shares of common stock held
by them, in all remaining assets of the Association available for distribution
to its shareholders.
The number of authorized shares of any class may be increased or decreased by
the affirmative vote of the holders of a majority of the stock of the
Association entitled to vote.
<PAGE>
SIXTH. The board of directors shall appoint one of its members president of this
Association, who shall be chairman of the board, unless the board appoints
another director to be the chairman. The board of directors shall have the power
to appoint one or more vice presidents; and to appoint a secretary and such
other officers and employees as may be required to transact the business of this
Association.
The board of directors shall have the power to define the duties of the officers
and employees of the Association; to fix the salaries to be paid to them; to
dismiss them; to require bonds from them and to fix the penalty thereof; to
regulate the manner in which any increase of the capital of the Association
shall be made; to manage and administer the business and affairs of the
Association; to make all bylaws that it may be lawful for them to make; and
generally to do and perform all acts that it may be legal for a board of
directors to do and perform.
SEVENTH. The board of directors shall have the power to change the location of
the main office to any other place within the limits of the City of Hartford,
Connecticut, without the approval of the shareholders but subject to the
approval of the Comptroller of the Currency; and shall have the power to
establish or change the location of any branch or branches of the Association to
any other location, without the approval of the shareholders but subject to the
approval of the Comptroller of the Currency.
EIGHTH. The corporate existence of this Association shall continue until
terminated in accordance with the laws of the United States.
NINTH. The board of directors of this Association, or any three or more
shareholders owning, in the aggregate, not less than ten percent (10%) of the
stock of this Association, may call a special meeting of shareholders at any
time. Unless otherwise provided by the laws of the United States, a notice of
the time, place and purpose of every annual and special meeting of the
shareholders shall be given by first class mail, postage prepaid, mailed at
least ten (10) days prior to the date of such meeting to each shareholder of
record at his address as shown upon the books of this Association.
TENTH. (a) Right to Indemnification. Each person who was or is made a party or
is threatened to be made a party to any threatened, pending or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
director, officer or employee of the Association or is or was serving at the
request of the Association as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, limited liability company,
trust, or other enterprise, including service with respect to an employee
benefit plan, shall be indemnified and held harmless by the Association to the
fullest extent authorized by the law of the state in which the Association's
ultimate parent company is incorporated, except as provided in subsection (b).
The aforesaid indemnity shall protect the indemnified person against all
expense, liability and loss (including attorney's fees, judgements, fines ERISA
excise taxes or penalties, and amounts paid in settlement) reasonably incurred
by such person in connection with such a proceeding. Such indemnification shall
continue as to a person who has ceased to be a director, officer or employee and
shall inure to the benefit of his or her heirs, executors, and administrators,
but shall only cover such person's period of service with the Association. The
Association may, by action of its Board of Directors, grant rights to
indemnification to agents of the Association and to any director, officer,
employee or agent of any of its subsidiaries with the same scope and effect as
the foregoing indemnification of directors and officers.
(b) Restrictions on Indemnification. Notwithstanding the foregoing, (i) no
person shall be indemnified hereunder by the Association against expenses,
penalties, or other payments incurred in an administrative proceeding or action
instituted by a federal bank regulatory agency which proceeding or action
results in a final order assessing civil money penalties against that person,
requiring affirmative action by that person in the form of payments to the
Association, or removing or prohibiting that person from service with the
Association, and any advancement of expenses to that person in that proceeding
must be repaid; and (ii) no person shall be indemnified hereunder by the
Association and no advancement of expenses shall be made to any person hereunder
to the extent such indemnification or advancement of expenses would violate or
conflict with any applicable federal statute now or hereafter in force or any
applicable final regulation or interpretation now or hereafter adopted by the
Office of the Comptroller of the Currency ("OCC") or the Federal Deposit
Insurance Corporation ("FDIC"). The Association shall comply with any
requirements imposed on it by any such statue or regulation in connection with
any indemnification or advancement of expenses hereunder by the Association.
With respect to proceedings to enforce a claimant's rights to indemnification,
the Association shall indemnify any such claimant in connection with such a
proceeding only as provided in subsection (d) hereof.
(c) Advancement of Expenses. The conditional right to indemnification conferred
in this section shall be a contract right and shall include the right to be paid
by the Association the reasonable expenses (including attorney's fees) incurred
in defending a proceeding in advance of its final disposition (an "advancement
of expenses"); provided, however, that an advancement of expenses shall be made
only upon (i) delivery to the Association of a binding written undertaking by or
on behalf of the person receiving the advancement to repay all amounts so
advanced if it is ultimately determined that such person is not entitled to be
indemnified in such proceeding, including if such proceeding results in a final
order assessing civil money penalties against that person, requiring affirmative
action by that person in the form of payments to the Association, or removing or
prohibiting that person from service with the Association, and (ii) compliance
with any other actions or determinations required by applicable law, regulation
or OCC or FDIC interpretation to be taken or made by the Board of Directors of
the Association
<PAGE>
or other persons prior to an advancement of expenses. The Association shall
cease advancing expenses at any time its Board of Directors believes that any of
the prerequisites for advancement of expenses are no longer being met.
(d) Right of Claimant to Bring Suit. If a claim under subsection (a) of the
section is not paid in full by the Association within thirty (30) days after
written claim has been received by the Association, the claimant may at any time
thereafter bring suit against the Association to recover the unpaid amount of
the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Association to recover an advancement of expenses pursuant to the
terms of an undertaking, the claimant shall be entitled to be paid also the
expense of prosecuting or defending such claim. It shall be a defense to any
such action brought by the claimant to enforce a right to indemnification
hereunder (other than an action brought to enforce a claim for an advancement of
expenses where the required undertaking, if any, has been tendered to the
Association) that the claimant has not met any applicable standard for
indemnification under the law of the state in which the Association's ultimate
parent company is incorporated. In any suit brought by the Association to
recover an advancement of expenses pursuant to the terms of an undertaking, the
Association shall be entitled to recover such expenses upon a final adjudication
that the claimant has not met any applicable standard for indemnification
standard for indemnification under the law of the state in which the
Association's ultimate parent company is incorporated.
(e) Non-Exclusivity of Rights. The rights to indemnification and the advancement
of expenses conferred in this section shall not be exclusive of any other right
which any person may have or hereafter acquired under any statute, agreement,
vote of stockholders or disinterested directors or otherwise.
(f) Insurance. The Association may purchase, maintain, and make payment or
reimbursement for reasonable premiums on, insurance to protect itself and any
director, officer, employee or agent of the Association or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Association would have the power to
indemnify such person against such expense, liability or loss under the law of
the state in which the Association's ultimate parent company is incorporated;
provided however, that such insurance shall explicitly exclude insurance
coverage for a final order of a federal bank regulatory agency assessing civil
money penalties against an Association director, officer, employee or agent.
ELEVENTH. These articles of association may be amended at any regular or special
meeting of the shareholders by the affirmative vote of the holders of a majority
of the stock of this Association, unless the vote of the holders of greater
amount of stock is required by law, and in that case by the vote of the holders
of such greater amount. The notice of any shareholders' meeting at which an
amendment to the articles of association of this Association is to be considered
shall be given as hereinabove set forth.
I hereby certify that the articles of association of this Association, in their
entirety, are listed above in items first through eleventh.
Secretary/Assistant Secretary
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Dated at , as of .
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Revision of February 15, 1996
<PAGE>
EXHIBIT 2
[LOGO]
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COMPTROLLER OF THE CURRENCY
ADMINISTRATOR OF NATIONAL BANKS
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Washington, D.C. 20219
CERTIFICATE
I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify
that:
(1) The Comptroller of the Currency, pursuant to Revised Statutes 324, et
seq., as amended, 12 U.S.C. 1, et seq., as amended, has possession, custody and
control of all records pertaining to the chartering, regulation and supervision
of all National Banking Associations.
(2) "Fleet National Bank of Connecticut", Hartford, Connecticut,
(Charter No. 1338), is a National Banking Association formed under the
laws of the United States and is authorized thereunder to transact the business
of banking on the date of this Certificate.
IN TESTIMONY WHEREOF, I have hereunto
subscribed my name and caused my seal of
office to be affixed to these presents at
the Treasury Department, in the City of
Washington and District of Columbia, this
4th day of April, 1996.
/s/ EUGENE A. LUDWIG
----------------------------------
Comptroller of the Currency
<PAGE>
EXHIBIT 2
[LOGO]
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COMPTROLLER OF THE CURRENCY
ADMINISTRATOR OF NATIONAL BANKS
- --------------------------------------------------------------------------------
Washington, D.C. 20219
Certification of Fiduciary Powers
I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify the records
in this Office evidence "Fleet National Bank of Connecticut", Hartford,
Connecticut, (Charter No. 1338), was granted, under the hand and seal of the
Comptroller, the right to act in all fiduciary capacities authorized under the
provisions of The Act of Congress approved September 28, 1962, 76 Stat. 668, 12
U.S.C. 92a. I further certify the authority so granted remains in full force and
effect.
IN TESTIMONY WHEREOF, I have hereunto
subscribed my name and caused my seal of
Office of the Comptroller of the Currency
to be affixed to these presents at the
Treasury Department, in the City of
Washington and District of Columbia, this
4th day of April, 1996.
/s/ EUGENE A. LUDWIG
----------------------------------
Comptroller of the Currency
<PAGE>
EXHIBIT 4
AMENDED AND RESTATED BY-LAWS OF
FLEET NATIONAL BANK
ARTICLE I
MEETINGS OF SHAREHOLDERS
Section 1. Annual Meeting. The regular annual meeting of the shareholders for
the election of Directors and the transaction of any other business that may
properly come before the meeting shall be held at the Main Office of the
Association, or such other place as the Board of Directors may designate, on the
fourth Thursday of April in each year at 1:15 o'clock in the afternoon unless
some other hour of such day is fixed by the Board of Directors.
If, from any cause, an election of Directors is not made on such day, the Board
of Directors shall order the election to be held on some subsequent day, of
which special notice shall be given in accordance with the provisions of law,
and of these bylaws.
Section 2. Special Meetings. Special meetings of the shareholders may be called
at any time by the Board of Directors, the President, or any shareholders
owning not less than twenty-five percent (25%) of the stock of the Association.
Section 3. Notice of Meetings of Shareholders. Except as otherwise provided by
law, notice of the time and place of annual or special meetings of the
shareholders shall be mailed, postage prepaid, at least ten (10) days before the
date of the meeting to each shareholder of record entitled to vote thereat at
his address as shown upon the books of the Association; but any failure to mail
such notice to any shareholder or any irregularity therein, shall not affect the
validity of such meeting or of any of the proceedings thereat. Notice of a
special meeting shall also state the purpose of the meeting.
Section 4. Quorum; Adjourned Meetings. Unless otherwise provided by law, a
quorum for the transaction of business at every meeting of the shareholders
shall consist of not less than two-fifths (2/5) of the outstanding capital stock
represented in person or by proxy; less than such quorum may adjourn the meeting
to a future time. No notice need be given of an adjourned annual or special
meeting of the shareholders if the adjournment be to a definite place and time.
Section 5. Votes and Proxies. At every meeting of the shareholders, each share
of the capital stock shall be entitled to one vote except as otherwise provided
by law. A majority of the votes cast shall decide every question or matter
submitted to the shareholder at any meeting, unless otherwise provided by law or
by the Articles of Association or these By-laws. Shareholders may vote by
proxies duly authorized in writing and filed with the Cashier, but no officer,
clerk, teller or bookeeper of the Association may act as a proxy.
<PAGE>
Section 6. Nominations to Board of Directors. At any meeting of shareholders
held for the election of Directors, nominations for election to the Board of
Directors may be made, subject to the provisions of this section, by any
shareholder of record of any outstanding class of stock of the Association
entitled to vote for the election of Directors. No person other than those whose
names are stated as proposed nominees in the proxy statement accompanying the
notice of the meeting may be nominated as such meeting unless a shareholder
shall have given to the President of the Association and to the Comptroller of
the Currency, Washington, DC written notice of intention to nominate such other
person mailed by certified mail or delivered not less than fourteen (14) days
nor more than fifty (50) days prior to the meeting of shareholders at which such
nomination is to be made; provided, however, that if less than twenty-one (21)
days' notice of such meeting is given to shareholders, such notice of
intention to nominate shall be mailed by certified mail or delivered to said
President and said Comptroller on or before the seventh day following the day on
which the notice of such meeting was mailed. Such notice of intention to
nominate shall contain the following information to the extent known to the
notifying shareholder: (a) the name and address of each proposed nominee; (b)
the principal occupation of each proposed nominee; (c) the total number of
shares of capital stock of the Association that will be voted for each proposed
nominee; (d) the name and residence address of the notifying shareholder; and
(e) the number of shares of capital stock of the Association owned by the
notifying shareholder. In the event such notice is given, the proposed nominee
may be nominated either by the shareholder giving such notice or by any other
shareholder present at the meeting at which such nomination is to be made. Such
notice may contain the names of more than one proposed nominee, and if more than
one is named, any one or more of those named may be nominated.
Section 7. Action Taken Without a Shareholder Meeting. Any action requiring
shareholder approval or consent may be taken without a meeting and without
notice of such meeting by written consent of the shareholders.
ARTICLE II
DIRECTORS
Section 1. Number. The Board of Directors shall consist of such number of
shareholders, not less than five (5) nor more than twenty-five (25), as from
time to time shall be determined by a majority of the votes to which all of its
shareholders are at the time entitled, or by the Board of Directors as
hereinafter provided.
Section 2. Mandatory Retirement for Directors. No person shall be elected a
director who has attained the age of 68 and no person shall continue to serve as
a director after the date of the first meeting of the stockholders of the
Association held on or after the date on which such person attains the age of
68; provided, however, that any director serving on the Board as of December 15,
1995 who has attanined the age of 65 on or prior to such date shall be permitted
to continue to serve as a director until the date of the first meeting of the
stockholders of the Association held on or after the date on which such person
attains the age of 70.
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<PAGE>
Section 3. General Powers. The Board of Directors shall exercise all the
coporate powers of the Association, except as expressly limited by law, and
shall have the control, management, direction and dispositon of all its property
and affairs.
Section 4. Annual Meeting. Immediately following a meeting of shareholders held
for the election of Directors, the Cashier shall notify the directorselect who
may be present of their election and they shall then hold a meeting at the Main
Office of the Association, or such other place as the Board of Directors may
designate, for the purpose of taking their oaths, organizing the new Board,
electing officers and transacting any other business that may come before such
meeting.
Section 5. Regular Meeting. Regular meetings of the Board of Directors shall be
held without notice at the Main Office of the Association, or such other place
as the Board of Directors may designate, at such dates and times as the Board
shall determine. If the day designated for a regular meeting falls on a legal
holiday, the meeting shall be held on the next business day.
Section 6. Special Meetings. A special meeting of the Board of Directors may
be called at anytime upon the written request of the Chairman of the Board, the
President, or of two Directors, stating the purpose of the meeting. Notice of
the time and place shall be given not later than the day before the date of the
meeting, by mailing a notice to each Director at his last known address, by
delivering such notice to him personally, or by telephoning.
Section 7. Quorum; Votes. A majority of the Board of Directors at the time
holding office shall constitute a quorum for the transaction of all business,
except when otherwise provided by law, but less than a quorum may adjourn a
meeting from time to time, and the meeting may be held, as adjourned, without
further notice. If a quorum is present when a vote is taken, the affirmative
vote of a majority of Directors present is the act of the Board of Directors.
Section 8. Action by Directors Without a Meeting. Any action requiring Director
approval or consent may be taken without a meeting and without notice of such
meeting by written consent of all the Directors.
Section 9. Telephonic Participation in Directors' Meetings. A Director or member
of a Committee of the Board of Directors may participate in a meeting of the
Board or of such Committee may participate in a meeting of the Board or of such
Committee by means of a conference telephone or similar communications equipment
enabling all Directors participating in the meeting to hear one another, and
participation in such a meeting shall constitute presence in person at such a
meeting.
Section 10. Vacancies. Vacancies in the Board of Directors may be filled by
the remaining members of the Board at any regular or special meeting of the
Board.
Section 11. Interim Appointments. The Board of Directors shall, if the
shareholders at any meeting for the election of Directors have determined a
number of Directors less than twenty-five (25), have the power, by affirmative
vote of the majority of all the Directors, to increase such number of Directors
to not more than twenty-five (25) and to elect Directors to fill the resulting
vacancies and to serve until the next annual meeting of shareholders or the next
election of Directors; provided, however, that the number of Directors shall not
be so increased by more than two (2) if the number last determined by
shareholders was fifteen (15) or less, or increased by more than four (4) if the
number last determined by shareholders was sixteen (16) or more.
Section 12. Fees. The Board of Directors shall fix the amount and direct the
payment of fees which shall be paid to each Director for attendance at any
meeting of the Board of Directors or of any Committees of the Board.
ARTICLE III
COMMITTEES OF THE BOARD
Section 1. Executive Committee. The Board of Directors shall appoint from its
members an Executive Committee which shall consist of such number of persons as
the Board of Directors shall determine; the Chairman of the Board and the
President shall be members ex-officio of the Executive Committee with full
voting power. The Chairman of the Board or the President may from time to time
appoint from the Board of Directors as temporary additional members of the
Executive Committee, with full voting powers, not more than two members to serve
for such periods as the Chairman of the Board or the President may determine.
The Board of Directors shall designate a member of the Executive Committee to
serve as Chairman thereof. A meeting of the Executive Committee may be called at
any time upon the written request of the Chairman of the Board, the President or
the Chairman of the Executive Committee, stating the purpose of the meeting. Not
less than twenty four hours' notice of said meeting shall be given to each
member of the Committee personally, by telephoning, or by mail. The Chairman of
the Executive Committee or, in his absence, a member of the Committee chosen by
a majority of the members present shall preside at meetings of the Executive
Committee.
-3-
<PAGE>
The Executive Committee shall possess and may exercise all the powers of the
Board when the Board is not in session except such as the Board, only, by law,
is authorized to exercise; it shall keep minutes of its acts and proceedings and
cause same to be presented and reported at every regular meeting and at any
special meeting of the Board including specifically, all its actions relating to
loans and discounts.
All acts done and powers and authority conferred by the Executive Committee,
from time to time, within the scope of its authority, shall be deemed to be, and
may be certified as being, the acts of and under the authority of the Board.
Section 2. Risk Management Committee. The Board shall appoint from its members a
Risk Management Committee which shall consist of such number as the Board shall
determine. The Board shall designate a member of the Risk Management Committee
to serve as Chairman thereof. It shall be the duty of the Risk Management
Committee to (a) serve as the channel of communication with management and the
Board of Directors of Fleet Financial Group, Inc. to assure that formal
processes supported by management information systems are in place for the
identification, evaluation and management of significant risks inherent in or
associated with lending activities, the loan portfolio, asset-liablity
management, the investment portfolio, trust and investment advisory activities,
the sale of nondeposit investment products and new products and services and
such additional activities or functions as the Board may determine from time to
time; (b) assure the formulation and adoption of policies approved by the Risk
Management Committee or Board governing lending activities, management of the
loan portfolio, the maintenance of an adequate allowance for loan and lease
losses, asset-liability management, the investment portfolio, the retail sale of
non-deposit investment products, new products and services and such additional
activities or functions as the Board may determine from time to time (c) assure
that a comprehensive independent loan review program is in place for the early
detection of problem loans and review significant reports of the loan review
department, management's responses to those reports and the risk attributed to
unresolved issues; (d) subject to control of the Board, exercise general
supervision over trust activities, the investment of trust funds, the
disposition of trust investments and the acceptance of new trusts and the terms
of such acceptance, and (e) perform such additional duties and exercise such
additional powers of the Board as the Board may determine from time to time.
Section 3. Audit Committee. The Board shall appoint from its members and Audit
Committee which shall consist of such number as the Board shall determine no one
of whom shall be an active officer or employee of the Association or Fleet
Financial Group, Inc. or any of its affiliates. In addition, members of the
Audit Committee must not (i) have served as an officer or employee of the
Association or any of its affiliates at any time during the year prior to their
appointment; or (ii) own, control, or have owned or controlled at any time
during the year prior to appointment, ten percent (10%) or more of any
outstanding class of voting securities of the Association. At least two (2)
members of the Audit Committee must have significant executive, professional,
educational or regulatory experience in financial, auditing, accounting, or
banking matters. No member of the Audit Commitee may have significant direct or
indirect credit or other relationships with the Association, the termination of
which would materially adversely affect the Association's financial condition or
results of operations.
The Board shall designate a member of the Audit Committee to serve as Chairman
thereof. It shall be the duty of the Audit Committee to (a) cause a continuous
audit and examination to be made on its behalf into the affairs of the
Association and to review the results of such examination; (b) review
significant reports of the internal auditing department, management's responses
to those reports and the risk attributed to unresolved issues; (c) review the
basis for the reports issued under Section 112 of The Federal Deposit Insurance
Corporation Improvement Act of 1991; (d) consider, in consultation with the
independent auditor and an internal auditing executive, the adequacy of the
Association's internal controls, including the resolution of identified material
weakness and reportable conditions; (e) review regulatory communications
received from any federal or state agency with supervisory jurisdiction or other
examining authority and monitor any needed corrective action by management; (f)
ensure that a formal system of internal controls is in place for maintaining
compliance with laws and regulations; (g) cause an audit of the Trust Department
at least once during each calendar year and within 15 months of the last such
audit or, in liew thereof, adopt a continuous audit system and report to the
Board each calendar year and within 15 months of the previous report on the
performance of such audit function; and (h) perform such additional duties and
exercise such additional powers of the Board as the Board may determine from
time to time.
The Audit Committee may consult with internal counsel and retain its own outside
counsel without approval (prior or otherwise) from the Board or management and
obligate the Association to pay the fees of such counsel.
-4-
<PAGE>
Section 4. Community Affairs Committee. The Board shall appoint from its members
a Community Affairs Committee which shall consist of such number as the Board
shall determine. The Board shall designate a member of the Community Affairs
Committee to serve as Chairman thereof. It shall be the duty of the Commmunity
Affairs Committee to (a) oversee compliance by the Association with the
Community Reinvestment Act of 1977, as amended, and the regulations promulgated
thereunder; and (b) perform such additional duties and exercise such additional
powers of the Board as the Board may determine from time to time.
Section 5. Regular Meetings. Except for the Executive Committee which shall meet
on an ad hoc basis as set forth in Section 1 of this Article, regular meetings
of the Committees of the Board of Directors shall be held, without notice, at
such time and place as the Committee or the Board of Directors may appoint and
as often as the business of the Association may require.
Section 6. Special Meetings. A Special Meeting of any of the Committees of the
Board of Directors may be called upon the written request of the Chairman of the
Board or the President, or of any two members of the respective Committee,
stating the purpose of the meeting. Not less than twenty-four hours' notice of
such special meeting shall be given to each member of the Committee personally,
by telephoning, or by mail.
Section 7. Emergency Meetings. An Emergency Meeting of any of the Committees of
the Board of Directors may be called at the request of the Chairman of the Board
or the President, who shall state that an emergency exists, upon not less than
one hour's notice to each member of the Committee personally or by telephoning.
Section 8. Action Taken Without a Committee Meeting. Any Committee of the Board
of Directors may take action without a meeting and without notice of such
meeting by resolution assented to in writing by all members of such Committee.
Section 9. Quorum. A majority of a Committee of the Board of Directors shall
constitute a quorum for the transaction of any business at any meeting of such
Committee. If a quorum is not available, the Chairman of the Board or the
President shall have power to make temporary appointments to a Committee
ofmembers of the Board of Directors, to act in the place and stead of members
who temporarily cannot attend any such meeting; provided, however, that any
temporary appointment to the Audit Committee must meet the requirements for
members of that Committee set forth in Section 3 of this Article.
Section 10. Record. The committes of the Board of Directors shall keep a record
of their respective meetings and proceedings which shall be presented at the
regular meeting of the Board of Directors held in the calendar month next
following the meetings of the Committees. If there is no regular Board of
Directors meeting held in the calendar month next following the meeting of a
Committee, then such Committee's records shall be presented at the next regular
Board of Directors meeting held in a month subsequent to such Committee meeting.
Section 11. Changes and Vacancies. The Board of Directors shall have power to
change the members of any Committee at any time and to fill vacancies on any
Committee; provided, however, that any newly appointed member of the Audit
Committee must meet the requirements for members of that Committee set forth in
Section 3 of this Article.
Section 12. Other Committees. The Board of Directors may appoint, from time to
time, other committees of one or more persons, for such purposes and with such
powers as the Board may determine.
ARTICLE IV
WAIVER OF NOTICE OF MEETINGS
Section 1. Waiver. Whenever notice is required to be given to any shareholder,
Director, or member of a Committee of the Board of Directors, such notice may be
waived in writing either before or after such meeting by any shareholder,
Director or Committee member respectively, as the case may be, who may be
entitled to such notice; and such notice will be deemed to be waived by
attendance at any such meeting.
-5-
<PAGE>
ARTICLE V
OFFICERS AND AGENTS
Section 1. Officers. The Board shall appoint a Chairman of the Board and a
President, and shall have the power to appoint one or more Executive Vice
Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a
Cashier, a Secretary, an Auditor, a Controller, one or more Trust Officers
andsuch other officers as are deemed necessary or desirable for the proper
transaction of business of the Association. The Chairman of the Board and the
President shall be appointed from members of the Board of Directors. Any two or
more offices, except those of President and Cashier, or Secretary, may be held
by the same person. The Board may, from time to time, by resolution passed by a
majority of the entire Board, designate one or more officers of the Association
or of an affiliate or of Fleet Financial Group, Inc. with power to appoint one
or more Vice Presidents and such other officers of the Association below the
level of Vice President as the officer or officers designated in such resolution
deem necessary or desirable for the proper transaction of the
business of the Association.
Section 2. Chairman of the Board. The chairman of the Board shall preside at all
meetings of the Board of Directors. Subject to definition by the Board of
Directors, he shall have general executive powers and such specific powers and
duties as from time to time may be conferred upon or assigned to him by the
Board of Directors.
Section 3. President. The President shall preside at all meetings of the Board
of Directors if there be no Chairman or if the Chairman be absent. Subject to
definition by the Board of Directors, he shall have general executive powers and
such specific powers and duties as from time to time may be conferred upon or
assigned to him by the Board of Directors.
-6-
<PAGE>
Section 4. Cashier and Secretary. The Cashier shall be the Secretary of the
Board and of the Executive Committee, and shall keep accurate minutes of their
meetings and of all meetings of the shareholders. He shall attend to the giving
of all notices required by these By-laws. He shall be custodian of the corporate
seal, records, documents and papers of the Association. He shall have such
powers and perform such duties as pertain by law or regulation to the office of
Cashier, or as are imposed by these By-laws, or as may be delegated to him from
time to time by the Board of Directors, the Chairman of the Board or the
President.
Section 5. Auditor. The Auditor shall be the chief auditing officer of the
Association. He shall continuously examine the affairs of the Association and
from time to time shall report to the Board of Directors. He shall have such
powers and perform such duties as are conferred upon, or assigned to him by
these By-laws, or as may be delegated to him from time to time by the Board of
Directors.
Section 6. Officers Seriatim. The Board of Directors shall designate from time
to time not less than two officers who shall in the absence or disability of the
Chairman or President or both, succeed seriatim to the duties and
responsibilities of the Chairman and President respectively.
Section 7. Clerks and Agents. The Board of Directors may appoint, from time to
time, such clerks, agents and employees as it may deem advisable for the prompt
and orderly transaction of the business of the Association, define their duties,
fix the salaries to be paid them and dismiss them. Subject to the authority of
the Board of Directors, the Chairman of the Board or the President, or any other
officer of the Association authorized by either of them may appoint and dismiss
all or any clerks, agents and employees and prescribe their duties and the
conditions of their employment, and from time to time fix their compensation.
Section 8. Tenure. The Chairman of the Board of Directors and the President
shall, except in the case of death, resignation, retirement or disqualification
under these By-laws, or unless removed by the affirmative vote of at least
two-thirds of all of the members of the Board of Directors, hold office for the
term of one year or until their respective successors are appointed. Either of
such officers appointed to fill a vacancy occurring in an unexpired term shall
serve for such unexpired term of such vacancy. All other officers, clerks,
agents, attorneys-in-fact and employees of the Association shall hold office
during the pleasure of the Board of Directors or of the officer or committee
appointing them respectively.
ARTICLE VI
TRUST DEPARTMENT
Section 1. General Powers and Duties. All fiduciary powers of the Association
shall be exercised through the Trust Department, subject to such regulations as
the Comptroller of the Currency shall from time to time establish. The Trust
Department shall be to placed under the management and immediate supervision of
an officer or officers appointed by the Board of Directors. The duties of all
officers of the Trust Department shall be to cause the policies and instructions
of the Board and the Risk Management Committee with respect to the trusts under
their supervision to be carried out, and to supervise the due performance of the
trusts and agencies entrusted to the Association and under their supervision, in
accordance with law and in accordance with the terms of such trusts and
agencies.
-7-
<PAGE>
ARTICLE VII
BRANCH OFFICES
Section 1. Establishment. The Board of Directors shall have full power to
establish, to discontinue, or, from time to time, to change the location of any
branch office, subject to such limitations as may be provided by law.
Section 2. Supervision and Control. Subject to the general supervision and
control of the Board of Directors, the affairs of branch offices shall be under
the immediate supervision and control of the President or of such other officer
or officers, employee or employees, or other individuals as the Board of
Directors may from time to time determine, with such powers and duties as the
Board of Directors may confer upon or assign to him or them.
ARTICLE VIII
SIGNATURE POWERS
Section 1. Authorization. The power of officers, employees, agents and attorneys
to sign on behalf of and to affix the seal of the Association shall be
prescribed by the Board of Directors or by the Executive Committee or by both;
provided that the President is authorized to restrict such power of any officer,
employee, agent or attorney to the business of a specific department or
departments, or to a specific branch office or branch offices. Facsimile
signatures may be authorized.
-8-
<PAGE>
ARTICLE IX
STOCK CERTIFICATES AND TRANSFERS
Section 1. Stock Records. The Trust Department shall have custody of the stock
certificate books and stock ledgers of the Association, and shall make all
transfers of stock, issue certificates thereof and disburse dividends declared
thereon.
Section 2. Form of Certificate. Every shareholder shall be entitled to a
certificate conforming to the requirements of law and otherwise in such form as
the Board of Directors may approve. The certificates shall state on the face
thereof that the stock is transferable only on the books of the Association and
shall be signed by such officers as may be prescribed from time to time by the
Board of Directors or Executive Committee. Facsimile signatures may be
authorized.
Section 3. Transfers of Stock. Transfers of stock shall be made only on the
books of the Association by the holder in person, or by attorney duly authorized
in writing, upon surrender of the certificate therefor properly endorsed, or
upon the surrender of such certificate accompanied by a properly executed
written assignment of the same, or a written power of attorney to sell, assign
or transfer the same or the shares represented thereby.
Section 4. Lost Certificate. The Board of Directors or Executive Committee may
order a new certificate to be issued in place of a certificate lost or
destroyed, upon proof of such loss or destruction and upon tender to the
Association by the shareholder, of a bond in such amount and with or without
surety, as may be ordered, indemnifying the Association against all liability,
loss, cost and damage by reason of such loss or destruction and the issuance of
a new certificate.
Section 5. Closing Transfer Books. The Board of Directors may close the transfer
books for a period not exceeding thirty days preceding any regular or special
meeting of the shareholders, or the day designated for the payment of a dividend
or the allotment of rights. In lieu of closing the transfer books the Board of
Directors may fix a day and hour not more than thirty days prior to the day of
holding any meeting of the shareholders, or the day designated for the payment
of a dividend, or the day designated for the allotment of rights, or the day
when any change of conversion or exchange of capital stock is to go into effect,
as the day as of which shareholders entitled to notice of and to vote at such
meetings or entitled to such dividend or to such allotment of rights or to
exercise the rights in respect of any such change, conversion or exchange of
capital stock, shall be determined, and only such shareholders as shall be
shareholders of record on the day and hour so fixed shall be entitled to notice
of and to vote at such meeting or to receive payment of such dividend or to
receive such allotment of rights or to exercise such rights, as the case may be.
ARTICLE X
THE CORPORATE SEAL
Section 1. Seal. The following is an impression of the seal of the
Association adopted by the Board of Directors.
ARTICLE XI
BUSINESS HOURS
Section 1. Business Hours. The main office of this Association and each branch
office thereof shall be open for business on such days, and for such hours as
the Chairman, or the President, or any Executive Vice President, or such other
officer as the Board of Directors shall from time to time designate, may
determine as to each office to conform to local custom and convenience, provided
that any one or more of the main and branch offices or certain departments
thereof may be open for such hours as the President, or such other officer as
the Board of Directors shall from time to time designate, may determine as to
each office or department on any legal holiday on which work is not prohibited
by law, and provided further that any one or more of the main and branch offices
or certain departments thereof may be ordered closed or open on any day for such
hours as to each office or department as the President, or such other officer as
the Board of Directors shall from time to time designate, subject to applicable
laws regulations, may determine when such action may be required by reason of
disaster or other emergency condition.
ARTICLE IX
CHANGES IN BY-LAWS
Section 1. Amendments. These By-laws may be amended upon vote of a majority of
the entire Board of Directors at any meeting of the Board, provided ten (10)
day's notice of the proposed amendment has been given to each member of the
Board of Directors. No amendment may be made unless the By-law, as amended, is
consistent with the requirements of law and of the Articles of Association.
These By-laws may also be amended by the Association's shareholders.
A true copy
Attest:
Secretary/Assistant Secretary
- ---------------------------------------
Dated at , as of .
--------------------------------------- ----------------------
Revision of January 11, 1993
-9-
<PAGE>
EXHIBIT 5
CONSENT OF THE TRUSTEE
REQUIRED BY SECTION 321(b)
OF THE TRUST INDENTURE ACT OF 1939
The undersigned, as Trustee under the Indenture to be entered into between
Motors and Gears, Inc. and Fleet National Bank, as Trustee, does hereby consent
that, pursuant to Section 321(b) of the Trust Indenture Act of 1939, reports of
examinations with respect to the undersigned by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities and
Exchange Commission upon request therefor.
FLEET NATIONAL BANK,
AS TRUSTEE
By: /s/ Jacqueline Connor
-------------------------------
Its: Assistant Vice President
Dated:
EXHIBIT 6
<PAGE>
Board of Governors of the
Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance
Corporation
OMB Number: 3064-0052
Office of the Comptroller
of the Currency
OMB Number: 1557-0081
Expires March 31, 1999
Federal Financial Institutions Examination Council
- -------------------------------------------------------------------------------
[LOGO] [1]
Please refer to page i, Table of
Contents, for the required
disclosure of estimated burden.
- -------------------------------------------------------------------------------
CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR
A BANK WITH DOMESTIC AND FOREIGN OFFICES -- FFIEC 031
(960930)
REPORT AT THE CLOSE OF BUSINESS SEPTEMBER 30, 1996 --------
(RCRI 9999)
This report is required by law: 12 U.S.C. Section 324 (State member banks); 12
U.S.C. Section 1817 (State nonmember banks); and 12 U.S.C. Section 161
(National banks).
This report form is to be filed by banks with branches and consolidated
subsidiaries in U.S. territories and possessions, Edge or Agreement
subsidiaries, foreign branches, consolidated foreign subsidiaries, or
international Banking Facilities.
- -------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed by an authorized
officer and the Report of Condition must be attested to by not less than two
directors (trustees) for State nonmember banks and three directors for State
member and National banks.
I, Giro S. DeRosa, Vice President
---------------------------------------------------
Name and Title of Officer Authorized to Sign Report
of the named bank do hereby declare that these Reports of Condition and Income
(including the supporting schedules) have been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and are true
to the best of my knowledge and belief.
/s/ Giro DeRosa
- -----------------------------------------------------
Signature of Officer Authorized to Sign Report
10/26/96
- -----------------------------------------------------
Date of Signature
The Reports of Condition and Income are to be prepared in accordance with
Federal regulatory authority instructions.
NOTE: These instructions may in some cases differ from generally accepted
accounting principles.
We, the undersigned directors (trustees), attest to the correctness of this
Report of Condition (including the supporting schedules) and declare that it has
been examined by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the appropriate Federal
regulatory authority and is true and correct.
/s/ [SIGNATURE ILLEGIBLE]
- -----------------------------------------------------
Director (Trustee)
/s/ [SIGNATURE ILLEGIBLE]
- -----------------------------------------------------
Director (Trustee)
/s/ [SIGNATURE ILLEGIBLE]
- -----------------------------------------------------
Director (Trustee)
- -------------------------------------------------------------------------------
FOR BANKS SUBMITTING HARD COPY REPORT FORMS:
STATE MEMBER BANKS: Return the original and one copy to the appropriate Federal
Reserve District Bank.
STATE NONMEMBER BANKS: Return the original only in the special return address
envelope provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.
NATIONAL BANKS: Return the original only in the special return address envelope
provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.
- -------------------------------------------------------------------------------
0 2 4 9 9
FDIC Certificate Number -----------
(RCRI 9050)
[ADDRESS LABEL]
<PAGE>
FFIEC 031
Page i
/2/
Consolidated Reports of Condition and Income for
Bank With Domestic and Foreign Offices
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
SIGNATURE PAGE COVER
REPORT OF INCOME
Schedule RI -- Income Statement ................................... RI-1, 2, 3
Schedule RI-A -- Changes in Equity Capital .............................. RI-4
Schedule RI-B -- Charge-offs and Recoveries and Changes in
Allowance for Loan and Lease Losses ............................... RI-4, 5
Schedule RI-C -- Applicable Income Taxes by Taxing Authority ............ RI-5
Schedule RI-D -- Income from International Operations ................... RI-6
Schedule RI-E -- Explanations ........................................ RI-7, 8
REPORT OF CONDITION
Schedule RC -- Balance Sheet ......................................... RC-1, 2
Schedule RC-A -- Cash and Balances Due From Depository Institutions ..... RC-3
Schedule RC-B -- Securities ....................................... RC-3, 4, 5
Schedule RC-C -- Loans and Lease Financing
Receivables:
Part I. Loans and Leases ......................................... RC-6, 7
Part II. Loans to Small Businesses and Small Farms
(included in the forms for June 30 only) ............... RC-7a, 7b
Schedule RC-D -- Trading Assets and Liabilities
(to be completed only by selected banks) ............................. RC-8
Schedule RC-E -- Deposit Liabilities ............................ RC-9, 10, 11
Schedule RC-F -- Other Assets .......................................... RC-11
Schedule RC-G -- Other Liabilities ..................................... RC-11
Schedule RC-H -- Selected Balance Sheet Items for
Domestic Offices .................................................... RC-12
Schedule RC-I -- Selected Assets and Liabilities of IBFs ............... RC-13
Schedule RC-K -- Quarterly Averages .................................... RC-13
Schedule RC-L -- Off Balance Sheet Items ....................... RC-14, 15, 16
Schedule RC-M -- Memoranda ......................................... RC-17, 18
Schedule RC-N -- Past Due and Nonaccrual Loans, Leases,
and Other Assets ................................................ RC-19, 20
Schedule RC-O -- Other Data for Deposit Insurance Assessments ...... RC-21, 22
Schedule RC-R -- Regulatory Capital ................................ RC-23, 24
Optional Narrative Statement Concerning the Amounts Reported
in the Reports of Condition and Income .............................. RC-25
Special Report (to be completed by all banks)
Schedule RC-J -- Repricing Opportunities (sent only to and to be
completed only by savings banks)
DISCLOSURE OF ESTIMATED BURDEN
THE ESTIMATED AVERAGE BURDEN ASSOCIATED WITH THIS INFORMATION COLLECTION IS 32.2
HOURS PER RESPONDENT AND IS ESTIMATED TO VARY FROM 15 TO 230 HOURS PER RESPONSE,
DEPENDING ON INDIVIDUAL CIRCUMSTANCES. BURDEN ESTIMATES INCLUDE THE TIME FOR
REVIEWING INSTRUCTIONS, GATHERING AND MAINTAINING DATA IN THE REQUIRED FORM, AND
COMPLETING THE INFORMATION COLLECTION, BUT EXCLUDE THE TIME FOR COMPILING AND
MAINTAINING BUSINESS RECORDS IN THE NORMAL COURSE OF A RESPONDENT'S ACTIVITIES.
COMMENTS CONCERNING THE ACCURACY OF THIS BURDEN ESTIMATE AND SUGGESTIONS FOR
REDUCING THIS BURDEN SHOULD BE DIRECTED TO THE OFFICE OF INFORMATION AND
REGULATORY AFFAIRS, OFFICE OF MANAGEMENT AND BUDGET, WASHINGTON, D.C. 20503, AND
TO ONE OF THE FOLLOWING:
SECRETARY
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D.C. 20551
LEGISLATIVE AND REGULATORY ANALYSIS DIVISION
OFFICE OF THE COMPTROLLER OF THE CURRENCY
WASHINGTON, D.C. 20219
ASSISTANT EXECUTIVE SECRETARY
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20429
For information or assistance, National and State nonmember banks should contact
the FDIC's Call Reports Analysis Unit, 550 17th Street, NW, Washington, D.C.
20429, toll-free on (800) 688-FDIC(3342), Monday through Friday between 8:00
a.m. and 5:00 p.m., Eastern time. State member banks should contact their
Federal Reserve District Bank.
<PAGE>
Legal Title of Bank: Fleet National Bank
Address: One Monarch Place
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: 0 2 4 9 9
---------
Call Date: 9/30/96
ST-BK: 25-0590 FFIEC 031
Page RI-1
CONSOLIDATED REPORT OF INCOME
FOR THE PERIOD JANUARY 1, 1996-SEPTEMBER 30, 1996
All Report of Income schedules are to be reported on a calendar year-to-date
basis in thousands of dollars.
SCHEDULE RI--INCOME STATEMENT
<TABLE>
<CAPTION>
I480
-------------------------
Dollars Amounts in Thousands RIAD Bil Mil Thou
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Interest income:
a. Interest and fee income on loans:
(1) In domestic offices:
(a) Loans secured by real estate .............................................. 4011 854,388 1.a.(1)(a)
(b) Loans to depository institutions .......................................... 4019 1,052 1.a.(1)(b)
(c) Loans to finance agricultural production and other loans to farmers ....... 4024 405 1.a.(1)(c)
(d) Commercial and industrial loans ........................................... 4012 850,473 1.a.(1)(d)
(e) Acceptances of other banks ................................................ 4026 261 1.a.(1)(e)
(f) Loans to individuals for household, family, and other personal expenditures:
(1) Credit cards and related plans ........................................ 4054 13,229 1.a.(1)(f)(1)
(2) Other ................................................................. 4055 144,012 1.a.(1)(f)(2)
(g) Loans to foreign governments and official institutions ..................... 4056 0 1.a.(1)(g)
(h) Obligations (other than securities and leases) of states and political
subdivisions in the U.S.:
(1) Taxable obligations ................................................... 4503 0 1.a.(1)(h)(1)
(2) Tax-exempt obligations ................................................ 4504 7,756 1.a.(1)(h)(2)
(i) All other loans in domestic offices ....................................... 4058 115,822 1.a.(1)(1)
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs ................. 4059 2,981 1.a.(2)
b. Income from lease financing receivables:
(1) Taxable leases ................................................................ 4505 114,095 1.b.(1)
(2) Tax-exempt leases ............................................................. 4307 1,130 1.b.(2)
c. Interest income on balances due from depository institutions: (1)
(1) In domestic offices ........................................................... 4105 1,047 1.c.(1)
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs .................. 4106 142 1.c.(2)
d. Interest and dividend income on securities:
(1) U.S. Treasury securities and U.S. Government agency and corporation
obligations ................................................................... 4027 323,294 1.d.(1)
(2) Securities issued by states and political subdivisions in the U.S.:
(a) Taxable securities ........................................................ 4506 0 1.d.(2)(a)
(b) Tax-exempt securities ..................................................... 4507 4,736 1.d.(2)(b)
(3) Other domestic debt securities ................................................ 3657 12,668 1.d.(3)
(4) Foreign debt securities ....................................................... 3658 4,985 1.d.(4)
(5) Equity securities (including investments in mutual funds) ..................... 3659 15,296 1.d.(5)
e. Interest income from trading assets ............................................... 4069 429 i.e.
</TABLE>
- --------------
(1) Includes interest income on time certificates of deposit not held for
trading.
3
<PAGE>
Legal Title of Bank: Fleet National Bank Call Date: 9/30/96
Address: One Monarch Place ST-BK: 25-0590 FFIEC 031
City, State Zip: Springfield, MA 01102 Page RI-2
FDIC Certificate No.: 0 2 4 9 9
-----------
SCHEDULE RI--CONTINUED
<TABLE>
<CAPTION>
--------------
Dollar Amounts in Thousands Year-to-date
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Interest income (continued) RIAD Bil Mil Thou
f. Interest income on federal funds sold and securities purchased under
agreements to resell in domestic offices of the bank and of its Edge
and Agreement subsidiaries, and in IBFs.............................. 4020 25,381 1.f.
g. Total interest income (sum of items 1.a through 1.f)................. 4107 2,493,582 1.g.
2. Interest expense:
a. Interest on deposits:
(1) Interest on deposits in domestic offices:
(a) Transaction accounts (NOW accounts, ATS accounts, and
telephone and preauthorized transfer accounts)............. 4508 10,989 2.a.(1)(a)
(b) Nontransaction accounts:
(1) Money market deposit accounts (MMDAs)................. 4509 196,360 2.a.(1)(b)(1)
(2) Other savings deposits................................ 4511 38,216 2.a.(1)(b)(2)
(3) Time certificates of deposit of $100,000 or more...... 4174 130,069 2.a.(1)(b)(3)
(4) All other time deposits............................... 4512 310,562 2.a.(1)(b)(4)
(2) Interest on deposits in foreign offices, Edge and Agreement
subsidiaries, and IBFs.......................................... 4172 74,619 2.a.(2)
b. Expense of federal funds purchased and securities sold under
agreements to repurchase in domestic offices of the bank and of its
Edge and Agreement subsidiaries, and in IBFs......................... 4180 221,536 2.b.
c. Interest on demand notes issued to the U.S. Treasury, trading
liabilities, and other borrowed money................................ 4185 145,395 2.c.
d. Interest on mortgage indebtedness and obligations under capitalized
leases............................................................... 4072 630 2.d.
e. Interest on subordinated notes and debentures........................ 4200 47,710 2.e.
f. Total interest expense (sum of items 2.a through 2.e)................ 4073 1,176,086 2.f.
-----------------------
3. Net interest income (item 1.g minus 2.f)................................. RIAD 4074 1,317,496 3.
4. Provisions:
-----------------------
a. Provision for loan and lease losses.................................. RIAD 4230 24,179 4.a.
b. Provision for allocated transfer risk................................ RIAD 4243 0 4.b.
-----------------------
5. Noninterest income:
a. Income from fiduciary activities..................................... 4070 217,705 5.a.
b. Service charges on deposit accounts in domestic offices.............. 4080 169,866 5.b.
c. Trading revenue (must equal Schedule RI, sum of Memorandum
items 8.a through 8.d)............................................... A220 16,406 5.c.
d. Other foreign transaction gains (losses)............................. 4076 781 5.d.
e. Not applicable
f. Other noninterest income:
(1) Other fee income................................................ 5407 576,559 5.f.(1)
(2) All other noninterest income*................................... 5408 270,460 5.f.(2)
-----------------------
g. Total noninterest income (sum of items 5.a through 5.f).............. RIAD 4079 1,251,777 5.g.
6. a. Realized gains (losses) on held-to-maturity securities............... RIAD 3521 1 6.a.
b. Realized gains (losses) on available-for-sale securities............. RIAD 3196 16,196 6.b.
-----------------------
7. Noninterest expense:
a. Salaries and employee benefits....................................... 4135 480,905 7.a.
b. Expenses of premises and fixed assets (net of rental income)
(excluding salaries and employee benefits and mortgage interest)..... 4217 164,769 7.b.
c. Other noninterest expense*........................................... 4092 942,296 7.c.
-----------------------
d. Total noninterest expense (sum of items 7.a through 7.c)............. RIAD 4093 1,587,970 7.d.
-----------------------
8. Income (loss) before income taxes and extraordinary items and other
-----------------------
adjustments (item 3 plus or minus items 4.a, 4.b, 5.g, 6.a, 6.b, and 7.d) RIAD 4301 973,321 8.
9. Applicable income taxes (on item 8)...................................... RIAD 4302 397,990 9.
-----------------------
10. Income (loss) before extraordinary items and other adjustments (item 8
-----------------------
minus 9)................................................................. RIAD 4300 575,331 10.
-----------------------
</TABLE>
- --------------------
*Describe on Schedule RI-E--Explanations.
4
<PAGE>
Legal Title of Bank: Fleet National Bank Call Date: 9/30/96
Address: One Monarch Place ST-BK: 25-0590 FFIEC 031
City, State Zip: Springfield, MA 01102 Page RI-3
FDIC Certificate No.: 0 2 4 9 9
---------
SCHEDULE RI--CONTINUED
<TABLE>
<CAPTION>
Year-to-date
--------------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
11. Extraordinary items and other adjustments:
a. Extraordinary items and other adjustments, gross of income taxes* ..... 4310 0 11.a.
b. Applicable income taxes (on item 11.a)* ............................... 4315 0 11.b.
c. Extraordinary items and other adjustments, net of income taxes
(item 11.a minus 11.b) ................................................ RIAD 4320 0 11.c
12. Net income (loss) (sum of items 10 and 11.c) ............................. RIAD 4340 575,331 12.
-------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------
I481
Memoranda ------------
Year-to-date
--------------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Interest expense incurred to carry tax-exempt securities, loans, and leases acquired after
August 7, 1986, that is not deductible for federal income tax purposes ......................... 4513 2,092 M.1.
2. Income from the sale and servicing of mutual funds and annuities in domestic offices
(included in Schedule RI, item 8) .............................................................. 8431 33,068 M.2.
3.-4. Not applicable
5. Number of full-time equivalent employees on payroll at end of current period (round to Number
nearest whole number) .......................................................................... 4150 12,552 M.5.
6. Not applicable
7. If the reporting bank has restated its balance sheet as a result of applying push down MM DD YY
accounting this calendar year, report the date of the bank's acquisition ....................... 9106 00/00/00 M.7.
8. Trading revenue (from cash instruments and off-balance sheet derivative instruments)
(sum of Memorandum items 8.a through 8.d must equal Schedule RI, item 5.c): Bil Mil Thou
a. Interest rate exposures ..................................................................... 8757 2,536 M.8.a.
b. Foreign exchange exposures .................................................................. 8758 13,870 M.8.b.
c. Equity security and index exposures ......................................................... 8759 0 M.8.c.
d. Commodity and other exposures ............................................................... 8760 0 M.8.d.
9. Impact on income of off-balance sheet derivatives held for purposes other than trading:
a. Net increase (decrease) to interest income .................................................. 8761 (1,530) M.9.a.
b. Net (increase) decrease to interest expense ................................................. 8762 (7,731) M.9.b.
c. Other (noninterest) allocations ............................................................. 8763 235 M.9.c.
10. Credit losses on off-balance sheet derivatives (see instructions) .............................. A251 0 M.10.
--------------------
</TABLE>
- ------------
*Describe on Schedule RI-E--Explanations.
5
<PAGE>
Legal Title of Bank: Fleet National Bank
Address: One Monarch Place
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: 02499
Call Date: 9/30/96
ST-BK: 25-0590 FFIEC 031
Page RI-4
SCHEDULE RI-A--CHANGES IN EQUITY CAPITAL
Indicate decreases and losses in parentheses.
<TABLE>
<CAPTION>
I483
Dollar Amounts in Thousands RIAD Bil Mil Thou
- ---------------------------------------------------------- ---- --- --- ----
<S> <C> <C> <C> <C>
1. Total equity capital originally reported in the December
31, 1995, Reports of Condition and Income................ 3215 1,342,473 1.
2. Equity capital adjustments from amended Reports of
Income, net*............................................. 3216 0 2.
3. Amended balance end of previous calendar year
(sum of items 1 and 2)................................... 3217 1,342,473 3.
4. Net income (loss) (must equal Schedule RI, item 12)...... 4340 575,331 4.
5. Sale, conversion, acquisition, or retirement of
capital stock, net....................................... 4346 0 5.
6. Changes incident to business combinations, net........... 4356 4,161,079 6.
7. LESS: Cash dividends declared on preferred stock......... 4470 0 7.
8. LESS: Cash dividends declared on common stock............ 4460 625,239 8.
9. Cumulative effect of changes in accounting principles
from prior years* (see instructions for this schedule)... 4411 0 9.
10. Corrections of material accounting errors from prior
years* (see instructions for this schedule).............. 4412 0 10.
11. Change in net unrealized holding gains (losses) on
available-for-sale securities............................ 8433 (30,167) 11.
12. Foreign currency translation adjustments................. 4414 0 12.
13. Other transactions with parent holding company* (not
included in items 5, 7, or 8 above)...................... 4415 (1,003,722) 13.
14. Total equity capital end of current period (sum of
items 3 through 13) (must equal Schedule RC, item 28).... 3210 4,419,755 14.
- -----------
*Describe on Schedule RI-E--Explanations.
</TABLE>
SCHEDULE RI-B--CHARGE-OFFS AND RECOVERIES AND CHANGES
IN ALLOWANCE FOR LOAN AND LEASE LOSSES
PART I. CHARGE-OFFS AND RECOVERIES ON LOANS AND LEASES
Part I excludes charge-offs and recoveries through the allocated transfer risk
reserve.
<TABLE>
<CAPTION>
I486
------------------------------------------------
(Column A) (Column B)
Charge-offs Recoveries
------------------------------------------------
Calendar year-to-date
------------------------------------------------
Dollar Amounts in Thousands RIAD Bil Mil Thou RIAD Bil Mil Thou
- ---------------------------------------------------------- ---- --- --- ---- ---- --- --- ----
<S> <C> <C> <C> <C> <C>
1. Loans secured by real estate: ////////////////////////////////////////////////////////////
a. To U.S. addressees (domicile)....................... 4651 52,012 4661 10,568 1.a.
b. To non-U.S. addressees (domicile)................... 4652 0 4662 0 1.b.
2. Loans to depository institutions and acceptances
of other banks: ////////////////////////////////////////////////////////////
a. To U.S. banks and other U.S. depository institutions 4653 0 4663 0 2.a.
b. To foreign banks.................................... 4654 0 4664 0 2.b.
3. Loans to finance agricultural production and other
loans to farmers....................................... 4655 6 4665 89 3.
4. Commercial and industrial loans: ////////////////////////////////////////////////////////////
a. To U.S. addressees (domicile)....................... 4645 58,172 4617 39,649 4.a.
b. To non-U.S. addressees (domicile)................... 4646 0 4618 102 4.b.
5. Loans to individuals for household, family, and /////////////////////////////////////////////////////////////
other personal expenditures: ////////////////////////////////////////////////////////////
a. Credit cards and related plans...................... 4656 1,340 4666 1,125 5.a.
b. Other (includes single payment, installment, and all
student loans)...................................... 4657 17,633 4667 2,946 5.b.
6. Loans to foreign governments and official institutions.. 4643 0 4627 0 6.
7. All other loans......................................... 4644 2,987 4628 750 7.
8. Lease financing receivables: /////////////////////////////////////////////////////////////
a. Of U.S. addressees (domicile)........................ 4658 11,644 4668 3,670 8.a.
b. Of non-U.S. addressees (domicile).................... 4659 0 4669 0 8.b.
Total (sum of items 1 through 8)........................ 4635 143,794 4605 58,899 9.
</TABLE>
6
<PAGE>
Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031
Page RI-5
Legal Title of Bank: Fleet National Bank
Address: One Monarch Place
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: 0 2 4 9 9
---------
SCHEDULE RI-B -- CONTINUED
PART I. CONTINUED
<TABLE>
<CAPTION>
-------------------------------------------
(Column A) (Column B)
Charge-offs Recoveries
-------------------------------------------
Calendar year-to-date
-----------------------------------------------
Memoranda Dollar Amounts in Thousands RIAD Bil Mil Thou RIAD Bil Mil Thou
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1-3. Not applicable
4. Loans to finance commercial real estate, construction, and land
development activities (not secured by real estate) included in
Schedule RI-B, part I, items 4 and 7, above ......................... 5409 513 5410 1,374 M.4.
5. Loans secured by real estate in domestic offices (included in
Schedule RI-B, part I, item 1, above):
a. Construction and land development ................................ 3582 189 3583 253 M.5.a.
b. Secured by farmland .............................................. 3584 145 3585 220 M.5.b.
c. Secured by 1-4 family residential properties:
(1) Revolving, open-end loans secured by 1-4 family residential
properties and extended under lines of credit ................ 5411 3,647 5412 536 M.5.c.(1)
(2) All other loans secured by 1-4 family residential properties.. 5413 23,744 5414 2,707 M.5.c.(2)
d. Secured by multifamily (5 or more) residential properties ........ 3588 4,055 3589 395 M.5.d.
e. Secured by nonfarm nonresidential properties ..................... 3590 20,232 3591 6,457 M.5.e.
-------------------------------------------
</TABLE>
PART II. CHANGES IN ALLOWANCE FOR LOAN AND LEASE LOSSES
<TABLE>
<CAPTION>
--------------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Balance originally reported in the December 31, 1995, Reports of Condition and Income .. 3124 266,943 1.
2. Recoveries (must equal part I, item 9, column B above) ................................. 4605 58,899 2.
3. LESS: Charge-offs (must equal part I, item 9, column A above) .......................... 4635 143,794 3.
4. Provision for loan and lease losses (must equal Schedule RI, item 4.a) ................. 4230 24,179 4.
5. Adjustments* (see instructions for this schedule) ...................................... 4815 634,542 5.
6. Balance end of current period (sum of items 1 through 5) (must equal Schedule RC,
item 4.b) .............................................................................. 3123 840,769 6.
</TABLE>
- -----------------
* Describe on Schedule RI-E -- Explanations.
SCHEDULE RI-C -- APPLICABLE INCOME TAXES BY TAXING AUTHORITY
SCHEDULE RI-C IS TO BE REPORTED WITH THE DECEMBER REPORT OF INCOME.
<TABLE>
<CAPTION>
---------
I489
--------------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Federal ................................................................................... 4780 N/A 1.
2. State and local ........................................................................... 4790 N/A 2.
3. Foreign ................................................................................... 4795 N/A 3.
4. Total (sum of items 1 through 3) (must equal sum of Schedule RI, items 9 and 11.b) ........ 4770 N/A 4.
---------------------------
5. Deferred portion of item 4 ................................... RIAD 4772 N/A 5.
-------------------------------------------------
</TABLE>
7
<PAGE>
Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031
Page RI-6
Legal Title of Bank: Fleet National Bank
Address: One Monarch Place
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: 0 2 4 9 9
---------
SCHEDULE RI-D--INCOME FROM INTERNATIONAL OPERATIONS
For all banks with foreign offices, Edge or Agreement subsidiaries, or IBFs
where international operations account for more than 10 percent of total
revenues, total assets, or net income.
PART I. ESTIMATED INCOME FROM INTERNATIONAL OPERATIONS
<TABLE>
<CAPTION>
-------
I492
--------------------
Year-to-date
--------------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Interest income and expense booked at foreign offices, Edge and Agreement subsidiaries, //////////////////
and IBFs: //////////////////
a. Interest income booked................................................................... 4837 N/A 1.a.
b. Interest expense booked.................................................................. 4838 N/A 1.b.
c. Net interest income booked at foreign offices, Edge and Agreement subsidiaries, and //////////////////
IBFs (item 1.a minus 1.b)................................................................ 4839 N/A 1.c.
2. Adjustments for booking location of international operations: //////////////////
a. Net interest income attributable to international operations booked at domestic offices.. 4840 N/A 2.a.
b. Net interest income attributable to domestic business booked at foreign offices.......... 4841 N/A 2.b.
c. Net booking location adjustment (item 2.a minus 2.b)..................................... 4842 N/A 2.c.
3. Noninterest income attributable to international operations: //////////////////
a. Noninterest income attributable to international operations.............................. 4097 N/A 3.a.
b. Provision for loan and lease losses attributable to international operations............. 4235 N/A 3.b.
c. Other noninterest expense attributable to international operations....................... 4239 N/A 3.c.
d. Net noninterest income (expense) attributable to international operations (item 3.a //////////////////
minus 3.b and 3.c)....................................................................... 4843 N/A 3.d.
4. Estimated pretax income attributable to international operations before capital allocation //////////////////
adjustment (sum of items 1.c, 2.c, and 3.d).................................................. 4844 N/A 4.
5. Adjustment to pretax income for internal allocations to international operations to reflect //////////////////
the effects of equity capital on overall bank funding costs.................................. 4845 N/A 5.
6. Estimated pretax income attributable to international operations after capital allocation //////////////////
adjustment (sum of items 4 and 5)............................................................ 4846 N/A 6.
7. Income taxes attributable to income from international operations as estimated in item 6..... 4797 N/A 7.
8. Estimated net income attributable to international operations (item 6 minus 7)............... 4341 N/A 8.
---------------------
Memoranda
---------------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- -------------------------------------------------------------------------------------------------------------------------
1. Intracompany interest income included in item 1.a above...................................... 4847 N/A M.1.
2. Intracompany interest expense included in item 1.b above..................................... 4848 N/A M.2.
---------------------
PART II. SUPPLEMENTARY DETAILS ON INCOME FROM INTERNATIONAL OPERATIONS REQUIRED
BY THE DEPARTMENTS OF COMMERCE AND TREASURY FOR PURPOSES OF THE U.S.
INTERNATIONAL ACCOUNTS AND THE U.S. NATIONAL INCOME AND PRODUCT ACCOUNTS
--------------------
YEAR-to-date
---------------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- -------------------------------------------------------------------------------------------------------------------------
1. Interest income booked at IBFs............................................................... 4849 N/A 1.
2. Interest expense booked at IBFs.............................................................. 4850 N/A 2.
3. Noninterest income attributable to international operations booked at domestic offices //////////////////
(excluding IBFs): //////////////////
a. Gains (losses) and extraordinary items................................................... 5491 N/A 3.a.
b. Fees and other noninterest income........................................................ 5492 N/A 3.b.
4. Provision for loan and lease losses attributable to international operations booked at //////////////////
domestic offices (excluding IBFs)............................................................ 4852 N/A 4.
5. Other noninterest expense attributable to international operations booked at domestic //////////////////
offices (excluding IBFs)..................................................................... 4853 N/A 5.
---------------------
</TABLE>
8
<PAGE>
Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031
Page RI-7
Legal Title of Bank: Fleet National Bank
Address: One Monarch Place
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: 0 2 4 9 9
---------
SCHEDULE RI-E--EXPLANATIONS
SCHEDULE RI-E IS TO BE COMPLETED EACH QUARTER ON A CALENDAR YEAR-TO-DATE BASIS.
Detail all adjustments in Schedule RI-A and RI-B, all extraordinary items and
other adjustments in Schedule RI, and all significant items of other noninterest
income and other noninterest expense in Schedule RI. (See instructions for
details.)
<TABLE>
<CAPTION>
I495
--------------
Year-to-date
-------------------------
Dollars Amounts in Thousands RIAD Bil Mil Thou
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. All other noninterest income (from Schedule RI, item 5.f.(2))
Report amounts that exceed 10% of Schedule RI, item 5.f.(2):
a. Net gains on other real estate owned .............................................. 5415 0 1.a.
b. Net gains on sales of loans ....................................................... 5416 0 1.b.
c. Net gains on sales of premises and fixed assets ................................... 5417 0 1.c.
Itemize and describe the three largest other amounts that exceed 10% of Schedule RI,
item 5.f.(2):
d. TEXT 4461 Income on Mortgages Held For Resale 4461 115,563 1.d.
-----------------------------------------------------------------------------------
e. TEXT 4462 Gain From Branch Divestitures 4462 77,976 1.e.
-----------------------------------------------------------------------------------
f. TEXT 4463 4463 1.f.
-----------------------------------------------------------------------------------
2. Other noninterest expense (from Schedule RI, item 7.c):
a. Amortization expense of intangible assets ......................................... 4531 207,168 2.a.
Report amounts that exceed 10% of Schedule RI, item 7.c:
b. Net losses on other real estate owned ............................................. 5418 0 2.b.
c. Net losses on sales of loans ...................................................... 5419 0 2.c.
d. Net losses on sales of premises and fixed assets .................................. 5420 0 2.d.
Itemize and describe the three largest other amounts that exceed 10% of Schedule RI,
Item 7.c:
e. TEXT 4464 Intercompany Corporate Support Function Charges 4464 219,071 2.e.
-----------------------------------------------------------------------------------
f. TEXT 4467 Intercompany Data Processing & Programming Charges 4467 238,115 2.f.
-----------------------------------------------------------------------------------
g. TEXT 4468 4468 2.g.
-----------------------------------------------------------------------------------
3. Extraordinary items and other adjustments (from Schedule RI, item 11.a) and applicable
income tax effect (from Schedule RI, item 11.b) (itemize and describe all
extraordinary items and other adjustments):
a. (1) TEXT 4469 4469 3.a.(1)
-------------------------------------------------------------------------------
(2) Applicable income tax effect RIAD 4486 3.a.(2)
------------ -----------
b. (1) TEXT 4487 4487 3.b.(1)
-------------------------------------------------------------------------------
(2) Applicable income tax effect RIAD 4488 3.b.(2)
------------ -----------
c. (1) TEXT 4489 4489 3.c.(1)
-------------------------------------------------------------------------------
(2) Applicable income tax effect RIAD 4491 3.c.(2)
-----------
4. Equity capital adjustments from amended Reports of Income (from Schedule RI-A, item 2)
(itemize and describe all adjustments:
a. TEXT 4492 4492 4.a.
-----------------------------------------------------------------------------------
b. TEXT 4493 4493 4.b.
-----------------------------------------------------------------------------------
5. Cumulative effect of changes in accounting principles from prior years
(from Schedule RI-A, item 9) (itemize and describe all changes in accounting
principles):
a. TEXT 4494 4494 5.a.
-----------------------------------------------------------------------------------
B. TEXT 4495 4495 5.b.
-----------------------------------------------------------------------------------
6. Corrections of material accounting errors from prior years (from Schedule
RI-A, item 10) (itemize and describe all corrections):
a. TEXT 4496 4496 6.a.
-----------------------------------------------------------------------------------
b. TEXT 4497 4497 6.b.
-----------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031
Page RI-8
Legal Title of Bank: Fleet National Bank
Address: One Monarch Place
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: 0 2 4 9 9
---------
SCHEDULE RI-E--CONTINUED
<TABLE>
<CAPTION>
--------------
Year-to-date
-----------------------
Dollars Amounts in Thousands RIAD Bil Mil Thou
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
7. Other transactions with parent holding company (from Schedule RI-A, item 13)
(itemize and describe all such transactions):
a. TEXT 4498 Fleet National Bank Surplus Distribution to FFG 4498 (1,003,722) 7.a.
--------------------------------------------------------------------------------
b. TEXT 4499 4499 7.b
--------------------------------------------------------------------------------
8. Adjustments to allowance for loan and lease losses (from Schedule RI-B, part II,
item 5) (itemize and describe all adjustments):
a. TEXT 4521 12/31/95 ending Balance of Pooled Entities 4521 636,497 8.a.
--------------------------------------------------------------------------------
b. TEXT 4522 Divested Allowance Related to Sold Loans 4522 (1,955) 8.b.
-------------------------------------------------------------------------------- -----------------------
9. Other explanations (the space below is provided for the bank to briefly describe,
at its option, any other significant items affecting the Report of Income): I498 I499
No comment /x/ (RIAD 4769) -----------------------
Other explanations (please type or print clearly):
(TEXT) 4769)
</TABLE>
10
<PAGE>
Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031
Page RC-1
Legal Title of Bank: Fleet National Bank
Address: One Monarch Place
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: 0 2 4 9 9
---------
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR SEPTEMBER 30, 1996
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC--BALANCE SHEET
<TABLE>
<CAPTION>
C400
Dollar Amounts in Thousands RCFC Bil Mil Thou
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions (from Schedule RC-A):
a. Noninterest-bearing balances and currency and coin(1)....................... 0081 3,929,278 1.a.
b. Interest-bearing balances(2)................................................ 0071 30,710 1.b.
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A).................. 1754 284,288 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D)................ 1773 7,315,890 2.b.
3. Federal funds sold and securities purchased under agreements to resell in
domestic offices of the bank and of its Edge and Agreement subsidiaries,
and in IBFs:
a. Federal funds sold.......................................................... 0276 32,521 3.a.
b. Securities purchased under agreements to resell............................. 0277 0 3.b.
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income
(from Schedule RC-C).................................RCFD 2122 32,002,964 4.a.
b. LESS: Allowance for loan and lease losses.............RCFD 3123 840,769 4.b.
c. LESS: Allocated transfer risk reserve.................RCFD 3128 0 4.c.
d. Loans and leases, net of unearned income, allowance, and reserve
(item 4.a minus 4.b and 4.c)............................................... 2125 31,162,195 4.d.
5. Trading assets (from Schedule RC-D)............................................ 3545 48,111 5.
6. Premises and fixed assets (including capitalized leases)....................... 2145 560,725 6.
7. Other real estate owned (from Schedule RC-M)................................... 2150 22,784 7.
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M).......................................................... 2130 0 8.
9. Customers' liability to this bank on acceptances outstanding................... 2155 14,235 9.
10. Intangible assets (from Schedule RC-M)......................................... 2143 2,311,234 10.
11. Other assets (from Schedule RC-F).............................................. 2160 3,699,236 11.
12. Total assets (sum of items 1 through 11)....................................... 2170 49,411,207 12.
</TABLE>
- ----------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
11
<PAGE>
Legal Title of Bank: Fleet National Bank Call Date: 9/30/96
Address: One Monarch Place ST-BK: 25-0590 FFIEC 031
City, State Zip: Springfield, MA 01102 Page RC-2
FDIC Certificate No.: 0 2 4 9 9
---------
SCHEDULE RC--CONTINUED
<TABLE>
<CAPTION>
-----------------------
Dollar Amounts in Thousands Bil Mil Thou
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E,
part I) ................................................................................. RCON 2200 33,574,312 13.a.
----------------------
(1) Noninterest-bearing(1) ...................................... RCON 6631 10,385,307 13.a.(1)
(2) Interest-bearing ............................................ RCON 6636 23,189,005 13.a.(2)
----------------------
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E,
part II) ................................................................................ RCFN 2200 1,817,711 13.b.
----------------------
(1) Noninterest-bearing ......................................... RCFN 6631 36 13.b.(1)
(2) Interest-bearing ............................................ RCFN 6636 1,817,675 13.b.(2)
----------------------
14. Federal funds purchased and securities sold under agreements to repurchase
in domestic offices of the bank and of its Edge and Agreement subsidiaries,
and in IBFs:
a. Federal funds purchased ................................................................. RCFD 0278 4,393,064 14.a.
b. Securities sold under agreements to repurchase .......................................... RCFD 0279 133,568 14.b
15. a. Demand notes issued to the U.S. Treasury ................................................ RCON 2840 1,589,048 15.a.
b. Trading liabilities (from Schedule RC-D) ................................................ RCFD 3548 34,078 15.b.
16. Other borrowed money:
a. With a remaining maturity of one year or less ........................................... RCFD 2332 575,600 16.a.
b. With a remaining maturity of more than one year ......................................... RCFD 2333 647,284 16.b.
17. Mortgage indebtedness and obligations under capitalized leases ............................. RCFD 2910 11,403 17.
18. Bank's liability on acceptances executed and outstanding ................................... RCFD 2920 14,235 18.
19. Subordinated notes and debentures .......................................................... RCFD 3200 1,213,219 19.
20. Other liabilities (from Schedule RC-G) ..................................................... RCFD 2930 987,930 20.
21. Total liabilities (sum of items 13 through 20) ............................................. RCFD 2948 44,991,452 21.
22. Limited-life preferred stock and related surplus ........................................... RCFD 3282 0 22.
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus .............................................. RCFD 3838 125,000 23.
24. Common stock ............................................................................... RCFD 3230 19,487 24.
25. Surplus (exclude all surplus related to preferred stock) ................................... RCFD 3839 2,551,927 25.
26. a. Undivided profits and capital reserves .................................................. RCFD 3632 1,739,604 26.a
b. Net unrealized holding gains (losses) on available-for-sale securities .................. RCFD 8434 (16,263) 26.b
27. Cumulative foreign currency translation adjustments ........................................ RCFD 3284 0 27.
28. Total equity capital (sum of items 23 through 27) .......................................... RCFD 3210 4,419,755 28.
29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21,
22, and 28) ................................................................................ RCFD 3300 49,411,207 29.
----------------------
</TABLE>
Memorandum
To be reported only with the March Report of Condition.
<TABLE>
<CAPTION>
Number
------------------
<S> <C> <C> <C>
1. Indicate in the box at the right the number of the statement below that best describes the
most comprehensive level of auditing work performed for the bank by independent external
auditors as of any date during 1995 ........................................................... RCFD 6724 N/A M.1.
------------------
</TABLE>
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified public
accounting firm which submits a report on the consolidated holding company
(but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm (may be
required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors
(may be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
- ------------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
12
<PAGE>
<TABLE>
<S> <C> <C>
Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031
Address: One Monarch Place Page RC-3
City State Zip: Springfield, MA 01102
FDIC Certificate No.: 0 2 4 9 9
---------
</TABLE>
SCHEDULE RC-A--CASH AND BALANCES DUE FROM DEPOSITORY INSTITUTIONS
Exclude assets held for trading.
<TABLE>
<CAPTION>
C405
--------------------------------------------
(Column A) (Column B)
Consolidated Domestic
Bank Offices
-------------------- ---------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou RCON Bil Mil Thou
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Cash items in process of collection, unposted debits, and currency and
coin..................................................................... 0022 3,629,071 1.
a. Cash items in process of collection and unposted debits............... 0020 2,937,263 1.a.
b. Currency and coin..................................................... 0080 691,808 1.b.
2. Balances due from depository institutions in the U.S..................... 0082 153,295 2.
a. U.S. branches and agencies of foreign banks (including their IBFs).... 0083 0 2.a.
b. Other commercial banks in the U.S. and other depository institutions
in the U.S. (including their IBFs).................................... 0085 153,370 2.b
3. Balances due from banks in foreign countries and foreign central banks... 0070 8,998 3.
a. Foreign branches of other U.S. Banks.................................. 0073 454 3.a.
b. Other banks in foreign countries and foreign central banks............ 0074 9,045 3.b.
4. Balances due from Federal Reserve Banks.................................. 0090 168,048 0090 168,048 4.
5. Total (sum of items 1 through 4) (total of column A must equal
Schedule RC, sum of items 1.a and 1.b)................................... 0010 3,959,988 0010 3,959,412 5.
--------------------------------------------
<CAPTION>
Memorandum Dollar Amounts in Thousands RCON Bil Mil Thou
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Noninterest-bearing balances due from commercial banks in the U.S. (included in item 2,
column B above) 0050 122,585 M.1.
</TABLE>
SCHEDULE RC-B--SECURITIES
Exclude assets held for trading.
<TABLE>
<CAPTION>
C410
-----------------------------------------------------------------------------------------
Held-to-maturity Available-for-sale
------------------------------------------- -------------------------------------------
(Column A) (Column B) (Column C) (Column D)
Amortized Cost Fair Value Amortized Cost Fair Value(1)
-------------------- -------------------- -------------------- --------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. U.S. Treasury securities....... 0211 250 0213 250 1286 1,501,551 1287 1,483,819 1.
2. U.S. Government agency and
corporation obligations
(exclude mortgage-backed
securities):
a. Issued by U.S. Government
agencies(2)................. 1289 0 1290 0 1291 0 1293 0 2.a.
b. Issued by U.S. Government-
sponsored agencies(3)....... 1294 0 1295 0 1297 499 1298 503 2.b.
-----------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) Includes equity securities without readily determinable fair values at
historical cost in item 6.c, column D.
(2) Includes Small Business Administration "Guaranteed Loan Pool Certificates,"
U.S. Maritime Administration obligations, and Export-Import Bank
participation certificates.
(3) Includes obligations (other than mortgage-backed securities) issued by the
Farm Credit System, the Federal Home Loan Bank System, the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, the
Financing Corporation, Resolution Funding Corporation, the Student Loan
Marketing Association, and the Tennessee Valley Authority.
13
<PAGE>
<TABLE>
<S> <C> <C>
Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031
Address: One Monarch Place Page RC-4
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: 0 2 4 9 9
---------
</TABLE>
SCHEDULE RC-B--CONTINUED
<TABLE>
<CAPTION>
Held-to-maturity Available-for-sale
------------------------------------ ----------------------------------------
(Column A) (Column B) (Column C) (Column D)
Amortized Cost Fair Value Amortized Cost Fair Value(1)
----------------- ----------------- ----------------- --------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou
- ----------------------------- ----------------- ----------------- ----------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3. Securities issued by states
and political subdivisions
in the U.S.:
a. General obligations...... 1676 172,838 1677 172,764 1678 0 1679 0 3.a.
b. Revenue obligations...... 1681 13,265 1686 13,268 1690 0 1691 0 3.b.
c. Industrial development
and similar obligations.. 1694 0 1695 0 1696 0 1697 0 3.c.
4. Mortgage-backed
securities (MBS):
a. Pass-through securities:
(1) Guaranteed by
GNMA................ 1698 0 1699 0 1701 826,767 1702 821,306 4.a.(1)
(2) Issued by FNMA
and FHLMC........... 1703 886 1705 886 1706 4,672,031 1707 4,668,468 4.a.(2)
(3) Other pass-through
securities.......... 1709 4 1710 4 1711 4 1713 0 4.a.(3)
b. Other mortgage-backed
securities (include
CMOs, REMICs, and
stripped MBS):
(1) Issued or
guaranteed by FNMA,
FHLMC, or GNMA...... 1714 0 1715 0 1716 0 1717 0 4.b.(1)
(2) Collateralized by
MBS issued or
guaranteed by FNMA,
FHLMC, or GNMA...... 1718 0 1719 0 1731 0 1732 0 4.b.(2)
(3) All other mortgage-
backed securities... 1733 0 1734 0 1735 481 1736 481 4.b.(3)
5. Other debt securities:
a. Other domestic debt
securities.............. 1737 0 1738 0 1739 715 1741 709 5.a.
b. Foreign debt
securities.............. 1742 97,045 1743 84,773 1744 0 1746 0 5.b.
6. Equity securities:
a. Investments in mutual
funds................... 1747 28,870 1748 28,870 6.a.
b. Other equity securities
with readily determin-
able fair values........ 1749 0 1751 0 6.b.
c. All other equity
securities(1)........... 1752 311,734 1753 311,734 6.c.
7. Total (sum of items 1
through 6) (total of
column A must equal
Schedule RC, item 2.a)
(total of column D must
equal Schedule RC,
item 2.b).................. 1754 284,288 1771 271,945 1772 7,342,648 1773 7,315,890 7.
</TABLE>
- ------------------
(1) Includes equity securities without readily determinable fair values at
historical cost in item 6.c, column D.
14
<PAGE>
Legal Title of Bank: Fleet National Bank Call Date: 9/30/96
Address: One Monarch Place ST-BK: 25-0590 FFIEC 031
City, State Zip: Springfield, MA 01102 Page RC-5
FDIC Certificate No.: 0 2 4 9 9
---------
SCHEDULE RC-B--CONTINUED
<TABLE>
<CAPTION>
--------
Memoranda C412
--------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Pledged securities(2) ................................................................. 0416 3,825,264 M.1.
2. Maturity and repricing data for debt securities(2), (3), (4) (excluding those in
nonaccrual status):
a. Fixed rate debt securities with a remaining maturity of:
(1) Three months or less ........................................................... 0343 70,352 M.2.a.(1)
(2) Over three months through 12 months ............................................ 0344 102,839 M.2.a.(2)
(3) Over one year through five years ............................................... 0345 2,792,361 M.2.a.(3)
(4) Over five years ................................................................ 0346 2,959,066 M.2.a.(4)
(5) Total fixed rate debt securities (sum of Memorandum items 2.a.(1) through
2.a.(4) ........................................................................ 0347 5,924,618 M.2.a.(5)
b. Floating rate debt securities with a repricing frequency of:
(1) Quarterly or more frequently ................................................... 4544 504,558 M.2.b.(1)
(2) Annually or more frequently, but less frequently than quarterly ................ 4545 830,398 M.2.b.(2)
(3) Every five years or more frequently, but less frequently than annually ......... 4551 0 M.2.b.(3)
(4) Less frequently than every five years .......................................... 4552 0 M.2.b.(4)
(5) Total floating rate debt securities (sum of Memorandum items 2.b.(1) through
2.b.(4) ........................................................................ 4553 1,334,956 M.2.b.(5)
c. Total debt securities (sum of Memorandum items 2.a.(5) and 2.b.(5)) (must equal
total debt securities from Schedule RC-B, sum of items 1 through 5, columns A and D,
minus nonaccrual debt securities included in Schedule RC-N, item 9, column C) ...... 0393 7,259,574 M.2.c.
3. Not applicable
4. Held-to-maturity debt securities restructured and in compliance with modified terms
(included in Schedule RC-B, items 3 through 5, column A, above) ....................... 5365 0 M.4.
5. Not applicable
6. Floating rate debt securities with a remaining maturity of one year or less(2), (4)
(included in memorandum items 2.b.(1) through 2.b.(4) above) .......................... 5519 4,700 M.6.
7. Amortized cost of held-to-maturity securities sold or transferred to available-for-
sale or trading securities during the calendar year-to-date (report the amortized cost
at date of sale or transfer) .......................................................... 1778 0 M.7.
8. High-risk mortgage securities (included in the held-to-maturity and available-for-sale
accounts in Schedule RC-B, item 4.b):
a. Amortized cost ..................................................................... 8780 0 M.8.a.
b. Fair value ......................................................................... 8781 0 M.8.b.
9. Structured notes (included in the held-to-maturity and available-for-sale accounts in
Schedule RC-B, items 2, 3, and 5):
a. Amortized cost ..................................................................... 8782 0 M.9.a.
b. Fair value ......................................................................... 8783 0 M.9.b.
---------------------
</TABLE>
- --------------
(2) Includes held-to-maturity securities at amortized cost and available-forsale
securities at fair value.
(3) Excludes equity securities, e.g., investments in mutual funds, Federal
Reserve stock, common stock, and preferred stock.
(4) Memorandum items 2 and 6 are not applicable to savings banks that must
complete supplemental Schedule RC-J.
15
<PAGE>
Legal Title of Bank: Fleet National Bank Call Date: 9/30/96
Address: One Monarch Place ST-BK: 25-0590 FFIEC 031
City, State Zip: Springfield, MA 01102 Page RC-6
FDIC Certificate No.: 0 2 4 9 9
---------
SCHEDULE RC-C--LOANS AND LEASE FINANCING RECEIVABLES
PART I. LOANS AND LEASES
Do not deduct the allowance for loan and lease losses from amounts reported in
this schedule. Report total loans and leases, net of unearned income. Exclude
assets held for trading.
<TABLE>
<CAPTION>
C415
----------------------- -----------------------
(Column A) (Column B)
Consolidated Domestic
Bank Offices
----------------------- -----------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou RCON Bil Mil Thou
- ------------------------------------------------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
1. Loans secured by real estate............................. 1410 11,784,177 1.
a. Construction and land development...................... 1415 548,373 1.a.
b. Secured by farmland (including farm residential and
other improvements).................................... 1420 2,097 1.b.
c. Secured by 1-4 family residential properties:
(1) Revolving, open-end loans secured by 1-4 family
residential properties and extended under lines
of credit.......................................... 1797 1,993,022 1.c.(1)
(2) All other loans secured by 1-4 family residential
properties:
(a) Secured by first liens......................... 5367 4,386,615 1.c.(2)(a)
(b) Secured by junior liens........................ 5368 492,852 1.c.(2)(b)
d. Secured by multifamily (5 or more) residential
properties............................................. 1460 534,555 1.d.
e. Secured by nonfarm nonresidential properties........... 1480 3,826,663 1.e.
2. Loans to depository institutions:
a. To commercial banks in the U.S. ....................... 1505 184,751 2.a.
(1) To U.S. branches and agencies of foreign banks.... 1506 0 2.a.(1)
(2) To other commercial banks in the U.S. ............ 1507 184,751 2.a.(2)
b. To other depository institutions in the U.S. ......... 1517 13,595 1517 13,595 2.b.
c. To banks in foreign countries......................... 1510 1,346 2.c.
(1) To foreign branches of other U.S. banks........... 1513 160 2.c.(1)
(2) To other banks in foreign countries............... 1516 1,186 2.c.(2)
3. Loans to finance agricultural production and other
loans to farmers......................................... 1590 5,208 1590 5,208 3.
4. Commercial and industrial loans:
a. To U.S. addressees (domicile)......................... 1763 13,126,493 1763 13,078,732 4.a.
b. To non-U.S. addressees (domicile)..................... 1764 63,365 1764 30,053 4.b.
5. Acceptances of other banks:
a. Of U.S. banks......................................... 1756 0 1756 0 5.a.
b. Of foreign banks...................................... 1757 0 1757 0 5.b.
6. Loans to individuals for household, family, and other
personal expenditures (i.e., consumer loans) (includes
purchased paper)......................................... 1975 2,129,035 6.
a. Credit cards and related plans (includes check credit
and other revolving credit plans)..................... 2008 98,959 6.a.
b. Other (includes single payment, installment, and all
student loans)........................................ 2011 2,030,076 6.b.
7. Loans to foreign governments and official institutions
(including foreign central banks)........................ 2081 0 2081 0 7.
8. Obligations (other than securities and leases) of
states and political subdivisions in the U.S.
(includes nonrated industrial development obligations)... 2107 155,642 2107 155,642 8.
9. Other loans.............................................. 1563 2,082,709 9.
a. Loans for purchasing or carrying securities
(secured and unsecured)............................... 1545 157,698 9.a.
b. All other loans (exclude consumer loans).............. 1564 1,925,011 9.b.
10. Lease financing receivables (net of unearned income).... 2165 2,456,643 10.
a. Of U.S. addressees (domicile)......................... 2182 2,456,643 10.a.
b. Of non-U.S. addressees (domicile)..................... 2183 0 10.b.
11. LESS: Any unearned income on loans reflected in
items 1-9 above.......................................... 2123 0 2123 0 11.
12. Total loans and leases, net of unearned income (sum
of items 1 through 10 minus item 11) (total of
column A must equal Schedule RC, item 4.a)............... 2122 32,002,964 2122 31,921,891 12.
</TABLE>
16
<PAGE>
Legal Title of Bank: Fleet National Bank Call Date: 9/30/96
Address: One Monarch Place ST-BK: 25-0590 FFIEC 031
City, State Zip: Springfield, MA 01102 Page RC-7
FDIC Certificate No.: 0 2 4 9 9
---------
SCHEDULE RC-C--CONTINUED
PART I. CONTINUED
<TABLE>
<CAPTION>
(Column A) (Column B)
Consolidated Domestic
Bank Offices
----------------- -----------------
Memoranda Dollar Amounts in Thousands RCFD Bil Mil Thou RCON Bil Mil Thou
- -------------------------------------------------------------------------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
1. Commercial paper included in Schedule RC-C, part I, above .................. 1496 0 1496 0 M.1.
2. Loans and leases restructured and in compliance with modified terms
(included in Schedule RC-C, part I, above and not reported as past due or
nonaccrual in Schedule RC-N, Memorandum item 1):
a. Loans secured by real estate:
(1) To U.S. addressees (domicile) ...................................... 1687 6,593 M.2.a.(1)
(2) To non-U.S. addressees (domicile) .................................. 1689 0 M.2.a.(2)
b. All other loans and all lease financing receivables (exclude loans to
individuals for household, family, and other personal expenditures) .... 8691 1,770 M.2.b.
c. Commercial and industrial loans to and lease financing receivables
of non-U.S. addresses (domicile) included in Memorandum item 2.b
above................................................................... 8692 0 M.2.c.
3. Maturity and repricing data for loans and leases(1) (excluding those in
nonaccrual status):
a. Fixed rate loans and leases with a remaining maturity of:
(1) Three months or less ............................................... 0348 1,695,265 M.3.a.(1)
(2) Over three months through 12 months ............................... 0349 1,681,892 M.3.a.(2)
(3) Over one year through five years ................................... 0356 5,059,493 M.3.a.(3)
(4) Over five years .................................................... 0357 1,758,418 M.3.a.(4)
(5) Total fixed rate loans and leases (sum of Memorandum
items 3.a.(1) through 3.a.(4))...................................... 0358 10,195,068 M.3.a.(5)
b. Floating rate loans with a repricing frequency
(1) Quarterly or more frequently ....................................... 4554 18,981,879 M.3.b.(1)
(2) Annually or more frequently, but less frequently than quarterly .... 4555 1,675,386 M.3.b.(2)
(3) Every five years or more frequently, but less frequently than
annually ........................................................... 4561 758,500 M.3.b.(3)
(4) Less frequently than every five years .............................. 4564 79,024 M.3.b.(4)
(5) Total floating rate loans (sum of Memorandum items 3.b.(1)
through 3.b.(4)) ................................................... 4567 21,494,789 M.3.b.(5)
c. Total loans and leases (sum of Memorandum items 3.a.(5) and
3.b.(5)) (must equal the sum of total loans and leases, net, from
Schedule RC-C, part I, item 12, plus unearned income from Schedule RC-C,
part I, item 11, minus total nonaccrual loans and
leases from Schedule RC-N, sum of items 1 through 8, column C) ......... 1479 31,689,857 M.3.c.
d. Floating rate loans with a remaining maturity of one year or less
(included in Memorandum items 3.b.(1) through 3.b.(4) above) ........... A246 0 M.3.d.
4. Loans to finance commercial real estate, construction, and land
development activities (not secured by real estate) included in
Schedule RC-C, part I, items 4 and 9, column A, page RC-6(2) ............... 2746 305,298 M.4.
5. Loans and leases held for sale (included in Schedule RC-C, part I,
above) ..................................................................... 5369 0 M.5.
------------------------
6. Adjustable rate closed-end loans secured by first liens on 1-4 family RCON Bil Mil Thou
residential properties (included in Schedule RC-C, part I, item 1.c.(2)(a), ------------------------
column B, page RC-6) ....................................................... <C> <C> <C>
5370 1,706,916 M.6.
- --------------
(1) Memorandum item 3 is not applicable to savings banks that must complete
supplemental Schedule RC-J. (2) Exclude loans secured by real estate that are
included in Schedule RC-C, part I, item 1, column A.
</TABLE>
17
<PAGE>
<TABLE>
<S> <C> <C>
Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031
Address: One Monarch Place Page RC-8
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: 0 2 4 9 9
---------
</TABLE>
SCHEDULE RC-D--TRADING ASSETS AND LIABILITIES
Schedule RC-D is to be completed only by banks with $1 billion or more in total
assets or with $2 billion or more in par/notional amount of off-balance sheet
derivative contracts (as reported in Schedule RC-L, items 14.a through 14.e,
columns A through D).
<TABLE>
<CAPTION>
-----
C420
-----------------------
Dollar Amounts in Thousands Bil Mil Thou
- -------------------------------------------------------------------------------------------------- -----------------------
<S> <C> <C> <C>
ASSETS
1. U.S. Treasury securities in domestic offices ................................................ RCON 3531 0 1.
2. U.S. Government agency and corporation obligations in domestic offices (exclude mortgage-
backed securities) .......................................................................... RCON 3532 0 2.
3. Securities issued by states and political subdivisions in the U.S. in domestic offices ...... RCON 3533 0 3.
4. Mortgage-backed securities (MBS) in domestic offices:
a. Pass-through securities issued or guaranteed by FNMA, FHLMC, or GNMA ..................... RCON 3534 0 4.a.
b. Other mortgage-backed securities issued or guaranteed by FNMA, FHLMC, or GNMA
(include CMOs, REMICs, and stripped MBS) ................................................. RCON 3535 0 4.b.
c. All other mortgage-backed securities ..................................................... RCON 3536 0 4.c.
5. Other debt securities in domestic offices ................................................... RCON 3537 0 5.
6. Certificates of deposit in domestic offices ................................................. RCON 3538 0 6.
7. Commercial paper in domestic offices ........................................................ RCON 3539 0 7.
8. Bankers acceptances in domestic offices ..................................................... RCON 3540 0 8.
9. Other trading assets in domestic offices .................................................... RCON 3541 0 9.
10. Trading assets in foreign offices ........................................................... RCFN 3542 0 10.
11. Revaluation gains on interest rate, foreign exchange rate, and other commodity and equity
contracts:
a. In domestic offices ...................................................................... RCON 3543 43,581 11.a.
b. In foreign offices ....................................................................... RCFN 3544 4,530 11.b.
12. Total trading assets (sum of items 1 through 11) (must equal Schedule RC, item 5) ........... RCFD 3545 48,111 12.
-----------------------
LIABILITIES Bil Mil Thou
-----------------------
13. Liability for short positions ............................................................... RCFD 3546 0 13.
14. Revaluation losses on interest rate, foreign exchange rate, and other commodity and equity
contracts ................................................................................... RCFD 3547 34,078 14.
15. Total trading liabilities (sum of items 13 and 14) (must equal Schedule RC, item 15.b) ...... RCFD 3548 34,078 15.
-----------------------
</TABLE>
18
<PAGE>
Legal Title of Bank: Fleet National Bank Call Date: 9/30/96
Address: One Monarch Place ST-BK: 25-0590 FFIEC 031
City, State Zip: Springfield, MA 01102 Page RC-9
FDIC Certificate No.: 0 2 4 9 9
---------
SCHEDULE RC-E--DEPOSIT LIABILITIES
PART I. DEPOSITS IN DOMESTIC OFFICES
<TABLE>
<CAPTION>
--------
C425
---------------------------------------------------------------
Nontransaction
Transaction Accounts Accounts
------------------------------------------- ---------------
(Column A) (Column B) (Column C)
Total transaction Memo: Total Total
accounts (including demand deposits nontransaction
total demand (included in accounts
deposits) column A) (including MMDAs)
------------------- ------------------- -------------------
Dollar Amounts in Thousands RCON Bil Mil Thou RCON Bil Mil Thou RCON Bil Mil Thou
- ------------------------------------------------------ ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Deposits of:
1. Individuals, partnerships, and corporations ....... 2201 9,213,807 2240 8,820,326 2346 21,863,734 1.
2. U.S. Government ................................... 2202 36,789 2280 36,769 2520 29,856 2.
3. States and political subdivisions in the U.S. ..... 2203 683,890 2290 461,287 2530 680,014 3.
4. Commercial banks in the U.S. ...................... 2206 653,505 2310 653,505 2550 771 4.
5. Other depository institutions in the U.S. ......... 2207 225,732 2312 225,732 2349 2,968 5.
6. Banks in foreign countries ........................ 2213 11,881 2320 11,881 2236 0 6.
7. Foreign governments and official institutions
(including foreign central banks) ................. 2216 1,386 2300 1,386 2377 0 7.
8. Certified and official checks ..................... 2330 169,979 2330 169,979 8.
9. Total (sum of items 1 through 8) (sum of
columns A and C must equal Schedule RC,
item 13.a) ........................................ 2215 10,996,969 2210 10,380,865 2385 22,577,343 9.
------------------- ------------------- -------------------
</TABLE>
Memoranda
<TABLE>
<CAPTION>
Dollar Amounts in Thousands RCON Bil Mil Thou
- ----------------------------------------------------------------------------------------------------- -----------------
<S> <C> <C>
1. Selected components of total deposits (i.e., sum of item 9, columns A and C):
a. Total Individual Retirement Accounts (IRAs) and Keogh Plan accounts .......................... 6835 2,679,044 M.1.a.
b. Total brokered deposits ...................................................................... 2365 1,542,597 M.1.b.
c. Fully insured brokered deposits (included in Memorandum item 1.b above):
(1) Issued in denominations of less than $100,000 ............................................ 2343 2,240 M.1.c.(1)
(2) Issued either in denominations of $100,000 or in denominations greater than
$100,000 and participated out by the broker in shares of $100,000 or less ................ 2344 1,540,357 M.1.c.(2)
d. Maturity data for brokered deposits:
(1) Brokered deposits issued in denominations of less than $100,000 with a remaining
maturity of one year or less (included in Memorandum item 1.c.(1) above) ................. A243 110 M.1.d.(a)
(2) Brokered deposits issued in denominations of $100,000 or more with a remaining
maturity of one year or less (included in Memorandum item 1.b above) ..................... A244 601,205 M.1.d.(2)
e. Preferred deposits (uninsured deposits of states and political subdivisions in the U.S.
reported in item 3 above which are secured or collateralized as required under state law) .... 5590 477,275 M.1.e.
2. Components of total nontransaction accounts (sum of Memorandum items 2.a through 2.d
must equal item 9, column C above):
a. Savings deposits:
(1) Money market deposit accounts (MMDAs) .................................................... 6810 10,310,776 M.2.a.(1)
(2) Other savings deposits (excludes MMDAs) .................................................. 0352 2,519,554 M.2.a.(2)
b. Total time deposits of less than $100,000 .................................................... 6648 7,097,828 M.2.b.
c. Time certificates of deposit of $100,000 or more ............................................. 6645 2,649,185 M.2.c.
d. Open-account time deposits of $100,000 or more ............................................... 6646 0 M.2.d.
3. All NOW accounts (included in column A above) .................................................... 2398 616,104 M.3.
-------------------
4. Not applicable
</TABLE>
19
<PAGE>
Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031
Legal Title of Bank: Fleet National Bank Page PR-10
Address: One Monarch Place
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: 0 2 4 9 9
---------
SCHEDULE RC-E--CONTINUED
PART I. CONTINUED
Memoranda (continued)
<TABLE>
<CAPTION>
Dollar Amounts in Thousands RCON Bil Mil Thou
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
5. Maturity and repricing data for time deposits of less than $100,000 (sum of
Memorandum items 5.a.(1) through 5.b.(3) must equal memorandum item 2.b
above):(1) a. Fixed rate time deposits of less than $100,000 with a
remaining maturity of:
(1) Three months or less ................................................................ A225 1,708,719 M.5.a.(1)
(2) Over three months through 12 months ................................................. A226 3,119,370 M.5.a.(2)
(3) Over one year ....................................................................... A227 2,182,483 M.5.a.(3)
b. Floating rate time deposits of less than $100,000 with a repricing frequency of:
(1) Quarterly or more frequently ........................................................ A228 87,256 M.5.b.(1)
(2) Annually or more frequently, but less frequently than quarterly ..................... A229 0 M.5.b.(2)
(3) Less frequently than annually ....................................................... A230 0 M.5.b.(3)
c. Floating rate time deposits of less than $100,000 with a remaining maturity of
one year or less (included in memorandum items 5.b.(1) through 5.b.(3) above) ........... A231 59,897 M.5.c.
6. Maturity and repricing data for time deposits of $100,000 or more (i.e., time certificates
of deposit of $100,000 or more and open-account time deposits of $100,000 or
more) (sum of Memorandum items 6.a.(1) through 6.b.(4) must equal the sum of
Memorandum items 2.c and 2.d above):(1) a. Fixed rate time deposits of
$100,000 or more with a remaining maturity of:
(1) Three months or less ................................................................ A232 660,156 M.6.a.(1)
(2) Over three months through 12 months ................................................. A233 868,600 M.6.a.(2)
(3) Over one year through five years .................................................... A234 1 ,111,843 M.6.a.(3)
(4) Over five years ..................................................................... A235 8,586 M.6.a.(4)
b. Floating rate time deposits of $100,000 or more with a repricing frequency of:
(1) Quarterly or more frequently ........................................................ A236 0 M.6.b.(1)
(2) Annually or more frequently, but less frequently than quarterly ..................... A237 0 M.6.b.(2)
(3) Every five years or more frequently, but less frequently than annually .............. A238 0 M.6.b.(3)
(4) Less frequently than every five years ............................................... A239 0 M.6.b.(4)
c. Floating rate time deposits of $100,000 or more with a remaining maturity of
one year or less (included in Memorandum items 6.b.(1) through 6.b.(4) above) ........... A240 0 M.6.c.
-----------------
</TABLE>
- --------------------
(1) Memorandum items 5 and 6 are not applicable to savings banks that must
complete supplemental Schedule RC-J.
20
<PAGE>
Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031
Legal Title of Bank: Fleet National Bank Page RC-11
Address: One Monarch Place
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: 0 2 4 9 9
---------
SCHEDULE RC-E--CONTINUED
PART II. DEPOSITS IN FOREIGN OFFICES (INCLUDING EDGE AND
AGREEMENT SUBSIDIARIES AND IBFS)
<TABLE>
<CAPTION>
-------------------------
Dollars Amounts in Thousands RCFN Bil Mil Thou
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deposits of:
1. Individuals, partnerships, and corporations........................................... 2621 1,746,651 1.
2. U.S. banks (including IBFs and foreign branches of U.S. banks) ....................... 2623 0 2.
3. Foreign banks (including U.S. branches and agencies of foreign banks,
including their IBFs)............................................................... 2625 0 3.
4. Foreign governments and official institutions (including foreign central banks)....... 2650 0 4.
5. Certified and official checks ........................................................ 2330 0 5.
6. All other deposits.................................................................... 2668 71,060 6.
7. Total (sum of items 1 through 6) (must equal Schedule RC, item 13.b).................. 2200 1,817,711 7.
-------------------------
Memorandum Dollars Amounts in Thousands RCFN Bil Mil Thou
- ------------------------------------------------------------------------------------------------------------------
1. Time deposits with a remaining maturity of one year or less
(included in Part II, item 7 above)................................................ A245 1,817,674 M.1.
</TABLE>
SCHEDULE RC-F--OTHER ASSETS
<TABLE>
<CAPTION>
C430
-----------------------------
Dollars Amounts in Thousands Bil Mil Thou
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Income earned, not collected on loans................................................. RCFD 2164 161,790 1.
2. Net deferred tax assets(1)............................................................ RCFD 2148 0 2.
3. Excess residential mortgage servicing fees receivable................................. RCFD 5371 153,788 3.
4. Other (itemize and describe amounts that exceed 25% of this item)..................... RCFD 2168 3,383,658 4.
------------- --------------------------
a. TEXT 3549 Mortgages Held For Resale RCFD 3549 1,555,298 4.a.
------------- ------------------------------------------
b. TEXT 3550 RCFD 3550 4.b.
------------- ------------------------------------------
c. TEXT 3551 RCFD 3551 4.c.
-----------------------------------------------------------------------------------
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 11).................... RCFD 2160 3,699,236 5.
-------------------------
Memorandum Dollars Amounts in Thousands RCFN Bil Mil Thou
- ------------------------------------------------------------------------------------------------------------------
1. Deferred tax assets disallowed for regulatory capital purposes........................ RCFD 5610 0 M.1.
</TABLE>
SCHEDULE RC-G--OTHER LIABILITIES
<TABLE>
<CAPTION>
C435
-----------------------------
Dollars Amounts in Thousands Bil Mil Thou
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. a. Interest accrued and unpaid on deposits in domestic offices(2)..................... RCON 3645 47,460 1.a.
b. Other expenses accrued and unpaid (includes accrued income taxes payable).......... RCFD 3646 565,126 1.b.
2. Net deferred tax liabilities(1)....................................................... RCFD 3049 268,231 2.
3. Minority interest in consolidated subsidiaries........................................ RCFD 3000 0 3.
4. Other (itemize and describe amounts that exceed 25% of this item)..................... RCFD 2938 107,113 4.
------------- --------------------------
a. TEXT 3552 RCFD 3552 4.a.
------------- ------------------------------------------
b. TEXT 3553 RCFD 3553 4.b.
------------- ------------------------------------------
c. TEXT 3554 RCFD 3554 4.c.
-----------------------------------------------------------------------------------
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 20).................... RCFD 2930 987,930 5.
</TABLE>
- --------------
(1) See discussion of deferred income taxes in Glossary entry on"income taxes."
For savings banks, include "dividends" accrued and unpaid on deposits.
21
<PAGE>
Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031
Legal Title of Bank: Fleet National Bank Page RC-12
Address: One Monarch Place
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: 0 2 4 9 9
---------
SCHEDULE RC-H--SELECTED BALANCE SHEET ITEMS FOR DOMESTIC OFFICES
<TABLE>
<CAPTION>
--------
C440
--------------------
Domestic Offices
--------------------
Dollar Amounts in Thousands RCON Bil Mil Thou
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Customers' liability to this bank on acceptances outstanding .................................. 2155 14,235 1.
2. Bank's liability on acceptances executed and outstanding ...................................... 2920 14,235 2.
3. Federal funds sold and securities purchased under agreements to resell ........................ 1350 32,521 3.
4. Federal funds purchased and securities sold under agreements to repurchase .................... 2800 4,526,632 4.
5. Other borrowed money .......................................................................... 3190 1,222,884 5.
EITHER ////////////////////
6. Net due from own foreign offices, Edge and Agreement subsidiaries, and IBFs ................... 2163 N/A 6.
OR ////////////////////
7. Net due to own foreign offices, Edge and Agreement subsidiaries, and IBFs ..................... 2941 1,800,174 7.
8. Total assets (excludes net due from foreign offices, Edge and Agreement subsidiaries, and ////////////////////
IBFs) ......................................................................................... 2192 49,324,712 8.
9. Total liabilities (excludes net due to foreign offices, Edge and Agreement subsidiaries, and ////////////////////
IBFs) ......................................................................................... 3129 43,104,783 9.
--------------------
<CAPTION>
Items 10-17 include held-to-maturity and available-for-sale securities in
domestic offices.
--------------------
RCON Bil Mil Thou
--------------------
<S> <C> <C> <C>
10. U.S. Treasury securities ...................................................................... 1779 1,484,069 10.
11. U.S. Government agency and corporation obligations (exclude mortgage-backed ////////////////////
securities) ................................................................................... 1785 503 11.
12. Securities issued by states and political subdivisions in the U.S. ............................ 1786 186,103 12.
13. Mortgage-backed securities (MBS): ////////////////////
a. Pass-through securities: ////////////////////
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA ........................................... 1787 5,490,660 13.a.(1)
(2) Other pass-through securities .......................................................... 1869 4 13.a.(2)
b. Other mortgage-backed securities (include CMOs, REMICs, and stripped MBS): ////////////////////
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA ........................................... 1877 0 13.b.(1)
(2) All other mortgage-backed securities ................................................... 2253 481 13.b.(2)
14. Other domestic debt securities ................................................................ 3159 709 14.
15. Foreign debt securities ....................................................................... 3160 97,045 15.
16. Equity securities: ////////////////////
a. Investments in mutual funds ................................................................ 3161 28,870 16.a.
b. Other equity securities with readily determinable fair values .............................. 3162 0 16.b.
c. All other equity securities ................................................................ 3169 311,734 16.c.
17. Total held-to-maturity and available-for-sale securities (sum of items 10 through 16) ......... 3170 7,600,178 17.
--------------------
<CAPTION>
Memorandum (to be completed only by banks with ibfs and other "foreign" offices)
--------------------
Dollar Amounts in Thousands RCON Bil Mil Thou
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EITHER ////////////////////
1. Net due from the IBF of the domestic offices of the reporting bank ............................ 3051 0 M.1.
OR ////////////////////
2. Net due to the IBF of the domestic offices of the reporting bank .............................. 3059 N/A M.2.
--------------------
</TABLE>
22
<PAGE>
Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031
Legal Title of Bank: Fleet National Bank Page RC-13
Address: One Monarch Place
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: 0 2 4 9 9
---------
SCHEDULE RC-I--SELECTED ASSETS AND LIABILITIES OF IBFs
To be completed only by banks with IBFs and other "foreign" offices.
<TABLE>
<CAPTION>
C445
--------------------
Dollar Amounts in Thousands RCFN Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Total IBF assets of the consolidated bank (component of Schedule RC, item 12)............... 2133 0 1.
2. Total IBF loans and lease financing receivables (component of Schedule RC-C, part I,
item 12, column A........................................................................... 2076 0 2.
3. IBF commercial and industrial loans (component of Schedule RC-C, part I, item 4,
column A)................................................................................... 2077 0 3.
4. Total IBF liabilities (component of Schedule RC, item 21)................................... 2898 0 4.
5. IBF deposit liabilities due to banks, including other IBFs (component of Schedule RC-E,
part II, items 2 and 3)..................................................................... 2379 0 5.
6. Other IBF deposit liabilities (component of Schedule RC-E, part II, items 1, 4, 5 and 6).... 2381 0 6.
--------------------
</TABLE>
SCHEDULE RC-K--QUARTERLY AVERAGES(1)
<TABLE>
<CAPTION>
C455
------------------------------
Dollar Amounts in Thousands Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
1. Interest-bearing balances due from depository institutions........................ RCFD 3381 11,877 1.
2. U.S. Treasury securities and U.S. Government agency and corporation
obligations(2).................................................................... RCFD 3382 7,015,138 2.
3. Securities issued by states and political subdivisions in the U.S.(2)............. RCFD 3383 170,402 3.
4. a. Other debt securities(2)....................................................... RCFD 3647 98,284 4.a.
b. Equity securities(3) (includes investments in mutual funds and Federal
Reserve stock)................................................................. RCFD 3648 347,251 4.b.
5. Federal funds sold and securities purchased under agreements to resell in
domestic offices of the bank and of its Edge and Agreement subsidiaries,
and in IBFs....................................................................... RCFD 3365 34,682 5.
Loans:
a. Loans in domestic offices:
(1) Total loans................................................................ RCON 3360 28,984,270 6.a.(1)
(2) Loans secured by real estate............................................... RCON 3385 11,632,311 6.a.(2)
(3) Loans to finance agricultural production and other loans to farmers........ RCON 3386 5,556 6.a.(3)
(4) Commercial and industrial loans............................................ RCON 3387 12,739,363 6.a.(4)
(5) Loans to individuals for household, family, and other personal
expenditures............................................................... RCON 3388 2,145,195 6.a.(5)
b. Total loans in foreign offices, Edge and Agreement subsidiaries, and IBFs...... RCFN 3360 70,538 6.b.
7. Trading assets.................................................................... RCFD 3401 78,267 7.
8. Lease financing receivables (net of unearned income).............................. RCFD 3484 2,345,903 8.
9. Total assets(4)................................................................... RCFD 3368 48,195,765 9.
LIABILITIES
10. Interest-bearing transaction accounts in domestic offices (NOW accounts, ATS
accounts, and telephone and preauthorized transfer accounts) (exclude demand
deposits)......................................................................... RCON 3485 621,447 10.
11. Nontransaction accounts in domestic offices:
a. Money market deposit accounts (MMDAs).......................................... RCON 3486 9,575,516 11.a.
b. Other savings deposits......................................................... RCON 3487 3,366,546 11.b.
c. Time certificates of deposit of $100,000 or more............................... RCON 3345 2,591,101 11.c.
d. All other time deposits........................................................ RCON 3469 7,248,888 11.d.
12. Interest-bearing deposits in foreign offices, Edge and Agreement subsidiaries,
and IBFs.......................................................................... RCFN 3404 1,891,869 12.
13. Federal funds purchased and securities sold under agreements to repurchase in
domestic offices of the bank and of its Edge and Agreement subsidiaries, and in
IBFs.............................................................................. RCFD 3353 5,441,316 13.
14. Other borrowed money.............................................................. RCFD 3355 1,166,403 14.
-------------------------------
</TABLE>
- ----------
(1) For all items, banks have the option of reporting either (1) an average of
daily figures for the quarter, or (2) an average of weekly figures (i.e.,
the Wednesday of each week of the quarter).
(2) Quarterly averages for all debt securities should be based on amortized
cost.
(3) Quarterly averages for all equity securities should be based on historical
cost.
(4) The quarterly average for total assets should reflect all debt securities
(not held for trading) at amortized cost, equity securities with readily
determinable fair values at the lower of cost or fair value, and equity
securities without readily determinable fair values at historical cost.
23
<PAGE>
<TABLE>
<S> <C> <C>
Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031
Address: One Monarch Place Page RC-14
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: 0 2 4 9 9
---------
</TABLE>
Schedule RC-L--Off-Balance Sheet Items
Please read carefully the instructions for the preparation of Schedule RC-L.
Some of the amounts reported in Schedule RC-L are regarded as volume indicators
and not necessarily as measures of risk.
<TABLE>
<CAPTION>
C460
-----------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou
- ---------------------------------------------------------------------------------- -----------------------
<S> <C> <C> <C>
1. Unused commitments:
a. Revolving, open-end lines secured by 1-4 family residential properties,
e.g., home equity lines.................................................... 3814 1,603,462 1.a.
b. Credit card lines.......................................................... 3815 35,582 1.b.
c. Commercial real estate, construction, and land development:
(1) Commitments to fund loans secured by real estate....................... 3816 447,874 1.c.(1)
(2) Commitments to fund loans not secured by real estate................... 6550 467,237 1.c.(2)
d. Securities underwriting.................................................... 3817 0 1.d.
e. Other unused commitments................................................... 3818 18,958,713 1.e.
2. Financial standby letters of credit and foreign office guarantees............. 3819 2,194,339 2.
a. Amount of financial standby letters of credit conveyed to others
RCFD 3820 85,446 2.a.
3. Performance standby letters of credit and foreign office guarantees........... 3821 173,093 3.
a. Amount of performance standby letters of credit conveyed to others
RCFD 3822 11,025 3.a.
4. Commercial and similar letters of credit...................................... 3411 155,635 4.
5. Participations in acceptances (as described in the instructions)
conveyed to others by the reporting bank...................................... 3428 13,822 5.
6. Participations in acceptances (as described in the instructions)
acquired by the reporting (nonaccepting) bank................................. 3429 11,805 6.
7. Securities borrowed........................................................... 3432 0 7.
8. Securities lent (including customers' securities lent where the customer
is indemnified against loss by the reporting bank)............................ 3433 200,546 8.
9. Loans transferred (i.e., sold or swapped) with recourse that have been
treated as sold for Call Report purposes:
a. FNMA and FHLMC residential mortgage loan pools:
(1) Outstanding principal balance of mortgages transferred as of the
report date............................................................ 3650 239,132 9.a.(1)
(2) Amount of recourse exposure on these mortgages as of the report date... 3651 239,132 9.a.(2)
b. Private (nongovernment-issued or -guaranteed) residential mortgage loan
pools:
(1) Outstanding principal balance of mortgages transferred as of the
report date............................................................ 3652 32,676 9.b.(1)
(2) Amount of recourse exposure on these mortgages as of the report date... 3653 32,676 9.b.(2)
c. Farmer Mac agricultural mortgage loan pools:
(1) Outstanding principal balance of mortgages transferred as of the
report date............................................................ 3654 0 9.c.(1)
(2) Amount of recourse exposure on these mortgages as of the report date... 3655 0 9.c.(2)
d. Small business obligations transferred with recourse under Section 208
of the Riegle Community Development and Regulatory Improvement Act
of 1994:
(1) Outstanding principal balance of small business obligations
transferred as of the report date...................................... A249 0 9.d.(1)
(2) Amount of retained recourse on these obligations as of the
report date............................................................ A250 0 9.d.(2)
10. When-issued securities:
a. Gross commitments to purchase............................................. 3434 0 10.a.
b. Gross commitments to sell................................................. 3435 0 10.b.
11. Spot foreign exchange contracts............................................... 8765 1,897,509 11.
12. All other off-balance sheet liabilities (exclude off-balance sheet
derivatives) (itemize and describe each component of this item over 25%
of Schedule RC, item 28, "Total equity capital").............................. 3430 0 12.
a. TEXT 3555 RCFD 3555 12.a.
b. TEXT 3556 RCFD 3556 12.b.
c. TEXT 3557 RCFD 3557 12.c.
d. TEXT 3558 RCFD 3558 12.d.
</TABLE>
24
<PAGE>
<TABLE>
<S> <C> <C>
Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031
Address: One Monarch Place Page RC-15
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: 0 2 4 9 9
---------
</TABLE>
SCHEDULE RC-L--CONTINUED
<TABLE>
<CAPTION>
-----------------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
13. All other off-balance sheet assets (exclude off-balance sheet derivatives)
itemize and describe each component of this item over 25% of Schedule RC,
item 28, "Total equity capital").................................................... 5591 0 13.
------------- --------------------------
a. TEXT 5592 RCFD 5592 13.a.
------------- ------------------------------------------
b. TEXT 5593 RCFD 5593 13.b.
------------- ------------------------------------------
c. TEXT 5594 RCFD 5594 13.c.
------------- ------------------------------------------
d. TEXT 5595 RCFD 5594 13.d.
-----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------
C461
---------------------------------------------------------------------------------------
(Column A) (Column B) (Column C) (Column D)
Dollar Amounts in Thousands Interest Rate Foreign Exchange Equity Derivative Commodity and
- ------------------------------ Contracts Contracts Contracts Other Contracts
Off-balance Sheet Derivatives ---------------------------------------------------------------------------------------
Position Indicators Tril Bil Mil Thou Tril Bil Mil Thou Tril Bil Mil Thou Tril Bil Mil Thou
- ------------------------------ ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
14. Gross amounts (e.g.,
notional amounts) (for each
column, sum of items 14.a
through 14.e must equal
sum of items 15, 16.a, and
16.b):
---------------------- --------------------- --------------------- --------------------
744,062 0 0 42,510 14.a.
---------------------- --------------------- --------------------- --------------------
a. Futures contracts...... RCFD 8693 RCFD 8694 RCFD 8695 RCFD 8696
---------------------- --------------------- --------------------- --------------------
b. Forward contracts...... 2,569,500 1,809,728 0 27,422 14.b.
---------------------- --------------------- --------------------- --------------------
RCFD 8697 RCFD 8698 RCFD 8699 RCFD 8700
---------------------- --------------------- --------------------- --------------------
c. Exchange-traded option
contracts:
---------------------- --------------------- --------------------- --------------------
(1) Written options.... 0 0 0 0 14.c.(1)
---------------------- --------------------- --------------------- --------------------
RCFD 8701 RCFD 8702 RCFD 8703 RCFD 8704
---------------------- --------------------- --------------------- --------------------
(2) Purchased options.. 902,500 0 0 1,746 14.c.(2)
---------------------- --------------------- --------------------- --------------------
d. Over-the-counter option
contracts: RCFD 8705 RCFD 8706 RCFD 8707 RCFD 8708
---------------------- --------------------- --------------------- --------------------
(1) Written options.... 1,251,332 1,443 0 0 14.d.(1)
---------------------- --------------------- --------------------- --------------------
RCFD 8709 RCFD 8710 RCFD 8711 RCFD 8712
---------------------- --------------------- --------------------- --------------------
(2) Purchased options.. 13,125,235 1,443 0 0 14.d.(2)
---------------------- --------------------- --------------------- --------------------
RCFD 8713 RCFD 8714 RCFD 8715 RCFD 8716
---------------------- --------------------- --------------------- --------------------
e. Swaps.................. 18,810,986 0 0 0 14.e.
---------------------- --------------------- --------------------- --------------------
RCFD 3450 RCFD 3826 RCFD 8719 RCFD 8720
---------------------- --------------------- --------------------- --------------------
15. Total gross notional
amount of derivative
contracts held for
trading................... 5,345,761 1,812,614 0 1,746 15.
---------------------- --------------------- --------------------- --------------------
RCFD A126 RCFD A127 RCFD 8723 RCFD 8724
---------------------- --------------------- --------------------- --------------------
16. Total gross notional
amount of derivative
contracts held for
purposes other than
trading:
---------------------- --------------------- --------------------- --------------------
a. Contracts not marked to
market................. 3,930,500 0 0 42,510 16.a.
---------------------- --------------------- --------------------- --------------------
RCFD 8725 RCFD 8726 RCFD 8727 RCFD 8728
---------------------- --------------------- --------------------- --------------------
b. Contracts not marked
to market.............. 28,127,354 0 0 27,422 16.b.
---------------------- --------------------- --------------------- --------------------
RCFD 8729 RCFD 8730 RCFD 8731 RCFD 8732
---------------------- --------------------- --------------------- --------------------
</TABLE>
25
<PAGE>
Legal Title of Bank: Fleet National Bank Call Date: 9/30/96
Address: One Monarch Place ST-BK: 25-0590 FFIEC 031
City, State Zip: Springfield, MA 01102 Page RC-16
FDIC Certificate No.: 0 2 4 9 9
---------
SCHEDULE RC--L--CONTINUED
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
(Column A) (Column B) (Column C) (Column D)
Dollar Amounts in Thousands Interest Rate Foreign Exchange Equity Derivative Commodity and
- ----------------------------- Contracts Contracts Contracts Other Contracts
Off-balance Sheet Derivatives -------------------------------------------------------------------------------------
Position Indicators RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
17. Gross fair values of
derivative contracts:
a. Contracts held for
trading:
(1) Gross positive
fair value............. 8733 29,453 8734 18,658 8735 0 8736 61 17.a.(1)
(2) Gross negative
fair value............. 8737 20,216 8738 13,862 8739 0 8740 0 17.a.(2)
b. Contracts held for
purposes other than
trading that are marked
to market:
(1) Gross positive
fair value............. 8741 655 8742 0 8743 0 8744 2,261 17.b.(1)
(2) Gross negative
fair value 8745 4,613 8746 0 8747 0 8748 0 17.b.(2)
c. Contracts held for
purposes other than
trading that are not
marked to market:
(1) Gross positive
fair value............. 8749 67,825 8750 0 8751 0 8752 123 17.c.(1)
(2) Gross negative
fair value............. 8753 112,527 8754 0 8755 0 8756 0 17.c.(2)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Memoranda Dollar Amounts in Thousands RCFD Bil Mil Thou
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1.-2. Not applicable
3. Unused commitments with an original maturity exceeding one year that are reported in
Schedule RC-L, items 1.a through 1.e, above (report only the unused portions
of commitments
that are fee paid or otherwise legally binding)................................................. 3833 16,723,351 M.3.
a. Participations in commitments with an original maturity ------------------------
exceeding one year conveyed to others............................. RCFD 3834 | 1,632,422 M.3.a.
------------------------
4. To be completed only by banks with $1 billion or more in total assets:
Standby letters of credit and foreign office guarantees (both financial and performance) issued
to non-U.S. addressees (domicile) included in Schedule RC-L, items 2 and 3, above............... 3377 332,359 M.4.
5. Installment loans to individuals for household, family, and other personal expenditures that
have been securitized and sold without recourse (with servicing retained), amounts outstanding
by type of loan:
a. Loans to purchase private passenger automobiles (to be completed for the
September report only)....................................................................... 2741 6,842 M.5.a.
b. Credit cards and related plans (TO BE COMPLETED QUARTERLY)................................... 2742 0 M.5.b.
c. All other consumer installment credit (including mobile home loans) (to be completed for the
September report only)....................................................................... 2743 0 M.5.c.
---------------------------
</TABLE>
26
<PAGE>
<TABLE>
<S> <C> <C>
Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031
Address: One Monarch Place Page RC-17
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: 0 2 4 9 9
---------
</TABLE>
SCHEDULE RC-M--MEMORANDA
<TABLE>
<CAPTION>
C465
-------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Extensions of credit by the reporting bank to its executive officers, directors, principal
shareholders, and their related interests as of the report date:
a. Aggregate amount of all extensions of credit to all executive officers, directors,
principal shareholders, and their related interests...................................... 6164 550,070 1.a
b. Number of executive officers, directors, and principal shareholders to whom the amount of
all extensions of credit by the reporting bank (including extensions of credit to related
interests) equals or exceeds the lesser of $500,000 or 5 percent Number
----------------
of total capital as defined for this purpose in agency regulations. RCFD 6165 22 1.b
----------------
2. Federal funds sold and securities purchased under agreements to resell with U.S. branches
and agencies of foreign banks(1) (included in Schedule RC, items 3.a and 3.b)............... 3405 0 2.
3. Not applicable.
4. Outstanding principal balance of 1-4 family residential mortgage loans
serviced for others (include both retained servicing and purchased
servicing):
a. Mortgages serviced under a GNMA contract ................................................ 5500 25,856,990 4.a.
b. Mortgages serviced under a FHLMC contract:
(1) Serviced with recourse to servicer................................................... 5501 54,298 4.b.(1)
(2) Serviced without recourse to servicer................................................ 5502 34,252,992 4.b.(2)
c. Mortgages serviced under a FNMA contract:
(1) Serviced under a regular option contract............................................. 5503 184,834 4.c.(1)
(2) Serviced under a special option contract............................................. 5504 40,751,543 4.c.(2)
d. Mortgages serviced under other servicing contracts....................................... 5505 11,239,928 4.d.
5. To be completed only by banks with $1 billion or more in total assets:
Customers' liability to this bank on acceptances outstanding (sum of items
5.a and 5.b must equal Schedule RC, item 9):
a. U.S. addressees (domicile)............................................................... 2103 14,104 5.a.
b. Non-U.S. addressees (domicile)........................................................... 2104 131 5.b.
6. Intangible assets:
a. Mortgage servicing rights............................................................... 3164 1,534,859 6.a.
b. Other identifiable intangible assets:
(1) Purchased credit card relationships................................................. 5506 0 6.b.(1)
(2) All other identifiable intangible assets............................................ 5507 116,198 6.b.(2)
c. Goodwill................................................................................ 3163 660,177 6.c.
d. Total (sum of items 6.a through 6.c) (must equal schedule RC, item 10).................. 2143 2,311,234 6.d.
e. Amount of intangible assets (included in item 6.b. (2) above) that have been
grandfathered or are otherwise qualifying for regulatory capital purposes............... 6442 0 6.e.
7. Mandatory convertible debt, net of common or perpetual stock dedicated to redeem the debt.. 3295 75,000 7.
</TABLE>
- ------------
(1) Do not report federal funds sold and securities purchased under agreements
to resell with other commercial banks in the U.S. in this item.
27
<PAGE>
Legal Title of Bank: Fleet National Bank Call Date: 9/30/96
Address: One Monarch Place ST-BK: 25-0590 FFIEC 031
City, State Zip: Springfield, MA 01102 Page RC-18
FDIC Certificate No.: 0 2 4 9 9
-----------
SCHEDULE RC-M--CONTINUED
<TABLE>
<CAPTION>
-------------------------
Dollar Amounts in Thousands Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
8. a. Other real estate owned:
(1) Direct and indirect investments in real estate ventures........................ RCFD 5372 0 8.a.(1)
(2) All other real estate owned:
(a) Construction and land development in domestic offices...................... RCON 5508 2,221 8.a.(2)(a)
(b) Farmland in domestic offices............................................... RCON 5509 0 8.a.(2)(b)
(c) 1-4 family residential properties in domestic offices...................... RCON 5510 9,228 8.a.(2)(c)
(d) Multifamily (5 or more) residential properties in domestic offices......... RCON 5511 441 8.a.(2)(d)
(e) Nonfarm nonresidential properties in domestic offices...................... RCON 5512 10,894 8.a.(2)(e)
(f) In foreign offices......................................................... RCFN 5513 0 8.a.(2)(f)
(3) Total (sum of items 8.a.(1) and 8.a.(2)) (Must equal Schedule RC, item 7)...... RCFD 2150 22,784 8.a.(3)
b. Investments in unconsolidated subsidiaries and associated companies:
(1) Direct and indirect investments in real estate ventures........................ RCFD 5374 0 8.b.(1)
(2) All other investments in unconsolidated subsidiaries and associated companies.. RCFD 5375 0 8.b.(2)
(3) Total (sum of items 8.b.(1) and 8.b.(2)) (must equal Schedule RC, item 8)...... RCFD 2130 0 8.b.(3)
c. Total assets of unconsolidated subsidiaries and associated companies............... RCFD 5376 0 8.c.
9. Noncumulative perpetual preferred stock and related surplus included in Schedule RC,
item 23, "Perpetual preferred stock and related surplus".............................. RCFD 3778 125,000 9.
10. Mutual fund and annuity sales in domestic offices during the quarter (include
proprietary, private label, and third party products):
a. Money market funds................................................................. RCON 6441 129,353 10.a.
b. Equity securities funds............................................................ RCON 8427 105,157 10.b.
c. Debt securities funds.............................................................. RCON 8428 10,646 10.c.
d. Other mutual funds................................................................. RCON 8429 0 10.d.
e. Annuities.......................................................................... RCON 8430 97,532 10.e.
f. Sales of proprietary mutual funds and annuities (included in items 10.a through
10.e above)........................................................................ RCON 8784 220,741 10.f.
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
--------------------
Memorandum Dollar Amounts in Thousands RCFD Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Interbank holdings of capital instruments (to be completed for the December report only):
a. Reciprocal holdings of banking organizations' capital instruments....................... 3836 N/A M.1.a.
b. Nonreciprocal holdings of banking organizations' capital instruments.................... 3837 N/A M.1.b.
--------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
Legal Title of Bank: Fleet National Bank Call Date: 9/30/96
Address: One Monarch Place ST-BK: 25-0590 FFIEC 031
City, State Zip: Springfield, MA 01102 Page RC-19
FDIC Certificate No.: 0 2 4 9 9
-----------
SCHEDULE RC-N--PAST DUE AND NONACCRUAL LOANS, LEASES,
AND OTHER ASSETS
<TABLE>
<CAPTION>
The FFIEC regards the information reported in ----
all of Memorandum item 1, in items 1 through 10, C470
column A, and in Memorandum items 2 through 4, --------------------------------------------------------------
column A, as confidential. (Column A) (Column B) (Column C)
Past due Past due 90 Nonaccrual
30 through 89 days or more
days and still and still
accruing accruing
------------------ ------------------ ------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1. Loans secured by real estate: ////////////////// ////////////////// //////////////////
a. To U.S. addresses (domicile) ................. 1245 1246 63,732 1247 236,175 1.a.
b. To non-U.S. addressees (domicile) ............ 1248 1249 0 1250 0 1.b.
2. Loans to depository institutions and acceptances ///// ////////////////// //////////////////
of other banks: ///// ////////////////// //////////////////
a. To U.S. banks and other U.S. depository ///// ////////////////// //////////////////
institutions ................................. 5377 5378 160 5379 0 2.a.
b. To foreign banks ............................. 5380 5381 0 5382 0 2.b.
3. Loans to finance agricultural production and ///// ////////////////// //////////////////
other loans to farmers .......................... 1594 1597 0 1583 715 3.
4. Commercial and industrial loans: ///// ////////////////// //////////////////
a. To U.S. addressees (domicile) ................ 1251 1252 5,283 1253 60,030 4.a.
b. To non-U.S. addressees (domicile) ............ 1254 1255 0 1256 0 4.b.
5. Loans to individuals for household, family, and ///// ////////////////// //////////////////
other personal expenditures: ///// ////////////////// //////////////////
a. Credit cards and related plans ............... 5383 5384 1,272 5385 968 5.a.
b. Other (includes single payment, installment, ///// ////////////////// //////////////////
and all student loans) ....................... 5386 5387 22,269 5388 9,380 5.b.
6. Loans to foreign governments and official ///// ////////////////// //////////////////
institutions .................................... 5389 5390 0 5391 0 6.
7. All other loans ................................. 5459 5460 7,982 5461 645 7.
8. Lease financing receivables: ///// ////////////////// //////////////////
a. Of U.S. addressees (domicile) ................ 1257 1258 114 1259 5,194 8.a.
b. Of non-U.S. addressees (domicile) ............ 1271 1272 0 1791 0 8.b.
9. Debt securities and other assets (exclude other ///// ////////////////// //////////////////
real estate owned and other repossessed assets) . 3505 3506 0 3507 25,944 9.
----- ------------------ ------------------
<CAPTION>
Amounts reported in items 1 through 8 above include guaranteed portions of past
due and nonaccrual loans and leases. Report in item 10 below certain guaranteed
loans and have already been included in the amounts reported in items 1 through
8.
<S> <C> <C> <C> <C> <C> <C>
------------------ ------------------ ------------------
RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou
10. Loans and leases reported in items 1 ------------------ ------------------ ------------------
through 8 above which are wholly or partially ///// ////////////////// //////////////////
guaranteed by the U.S. Government ............... 5612 5613 16,166 5614 15,817 10.
a. Guaranteed portion of loans and leases ///// ////////////////// //////////////////
included in item 10 above .................... 5615 5616 15,781 5617 11,488 10.a.
------------------ ------------------ ------------------
</TABLE>
29
<PAGE>
<TABLE>
<S> <C> <C>
Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031
Address: One Monarch Place Page RC-20
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: 0 2 4 9 9
---------
</TABLE>
SCHEDULE RC-N -- CONTINUED
<TABLE>
<CAPTION>
C473
------
(Column A) (Column B) (Column C)
Past Due Past Due 90 Nonaccrual
30 through 89 days or more
days and still and still
Memoranda accruing accruing
------------------ ------------------ ------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou
--------------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
1. Restructured loans and leases included in ////
Schedule RC-N, items 1 through 8, above (and not ////
reported in Schedule RC-C, part I, Memorandum ////
item 2).............................................. 1658
2. Loans to finance commercial real estate, ////
construction, and land development activities ////
(not secured by real estate) included in ///// ////////////////// //////////////////
Schedule RC-N, items 4 and 7, above................. 6558 6559 0 6560 2,851 M.2.
---- ------------------ ------------------
3. Loans secured by real estate in domestic offices RCON RCON Bil Mil Thou RCON Bil Mil Thou
---- ------------------ ------------------
(included in Schedule RC-N, item 1, above): ///// ////////////////// //////////////////
a. Construction and land development................ 2759 2769 589 3492 22,571 M.3.a.
b. Secured by farmland.............................. 3493 3494 0 3495 159 M.3.b.
c. Secured by 1-4 family residential properties: ///// ////////////////// //////////////////
(1) Revolving, open-end loans secured by ///// ////////////////// //////////////////
1-4 family residential properties and ///// ////////////////// //////////////////
extended under lines of credit............... 5398 5399 3,769 5400 13,509 M.3.c.(1)
(2) All other loans secured by 1-4 family ///// ////////////////// //////////////////
residential properties....................... 5401 5402 53,378 5403 90,447 M.3.c.(2)
d. Secured by multifamily (5 or more) residential ///// ////////////////// //////////////////
properties....................................... 3499 3500 774 3501 9,472 M.3.d.
e. Secured by nonfarm nonresidential properties..... 3502 3503 5,222 3504 100,017 M.3.e.
---- ------------------ ------------------
</TABLE>
<TABLE>
<CAPTION>
---- ------------------
(Column B)
Pa Past due 90
thr? days or more
---- ------------------
RCFD RCFD Bil Mil Thou
---- ------------------
<S> <C> <C>
4. Interest rate, foreign exchange rate, and other ///// //////////////////
commodity and equity contracts: ///// //////////////////
a. Book value of amounts carried as assets.......... 3522 3528 0 M.4.a.
b. Replacement cost of contracts with a ///// //////////////////
positive replacement cost........................ 3529 3530 0 M.4.b.
</TABLE>
30
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 ST-BK: 25-0590
Address: One Monarch Place Page RC-21
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
SCHEDULE RC-O -- OTHER DATA FOR DEPOSIT INSURANCE ASSESSMENTS
</TABLE>
<TABLE>
<CAPTION>
C475
-----------------------
Dollar Amounts in Thousands RCON Bil Mil Thou
- ---------------------------------------------------------------------------------- -----------------------
<S> <C> <C>
1. Unposted debits (see instructions):
a. Actual amount of all unposted debits....................................... 0030 64 1.a.
OR
b. Separate amount of unposted debits:
(1) Actual amount of unposted debits to demand deposits.................... 0031 N/A 1.b.(1)
(2) Actual amount of unposted debits to time and savings deposits(1)....... 0032 N/A 1.b.(2)
2. Unposted credits (see instructions):
a. Actual amount of all unposted credits...................................... 3510 64 2.a.
OR
b. Separate amount of unposted credits:
(1) Actual amount of unposted credits to demand deposits................... 3512 N/A 2.b.(1)
(2) Actual amount of unposted credits to time and savings deposits(1)...... 3514 N/A 2.b.(2)
3. Uninvested trust funds (cash) held in bank's own trust department (not
included in total deposits in domestic offices)............................... 3520 145,532 3.
4. Deposits of consolidated subsidiaries in domestic offices and in insured
branches in Puerto Rico and U.S. territories and possessions (not included in
total deposits):
a. Demand deposits of consolidated subsidiaries............................... 2211 194,247 4.a.
b. Time and savings deposits(1) of consolidated subsidiaries.................. 2351 17,598 4.b.
c. Interest accrued and unpaid on deposits of consolidated subsidiaries....... 5514 9 4.c.
5. Deposits in insured branches in Puerto Rico and U.S. territories
and possessions:
a. Demand deposits in insured branches (included in Schedule RC-E, Part II)... 2229 0 5.a.
b. Time and savings deposits(1) in insured branches (included
in Schedule RC-E, Part II)................................................. 2383 0 5.b.
c. Interest accrued and unpaid on deposits in insured branches
(included in Schedule RC-G, item 1.b)...................................... 5515 0 5.c.
Item 6 is not applicable to state nonmember banks that have not been authorized
by the Federal Reserve to act as pass-through correspondents.
6. Reserve balances actually passed through to the Federal Reserve by the
reporting bank on behalf of its respondent depository institutions that are
also reflected as deposit liabilities of the reporting bank:
a. Amount reflected in demand deposits (included in Schedule RC-E, Part I,
item 4 or 5, column B)..................................................... 2314 0 6.a.
b. Amount reflected in time and savings deposits(1) (included in
Schedule RC-E, Part I, item 4 or 5, column A or C, but not column B)....... 2315 0 6.b.
7. Unamortized premiums and discounts on time and savings deposits:(1)
a. Unamortized premiums....................................................... 5516 786 7.a.
b. Unamortized discounts...................................................... 5517 0 7.b.
- -------------------------------------------------------------------------------------------------------------------------
8. To be completed by banks with "Oakar deposits."
Total "Adjusted Attributable Deposits" of all institutions acquired under
Section 5(d)(3) of the Federal Deposit Insurance Act (from most recent FDIC
Oakar Transaction Worksheet(s))............................................... 5518 2,188,589 8.
- -------------------------------------------------------------------------------------------------------------------------
9. Deposits in lifeline accounts................................................. 5596 9.
10. Benefit-responsive "Depository Institution Investment Contracts" (included in
total deposits in domestic offices)........................................... 8432 0 10.
</TABLE>
- ---------------
(1) For FDIC insurance assessment purposes, "time and savings deposits" consists
of nontransaction accounts and all transaction accounts other than demand
deposits.
31
<PAGE>
<TABLE>
<S> <C> <C>
Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031
Address: One Monarch Place Page RC-22
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: 0 2 4 9 9
---------
</TABLE>
SCHEDULE RC-O--CONTINUED
<TABLE>
<CAPTION>
------------------
Dollar Amounts in Thousands RCON Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
11. Adjustments to demand deposits in domestic offices reported in Schedule RC-E for //////////////////
certain reciprocal demand balances: //////////////////
a. Amount by which demand deposits would be reduced if reciprocal demand balances //////////////////
between the reporting bank and savings associations were reported on a net basis //////////////////
rather than a gross basis in Schedule RC-E ............................................... 8785 0 11.a.
b. Amount by which demand deposits would be increased if reciprocal demand balances //////////////////
between the reporting bank and U.S. branches and agencies of foreign banks were //////////////////
reported on a gross basis rather than a net basis in Schedule RC-E ....................... A181 0 11.b.
c. Amount by which demand deposits would be reduced if cash items in process of //////////////////
collection were included in the calaculation of net reciprocal demand balances between //////////////////
the reporting bank and the domestic offices of U.S. banks and savings associations //////////////////
in Schedule RC-E ......................................................................... A182 0 11.c.
------------------
<CAPTION>
Memoranda (To Be Completed Each Quarter Except As Noted)
------------------
Dollar Amounts in Thousands RCON Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Total deposits in domestic offices of the bank (sum of Memorandum items 1.a.(1) and //////////////////
1.b.(1) must equal Schedule RC, item 13.a): //////////////////
a. Deposit accounts of $100,000 or less: //////////////////
(1) Amount of deposit accounts of $100,000 or less ....................................... 2702 18,512,871 M.1.a.(1)
(2) Number of deposit accounts of $100,000 or less (to be Number //////////////////
--------------------------
completed for the June report only) ....................... RCON 3779 N/A ////////////////// M.1.a.(2)
--------------------------
b. Deposit accounts of more than $100,000: //////////////////
(1) Amount of deposit accounts of more than $100,000 ..................................... 2710 15,061,441 M.1.b.(1)
Number //////////////////
--------------------------
(2) Number of deposit accounts of more than $100,000 .......... RCON 2722 28,530 ////////////////// M.1.b.(2)
----------------------------------------------
2. Estimated amount of uninsured deposits in domestic offices of the bank:
a. An estimate of your bank's uninsured deposits can be determined by multiplying the
number of deposit accounts of more than $100,000 reported in Memorandum
item 1.b.(2) above by $100,000 and subtracting the result from the amount
of deposit accounts of more than $100,000 reported in Memorandum item
1.b.(1) above.
Indicate in the appropriate box at the right whether your bank has a method or YES NO
procedure for determining a better estimate of uninsured deposits than the ------------------
estimate described above ................................................................. 6861 /// x M.2.a.
------------------
RCON Bil Mil Thou
b. If the box marked YES has been checked, report the estimate of uninsured deposits ------------------
determined by using your bank's method or procedure ...................................... 5597 N/A M.2.b.
------------------
- -----------------------------------------------------------------------------------------------------------------------------
Person to whom questions about the Reports of Condition and Income should be directed: C477
----
Pamela S. Flynn, Vice President (401) 278-5194
- ------------------------------------------------------------------------------ --------------------------------------------
Name and Title (TEXT 8901) Area code/phone number/extension (TEXT 8902)
</TABLE>
32
<PAGE>
<TABLE>
<S> <C> <C>
Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031
Address: One Monarch Place Page RC-23
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: 0 2 4 9 9
---------
</TABLE>
SCHEDULE RC-R--CONTINUED
This schedule must be completed by all banks as follows: Banks that reported
total assets of $1 billion or more in Schedule RC, item 12, for June 30, 1995,
must complete items 2 through 9 and Memoranda items 1 and 2. Banks with assets
of less than $1 billion must complete items 1 through 3 below or Schedule RC-R
in its entirety, depending on their response to item 1 below.
<TABLE>
<S> <C> <C> <C> <C>
--------------
C480
1. Test for determining the extent to which Schedule RC-R must be completed. To be ---------------
completed only by banks with total assets of less than $1 billion. Indicate in the Yes No
appropriate box at the right whether the bank has total capital greater than or -------------------------
equal to eight percent of adjusted total assets ..................................... RCFD 6056 1.
-------------------------
For purposes of this test, adjusted total assets equals total assets less
cash, U.S. Treasuries, U.S. Government agency obligations, and 80 percent of
U.S. Government-sponsored agency obligations plus the allowance for loan and
lease losses and selected off-balance sheet items as reported on Schedule
RC-L (see instructions).
If the box marked YES has been checked, then the bank only has to complete
items 2 and 3 below. If the box marked NO has been checked, the bank must
complete the remainder of this schedule.
A NO response to item 1 does not necessarily mean that the bank's actual
risk-based capital ratio is less than eight percent or that the bank is not
in compliance with the risk-based capital guidelines.
-----------------------------------------------------------------
NOTE: All banks are required to complete items 2 and 3 below.
See optional worksheet for items 3.a through 3.f. ------------------------------------------
----------------------------------------------------------------- (Column A) (Column B)
Dollar Amounts in Thousands Subordinated Debt(1) Other
- ---------------------------------------------------------------------- and Intermediate Limited-Life
2. Subordinated debt(1) and other limited-life capital instruments Term Preferred Stock Capital Instruments
(original weighted average maturity of at least five years) -------------------- --------------------
with a remaining maturity of: RDFD Bil Mil Thou RCFD Bil Mil Thou
------------------------------------------
a. One year or less................................................ 3780 25,737 3786 0 2.a.
b. Over one year through two years................................. 3781 737 3787 0 2.b.
c. Over two years through three years.............................. 3782 10,745 3788 0 2.c.
d. Over three years through four years............................. 3783 0 3789 0 2.d.
e. Over four years through five years.............................. 3784 0 3790 0 2.e.
f. Over five years................................................. 3785 1,101,000 3791 0 2.f.
------------------------------------------
3. Amounts used in calculated regulatory capital ratios (report amounts
determined by the bank for its own internal regulatory capital --------------------
analyses consistent with applicable capital standards): RCFD Bil Mil Thou
--------------------
a. Tier 1 capital........................................................................ 8274 3,659,643 3.a.
b. Tier 2 capital........................................................................ 8275 1,757,001 3.b.
c. Total risk-based capital.............................................................. 3792 5,416,644 3.c.
d. Excess allowance for loan and lease losses............................................ A222 264,213 3.d.
e. Risk-weighted assets (net of all deductions, including excess allowance).............. A223 45,860,269 3.e.
f. "Average total assets" (net of all assets deducted from Tier 1 capital)(2)............ A224 47,419,390 3.f.
------------------------------------------
(Column A) (Column B)
Items 4-9 and Memoranda items 1 and 2 are to be completed Assets Credit Equiv-
by banks that answered NO to Item 1 above and Recorded alent Amount
by banks with total assets of $1 billion or more. on the of Off-Balance
Balance Sheet Sheet Items(3)
-------------------- --------------------
4. Assets and credit equivalent amounts of off-balance sheet items RCFD Bil Mil Thou RCFD Bil Mil Thou
assigned to the Zero percent risk category: -------------------- --------------------
a. Assets recorded on the balance sheet:
(1) Securities issued by, other claims on, and claims
unconditionally guaranteed by, the U.S. Government
and its agencies and other OECD central governments......... 3794 2,335,793 4.a.(1)
(2) All other................................................... 3795 968,339 4.a.(2)
b. Credit equivalent amount of off-balance sheet items............. 3796 296,454 4.b.
------------------------------------------
</TABLE>
- ----------
(1) Exclude mandatory convertible debt reported in Schedule RC-M, item 7.
(2) Do not deduct excess allowance for loan and lease losses.
(3) Do not report in column B the risk-weighted amount of assets reported in
column A.
33
<PAGE>
Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031
Legal Title of Bank: Fleet National Bank Page RC-24
Address: One Monarch Place
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: 0 2 4 9 9
---------
SCHEDULE RC-R--CONTINUED
<TABLE>
<CAPTION>
(Column A) (Column B)
Assets Credit Equiv-
Recorded alent Amount
on the of Off-Balance
Balance Sheet Sheet Items(1)
----------------------- -----------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou
- ------------------------------------------------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C> <C>
5. Assets and credit equivalent amounts of off-balance
sheet items assigned to the 20 percent risk category:
a. Assets recorded on the balance sheet:
(1) Claims conditionally guaranteed by the U.S.
Government and its agencies and other OECD
central governments................................ 3798 692,459 5.a.(1)
(2) Claims collateralized by securities issued by the
U.S. Government and its agencies and other OECD
central governments; by securities issued by
U.S. Government-sponsored agencies; and by cash
on deposit......................................... 3799 0 5.a.(2)
(3) All other.......................................... 3800 8,538,080 5.a.(3)
b. Credit equivalent amount of off-balance sheet items.... 3801 926,409 5.b.
6. Assets and credit equivalent amounts of off-balance
sheet items assigned to the 50 percent risk category:
a. Assets recorded on the balance sheet................... 3802 5,601,621 6.a.
b. Credit equivalent amount of off-balance sheet items.... 3803 413,089 6.b.
7. Assets and credit equivalent amount of off-balance
sheet items assigned to the 100 percent risk category:
a. Assets recorded on the balance sheet................... 3804 32,091,416 7.a.
b. Credit equivalent amount of off-balance sheet items.... 3805 9,770,697 7.b.
8. Balance sheet asset values excluded from the
calculation of the risk-based capital ratio(2)............ 3806 24,268 8.
9. Total assets recorded on the balance sheet (sum of
items 4.a, 5.a, 6.a, 7.a, and 8, column A) (must equal
Schedule RC, item 12 plus items 4.b and 4.c).............. 3807 50,251,976 9.
</TABLE>
<TABLE>
<CAPTION>
Dollar Amounts in Thousands RCFD Bil Mil Thou
- ------------------------------------------------------------------------------------- -----------------------
<S> <C> <C> <C>
1. Current credit exposure across all off-balance sheet derivative contracts
covered by the risk-based capital standards........................................ 8764 118,571 M.1
</TABLE>
<TABLE>
<CAPTION>
With a remaining maturity of
------------------------------------------------------------------------------------
(Column A) (Column B) (Column C)
One year or less Over one year Over five years
through five years
------------------------------------------------------------------------------------
RCFD Tril Bil Mil Thou RCFD Tril Bil Mil Thou RCFD Tril Bil Mil Thou
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
2. Notional principal amounts
of off-balance sheet
derivative contracts(3):
a. Interest rate
contracts................. 3809 8,972,794 8766 20,272,746 8767 719,181 M.2.a.
b. Foreign exchange
contracts................. 3812 1,431,018 8769 52,587 8770 0 M.2.b.
c. Gold contracts............ 8771 15,034 8772 0 8773 0 M.2.c.
d. Other previous metals
contracts................. 8774 14,134 8775 0 8776 0 M.2.d.
e. Other commodity
contracts................. 8777 0 8778 0 8779 0 M.2.e.
f. Equity derivative
contracts................. A000 0 A001 0 A002 0 M.2.f.
</TABLE>
(1) Do not report in column B the risk-weighted amount of assets reported in
column A.
(2) Include the difference between the fair value and the amortized cost of
available-for-sale securities in item 8 and report the amortized cost of
these securities in items 4 through 7 above. Item 8 also includes on-balance
sheet asset values (or portions thereof) of off-balance sheet interest rate,
foreign exchange rate, and commodity contracts and those contracts (e.g.,
futures contracts) not subject to risk-based capital. Exclude from item 8
margin accounts and accrued receivables not included in the calculation of
credit equivalent amounts of off-balance sheet derivatives as well as any
portion of the allowance for loan and lease losses in excess of the amount
that may be included in Tier 2 capital.
(3) Exclude foreign exchange contracts with an original maturity of 14 days or
less and all futures contracts.
34
<PAGE>
Legal Title of Bank: Fleet National Bank Call Date: 9/30/96
Address: One Monarch Place ST-BK: 25-0590 FFIEC 031
City, State Zip: Springfield, MA 01102 Page RC-25
FDIC Certificate No.: 0 2 4 9 9
----------
OPTIONAL NARRATIVE STATEMENT CONCERNING THE AMOUNTS
REPORTED IN THE REPORTS OF CONDITION AND INCOME
AT CLOSE OF BUSINESS ON SEPTEMBER 30, 1996
FLEET NATIONAL BANK SPRINGFIELD MASSACHUSETTS
- ---------------------------- -------------------, ----------------------
Legal Title of Bank City State
The management of the reporting bank may, if it wishes, submit a brief narrative
statement on the amounts reported in the Reports of Condition and Income. This
optional statement will be made available to the public, along with the publicly
available data in the Reports of Condition and Income, in response to any
request for individual bank report data. However, the information reported in
column A and in all of Memorandum item 1 of Schedule RC-N is regarded as
confidential and will not be released to the public. BANKS CHOOSING TO SUBMIT
THE NARRATIVE STATEMENT SHOULD ENSURE THAT THE STATEMENT DOES NOT CONTAIN THE
NAMES OR OTHER IDENTIFICATIONS OF INDIVIDUAL BANK CUSTOMERS, REFERENCES TO THE
AMOUNTS REPORTED IN THE CONFIDENTIAL ITEMS IN SCHEDULE RC-N, OR ANY OTHER
INFORMATION THAT THEY ARE NOT WILLING TO HAVE MADE PUBLIC OR THAT WOULD
COMPROMISE THE PRIVACY OF THEIR CUSTOMERS. Banks choosing not to make a
statement may check the "No comment" box below and should make no entries of any
kind in the space provided for the narrative statement; i.e., DO NOT enter in
this space such phrases as "No statement," "Not applicable," "N/A," "No
comment," and "None."
The optional statement must be entered on this sheet. The statement should not
exceed 100 words. Further, regardless of the number of words, the statement must
not exceed 750 characters, including punctuation, indentation, and standard
spacing between words and sentences. If any submission should exceed 750
characters, as defined, it will be truncated at 750 characters with no
notice to the submitting bank and the truncated statement will appear as the
bank's statement both on agency computerized records and in computer-file
releases to the public.
All information furnished by the bank in the narrative statement must be
accurate and not misleading. Appropriate efforts shall be taken by the
submitting bank to ensure the statement's accuracy. The statement must be
signed, in the space provided below, by a senior officer of the bank who thereby
attests to its accuracy.
If, subsequent to the original submission, material changes are submitted for
the data reported in the Reports of Condition and Income, the existing narrative
statement will be deleted from the files, and from disclosure; the bank, at its
option, may replace it with a statement, under signature, appropriate to the
amended data.
The optional narrative statement will appear in agency records and in release
to the public exactly as submitted (or amended as described in the preceding
paragraph) by the management of the bank (except for the truncation of
statements exceeding the 750-character limit described above). THE STATEMENT
WILL NOT BE EDITED OR SCREENED IN ANY WAY BY THE SUPERVISORY AGENCIES FOR
ACCURACY OR RELEVANCE. DISCLOSURE OF THE STATEMENT SHALL NOT SIGNIFY THAT ANY
FEDERAL SUPERVISORY AGENCY HAS VERIFIED OR CONFIRMED THE ACCURACY OF THE
INFORMATION CONTAINED THEREIN. A STATEMENT TO THIS EFFECT WILL APPEAR ON ANY
PUBLIC RELEASE OF THE OPTIONAL STATEMENT SUBMITTED BY THE MANAGEMENT OF THE
REPORTING BANK.
- -------------------------------------------------------------------------------
No comment [X] (RCON 6979) C471 C472
BANK MANAGEMENT STATEMENT (please type or print clearly):
(TEXT 6980)
/s/ Guo DeRosa 10/24/96
-------------------------------------- -----------------
Signature of Executive Officer of Bank Date of Signature
35
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the 1996
consolidated financial statements of Motors and Gears, Inc. and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<PERIOD-START> JAN-01-1996
<CASH> 4,636
<SECURITIES> 0
<RECEIVABLES> 8,463<F4>
<ALLOWANCES> 0
<INVENTORY> 8,473
<CURRENT-ASSETS> 22,425<F5>
<PP&E> 8,254
<DEPRECIATION> 0
<TOTAL-ASSETS> 132,628<F6>
<CURRENT-LIABILITIES> 8,195
<BONDS> 90,807<F7>
0
0
<COMMON> 1<F8>
<OTHER-SE> 33,625<F9>
<TOTAL-LIABILITY-AND-EQUITY> 132,628
<SALES> 57,734<F10>
<TOTAL-REVENUES> 57,734
<CGS> 40,589<F11>
<TOTAL-COSTS> 45,317<F12>
<OTHER-EXPENSES> (48)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6,684)<F13>
<INCOME-PRETAX> 5,685
<INCOME-TAX> 2,275
<INCOME-CONTINUING> 3,410
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,410
<EPS-PRIMARY> 34.10<F14>
<EPS-DILUTED> 34.10<F15>
<FN>
<F4>Figure for receivables is net of allowances for doubtful accounts of $45.
<F5>Includes prepaid expenses of $853.
<F6>Includes goodwill of $92,756 (net), covenants not to compete of $440 (net)
and deferred financing costs and other of $8,753 (net).
<F7>Includes long-term debt of $89,908 and deferred income taxes of $899.
<F8>As of September 30, 1996, Motors and Gears, Inc. had 100,000 shares of
common stock, $.01 par value per share, authorized and issued.
<F9>Consists of $29,905 of additional paid in capital and $3,720 of retained
earnings.
<F10>Net figure.
<F11>CGS figure includes costs of sales (excluding depreciation) of $35,985 and
selling, general and administrative expenses (excluding depreciation) of
$4,604.
<F12>Total Costs includes depreciation and amortization of $4,151 and management
fees of $577.
<F13>Net figure.
<F14>Earnings per share for the 9 month period ending September 30, 1996 were
$34.10.
<F15>Earnings per share on a fully diluted basis were $34.10.
</FN>
</TABLE>
<PAGE>
LETTER OF TRANSMITTAL
FOR TENDERS OF
$170,000,000 Aggregate Principal Amount of
10 3/4% Series A Senior Notes due 2006
MOTORS AND GEARS, INC.
Pursuant to the Prospectus
dated ________ __, 1997 of Motors and Gears, Inc.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON THE EARLIER
OF ________ __, 1997 (UNLESS EXTENDED) OR THE DATE ON WHICH 100% OF THE OLD
NOTES ARE VALIDLY TENDERED AND NOT WITHDRAWN (THE "EXPIRATION DATE"). TENDERED
OLD NOTES MAY BE WITHDRAWN AT ANY TIME ON OR PRIOR TO THE EXPIRATION DATE OF THE
EXCHANGE OFFER.
Deliver to: Fleet National Bank, Exchange Agent:
By Mail:
Fleet National Bank
Mail Code: CTOPT06D
Corporate Trust Operations Department
P.O. Box 1440
Hartford, Connecticut 06143
By Overnight Courier:
Fleet National Bank
Mail Code: CTOPT06D
Corporate Trust Operations
Department
1 Talcott Plaza, 6th Floor
Hartford, Connecticut 06120
By Facsimile:
(860) 986-7908
By Hand:
Fleet National Bank
Corporate Trust Operations Department
Customer Service Window
1 Talcott Plaza, 5th Floor
Hartford, Connecticut 06120
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
-2-
<PAGE>
The undersigned (the "Holder") acknowledges that he or she has
received the Prospectus, dated ________ __, 1997 (the "Prospectus"), of Motors
and Gears, Inc., a Delaware corporation (the "Company"), and this Letter of
Transmittal, which may be amended from time to time (this "Letter"), which
together constitute the Company's offer (the "Exchange Offer") to exchange an
aggregate principal amount of up to $170,000,000 of its 10 3/4% Series B Senior
Notes due 2006 (the "New Notes") for a like principal amount of the issued and
outstanding 10 3/4% Series A Senior Notes due 2006 (the "Old Notes") of the
Company from the holders thereof.
For each Old Note accepted for exchange, the Holder of such Old Note
will receive a New Note having a principal amount equal to that of the
surrendered Old Note. The New Notes will bear interest from the most recent
date to which interest has been paid on the Old Notes or, if no interest has
been paid on the Old Notes, from November 7, 1996. Accordingly, registered
holders of New Notes on the relevant record date for the first interest payment
date following the consummation of the Exchange Offer will receive interest
accruing from the most recent date to which interest has been paid or, if no
interest has been paid, from November 7, 1996. Old Notes accepted for exchange
will cease to accrue interest from and after the date of consummation of the
Exchange Offer. Holders of Old Notes whose Old Notes are accepted for exchange
will not receive any payment in respect of interest on such Old Notes otherwise
payable on any interest payment date the record date for which occurs on or
after consummation of the Exchange Offer.
This Letter is to be used: (i) by all Holders who are not members of
the Automated Tender Offering Program ("ATOP") at the Depository Trust Company
("DTC"), (ii) by Holders who are ATOP members but choose not to use ATOP or
(iii) if the Old Notes are to be tendered in accordance with the guaranteed
delivery procedures set forth in "The Exchange Offer -- Guaranteed Delivery
Procedures" section of the Prospectus. See Instruction 2. Delivery of this
Letter to DTC does not constitute delivery to the Exchange Agent.
Notwithstanding anything to the contrary in the registration rights
agreement dated November 7, 1996 among the Company and the original purchasers
of Old Notes (the "Registration Rights Agreement"), the Company will accept for
exchange any and all Old Notes validly tendered on or prior to 5:00 p.m., New
York City time, on the earlier of _________ __, 1997 (unless the Exchange Offer
is extended by the Company) or the date on which 100% of the Old Notes are
validly tendered and not withdrawn (the "Expiration Date"). Tenders of Old
Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the Expiration Date.
IMPORTANT: HOLDERS WHO WISH TO TENDER OLD NOTES IN THE EXCHANGE OFFER MUST
COMPLETE THIS LETTER OF TRANSMITTAL AND TENDER THE OLD NOTES TO THE EXCHANGE
AGENT AND NOT TO THE COMPANY.
The Exchange Offer is not conditioned upon any minimum principal
amount of Old Notes being tendered for exchange. However, the Exchange Offer is
subject to certain conditions. Please see the Prospectus under the section
titled "The Exchange Offer -- Conditions to the Exchange Offer."
The Exchange Offer is not being made to, nor will tenders be accepted
from or on behalf of, Holders of Old Notes in any jurisdiction in which the
making or acceptance of the Exchange Offer would not be in compliance with the
laws of such jurisdiction.
The instructions included with this Letter of Transmittal must be
followed in their entirety. Questions and request for assistance or for
additional copies of the Prospectus or this Letter of Transmittal may be
directed to the Exchange Agent at the address listed above.
-3-
<PAGE>
APPROPRIATE SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMEN:
The undersigned hereby tenders to the Company the principal amount of
Old Notes indicated below under "Description of Old Notes," in accordance with
and upon the terms and subject to the conditions set forth in the Prospectus,
receipt of which is hereby acknowledged, and in this Letter of Transmittal, for
the purpose of exchanging each $1,000 principal amount of Old Notes designated
herein held by the undersigned and tendered hereby for $1,000 principal amount
of the New Notes. New Notes will be issued only in integral multiples of $1,000
to each tendering Holder of Old Notes whose Old Notes are accepted in the
Exchange Offer. Holders may tender all or a portion of their Old Notes pursuant
to the Exchange Offer.
Subject to, and effective upon, the acceptance for exchange of the Old
Notes tendered herewith in accordance with the terms of the Exchange Offer, the
undersigned hereby sells, assigns and transfers to, or upon the order of, the
Company all right, title and interest in and to all such Old Notes that are
being tendered hereby and that are being accepted for exchange pursuant to the
Exchange Offer. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent as the true and lawful agent and attorney-in-fact of the
undersigned (with full knowledge that the Exchange Agent also acts as the agent
of the Company), with respect to the Old Notes tendered hereby and accepted for
exchange pursuant to the Exchange Offer with full power of substitution (such
power of attorney being deemed to be an irrevocable power coupled with an
interest) to deliver the Old Notes tendered hereby to the Company (together with
all accompanying evidences of transfer and authenticity) for transfer or
cancellation by the Company.
All authority conferred or agreed to be conferred in this Letter of
Transmittal shall not be affected by, and shall survive, the death or incapacity
of the undersigned and any obligation of the undersigned hereunder shall be
binding upon the heirs, executors, administrators, legal representatives,
successors and assigns of the undersigned. Any tender of Old Notes hereunder
may be withdrawn only in accordance with the procedures set forth in the
instructions contained in this Letter of Transmittal. See Instruction 4 hereto.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, exchange, assign and transfer the Old Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim. The undersigned will, upon request, execute
and deliver any additional documents deemed by the Company to be necessary or
desirable to complete the assignment and transfer of the Old Notes tendered.
The undersigned has read and agrees to all of the terms of the Exchange Offer.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer--Withdrawal Rights" section
of the Prospectus.
The name(s) and address(es) of the registered Holder(s) should be
printed herein under "Description of Old Notes" (unless a label setting forth
such information appears thereunder), exactly as they appear on the Old Notes
tendered hereby. The certificate number(s) and the principal amount of Old
Notes to which this Letter of Transmittal relates, together with the principal
amount of such Old Notes that the undersigned wishes to tender, should be
indicated in the appropriate boxes herein under "Description of Old Notes."
-4-
<PAGE>
The undersigned agrees that acceptance of any tendered Old Notes by
the Company and the issuance of New Notes in exchange therefor shall constitute
performance in full by the Company of its obligations under the Registration
Rights Agreement and that, upon the issuance of the New Notes, the Company will
have no further obligations or liabilities thereunder.
The undersigned understands that the tender of Old Notes pursuant to
one of the procedures described in the Prospectus under "The Exchange Offer --
Procedures for Tendering Old Notes" and the Instructions hereto will constitute
the tendering Holder's acceptance of the terms and the conditions of the
Exchange Offer. The undersigned hereby represents and warrants to the Company
that the New Notes to be acquired by such Holder pursuant to the Exchange Offer
are being acquired in the ordinary course of such Holder's business, that such
Holder has no arrangement or understanding with any person to participate in the
distribution of the New Notes. The Company's acceptance for exchange of Old
Notes tendered pursuant to the Exchange Offer will constitute a binding
agreement between the tendering Holder and the Company upon the terms and
subject to the conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT IT IS NOT ENGAGED
IN, AND DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION OF THE NEW NOTES.
The undersigned also acknowledges that this Exchange Offer is being
made based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") which lead the Company to believe that the New
Notes issued in exchange for the Old Notes pursuant to the Exchange Offer may be
offered for resale, resold and otherwise transferred by holders thereof (other
than any such holder that is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holders' business and such
holders have no arrangement with any person to participate in the distribution
of such New Notes. If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of New Notes and has no arrangement or understanding to participate
in a distribution of New Notes. If any holder is an affiliate of the Company or
is engaged in or has any arrangement or understanding with respect to the
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such holder (i) could not rely on the applicable interpretations of the staff of
the Commission and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act. If the undersigned is a broker-
dealer that will receive New Notes for its own account in exchange of Old Notes,
it represents that the Old Notes to be exchanged for the New Notes were acquired
by it as a result of market-making activities or other trading activities and
acknowledges that it will deliver a prospectus in connection with any resale of
such New Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The undersigned understands that the New Notes issued in consideration
of Old Notes accepted for exchange, and/or any principal amount of Old Notes not
tendered or not accepted for exchange, will only be issued in the name of the
Holder(s) appearing herein under "Description of Old Notes." Unless otherwise
indicated under "Special Delivery Instructions," please mail the New Notes
issued in consideration of Old Notes accepted for exchange, and/or any principal
amount of Old Notes not tendered or not accepted for exchange (and accompanying
documents, as appropriate), to the Holder(s) at the address(es) appearing herein
under "Description of Old Notes." In the event that the Special Delivery
Instructions are completed, please mail the New Notes issued in consideration of
Old Notes accepted for exchange, and/or any Old Notes for any principal amount
not tendered or not accepted for exchange, in the name of the Holder(s)
appearing herein under "Description of Old Notes," and send such New Notes
and/or Old Notes to, the address(es) so indicated. Any transfer of Old Notes to
a different holder must be completed, according to the provisions on transfer of
Old Notes contained in the Indentures.
-5-
<PAGE>
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD
NOTES" BELOW AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD
NOTES AS SET FORTH IN SUCH BOX BELOW.
-6-
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. GUARANTEE OF SIGNATURES. Signatures on this Letter of
Transmittal or notice of withdrawal, as the case may be, must be guaranteed by
an institution which falls within the definition of "eligible guarantor
institution" contained in Rule 17Ad-15 as promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended
(hereinafter, an "Eligible Institution") unless (i) the Old Notes tendered
------
hereby are tendered by the Holder(s) of the Old Notes who has (have) not
completed the box entitled "Special Delivery Instructions" on this Letter of
Transmittal or (ii) the Old Notes are tendered for the account of an Eligible
Institution.
2. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES; GUARANTEED
DELIVERY PROCEDURES. This Letter of Transmittal is to be used: (i) by all
Holders who are not ATOP members, (ii) by Holders who are ATOP members but
choose not to use ATOP or (iii) if the Old Notes are to be tendered in
accordance with the guaranteed delivery procedures set forth in the Prospectus
under "The Exchange Offer -Guaranteed Delivery Procedures." To validly tender
Old Notes, a Holder must physically deliver a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) with any required
signature guarantees and all other required documents to the Exchange Agent at
its address set forth on the cover of this Letter of Transmittal prior to the
Expiration Date (as defined below) or the Holder must properly complete and duly
execute an ATOP ticket in accordance with DTC procedures. Otherwise, the Holder
must comply with the guaranteed delivery procedures set forth in the next
paragraph. Notwithstanding anything to the contrary in the Registration Rights
Agreement, the term "Expiration Date" means 5:00 p.m., New York City time, on
the earlier of _________ __, 1997 (or such later date to which the Company may,
in its sole discretion, extend the Exchange Offer) or the date on which 100% of
the Old Notes are validly tendered and not withdrawn. If this Exchange Offer is
extended, the term "Expiration Date" shall mean the latest time and date to
which the Exchange Offer is extended. The Company expressly reserves the right,
at any time or from time to time, to extend the period of time during which the
Exchange Offer is open by giving oral (confirmed in writing) or written notice
of such extension to the Exchange Agent and by making a public announcement of
such extension prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date.
LETTERS OF TRANSMITTAL SHOULD NOT BE SENT TO THE COMPANY OR TO DTC.
If a Holder of the Old Notes desires to tender such Old Notes and time
will not permit such Holder's required documents to reach the Exchange Agent
before the Expiration Date, a tender may be effected if (a) the tender is made
through an Eligible Institution, (b) on or prior to the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly completed and
duly executed Letter of Transmittal (or a facsimile thereof) and Notice of
Guaranteed Delivery (by telegram, facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder of the Old Notes and the
principal amount of Old Notes tendered, stating that the tender is being made
thereby and guaranteeing that within three New York Stock Exchange trading days
after the Expiration Date, any documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and (c)
all other documents required by the Letter of Transmittal are received by the
Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date. See "The Exchange Offer - Guaranteed Delivery Procedures" as
set forth in the Prospectus.
Only a Holder of Old Notes may tender Old Notes in the Exchange Offer.
The term "Holder" as used herein with respect to the Old Notes means any person
in whose name Old Notes are registered on the books of the Trustee. If the
Letter of Transmittal or any Old Notes are signed by trustees, executors,
-7-
<PAGE>
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority to so act must be so submitted.
Any beneficial Holder whose Old Notes are registered in the name of
his broker, dealer, commercial bank, trust company or other nominee and who
wishes to validly surrender those Old Notes in the Exchange Offer should contact
such registered Holder promptly and instruct such registered Holder to tender on
his behalf. If such beneficial Holder wishes to tender on his own behalf, such
beneficial Holder must, prior to completing and executing the Letter of
Transmittal, make appropriate arrangements to register ownership of the Old
Notes in such beneficial holder's name. It is the responsibility of the
beneficial holder to register ownership in his own name if he chooses to do so.
The transfer of record ownership may take considerable time.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL (OR FACSIMILE
HEREOF) AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
EXCHANGING HOLDER, but, except as otherwise provided below, the delivery will be
deemed made only when actually received or confirmed by the Exchange Agent. If
sent by mail, registered mail with return receipt requested, properly insured,
is recommended. In all cases, sufficient time should be allowed to assure
timely delivery to the Exchange Agent before the Expiration Date. No Letters of
Transmittal or Old Notes should be sent to the Company.
No alternative, conditional or contingent tenders will be accepted.
All tendering Holders, by execution of this Letter of Transmittal (or facsimile
hereof), waive any right to receive notice of acceptance of their Old Notes for
exchange.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate numbers and principal amount of the Old Notes to which this Letter
of Transmittal relates should be listed on a separate signed schedule attached
hereto.
4. WITHDRAWAL OF TENDER. Tenders of Old Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To be effective, a written or facsimile transmission notice of
withdrawal must (i) be received by the Exchange Agent at the address set forth
herein prior to 5:00 p.m., New York City time, on the Expiration date, (ii)
specify the name of the person having tendered the Old Notes to be withdrawn,
(iii) identify the Old Notes to be withdrawn and (iv) be (a) signed by the
Holder in the same manner as the original signature on the Letter of Transmittal
by which such Old Notes were tendered (including any required signature
guarantees) or (b) accompanied by evidence satisfactory to the Company that the
Holder withdrawing such tender has succeeded to beneficial ownership of such Old
Notes. If Old Notes have been tendered pursuant to the ATOP procedure with DTC,
any notice of withdrawal must otherwise comply with the procedures of DTC. Old
Notes properly withdrawn will thereafter be deemed not validly tendered for
purposes of the Exchange Offer; provided, however, that withdrawn Old Notes may
-------- -------
be retendered by again following one of the procedures described herein at any
time prior to 5:00 p.m., New York City time, on the Expiration Date. All
questions as to the validity, form and eligibility (including time of receipt)
of notice of withdrawal will be determined by the Company, whose determinations
will be final and binding on all parties. Neither the Company, the Exchange
Agent, nor any other person will be under any duty to give notification of any
defects or irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification. The Exchange Agent intends to use
reasonable efforts to give notification of such defects and irregularities.
5. PARTIAL TENDERS; PRO RATA EFFECT. Tenders of the Old Notes will
be accepted only in integral multiples of $1,000. If less than the entire
principal amount evidenced by any Old Notes is to be tendered, fill in the
principal amount that is to be tendered in the box entitled "Principal Amount
Tendered"
-8-
<PAGE>
below. The entire principal amount of all Old Notes delivered to the Exchange
Agent will be deemed to have been tendered unless otherwise indicated.
6. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND
ENDORSEMENTS. If this Letter of Transmittal is signed by the registered
Holder(s) of the Old Notes tendered hereby, the signature must correspond with
the name as written on the face of the certificate representing such Old Notes
without alteration, enlargement or any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If any of the Old Notes tendered hereby are registered in different
names, it will be necessary to complete, sign and submit as many separate copies
of this Letter of Transmittal and any necessary accompanying documents as there
are different registrations.
When this Letter of Transmittal is signed by the Holder(s) of Old
Notes listed and tendered hereby, no endorsements or separate bond powers are
required.
If this Letter of Transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority to so act must be submitted.
7. SPECIAL DELIVERY INSTRUCTIONS. Tendering Holders should indicate
in the applicable box the name and address to which New Notes issued in
consideration of Old Notes accepted for exchange, or Old Notes for principal
amounts not exchanged or not tendered, are to be sent, if different from the
name and address of the person signing this Letter of Transmittal.
8. WAIVER OF CONDITIONS. The Company reserves the absolute right to
waive any of the specified conditions in the Exchange Offer, in whole at any
time or in part from time to time, in the case of any Old Notes tendered hereby.
See "The Exchange Offer - Conditions to the Exchange Offer" in the Prospectus.
9. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, New Notes and/or substitute Old Notes for principal amounts not
exchanged are to be delivered to any person other than the Holder of the Old
Notes or if a transfer tax is imposed for any reason other than the exchange of
Old Notes pursuant to the Exchange Offer, the amount of any such transfer taxes
(whether imposed on the registered Holder or any other persons) will be payable
by the tendering Holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted, the amount of such transfer taxes will be
billed directly to such tendering Holder.
10. IRREGULARITIES. All questions as to validity, form, eligibility
(including time of receipt), acceptance and withdrawal of tendered Old Notes
will be resolved by the Company, in its sole discretion, whose determination
shall be final and binding. The Company reserves the absolute right to reject
any or all tenders of any particular Old Notes that are not in proper form, or
the acceptance of which would, in the opinion of the Company or its counsel, be
unlawful. The Company also reserves the absolute right to waive any defect,
irregularity or condition of tender with regard to any particular Old Notes.
The Company's interpretation of the terms of, and conditions to, the Exchange
Offer (including the instructions herein) will be final and binding. Unless
waived, any defects or irregularities in connection with tenders must be cured
within such time as the Company shall determine. Neither the Company nor the
Exchange Agent shall be under any duty to give notification of defects in such
tenders or shall incur any liability for failure to give such notification. The
Exchange Agent intends to use reasonable efforts to give notification of such
defects and
-9-
<PAGE>
irregularities. Tenders of Old Notes will not be deemed to have been made until
all defects and irregularities have been cured or waived. Any Old Notes
received by the Exchange Agent that are not properly tendered and as to which
the irregularities have not been cured or waived will be returned by the
Exchange Agent to the tendering Holder, unless otherwise provided by this Letter
of Transmittal, as soon as practicable following the Expiration Date.
11. INTEREST ON EXCHANGED OLD NOTES. Holders whose Old Notes are
accepted for exchange will not receive accrued interest thereon on the date of
exchange. Instead, interest accruing from November 7, 1996 through the
Expiration Date will be payable on the New Notes on May 15, 1997, in accordance
with the terms of the New Notes. See "The Exchange Offer-Acceptance of Old
Notes for Exchange; Delivery of New Notes" and "Description of Senior Notes."
12. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. Holders whose
certificates for Old Notes have been mutilated, lost, stolen or destroyed should
contact the Exchange Agent at the address indicated above for further
instructions.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF), TOGETHER
WITH ALL REQUIRED DOCUMENTS, OR A NOTICE OF GUARANTEED DELIVERY, MUST BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
IMPORTANT TAX INFORMATION
Under Federal income tax laws, a registered Holder of Old Notes or New
Notes is required to provide the Trustee (as payer) with such Holder's correct
TIN on Substitute Form W-9 below or otherwise establish a basis for exemption
from backup withholding. If such Holder is an individual, the TIN is his social
security number. If the Trustee is not provided with the correct TIN, a $50
penalty may be imposed by the Internal Revenue Service, and payments made to
such Holder with respect to Old Notes or New Notes may be subject to backup
withholding.
Certain Holders (including, among others, all corporations and certain
foreign persons) are not subject to these backup withholding and reporting
requirements. Exempt Holders should indicate their exempt status on Substitute
Form W-9. A foreign person may qualify as an exempt recipient by submitting to
the Trustee a properly completed Internal Revenue Service Form W-8, signed under
penalties of perjury, attesting to that Holder's exempt status. A Form W-8 can
be obtained from the Trustee.
If backup withholding applies, the Trustee is required to withhold 31%
of any payments made to the Holder or other payee. Backup withholding is not an
additional Federal income tax. Rather, the Federal income tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
Purpose of Substitute Form W-9
To prevent backup withholding on payments made with respect to Old
Notes or New Notes the Holder is required to provide the Trustee with: (i) the
Holder's correct TIN by completing the form below, certifying that the TIN
provided on Substitute Form W-9 is correct (or that such Holder is awaiting a
TIN) and that (A) such Holder is exempt from backup withholding, (B) the Holder
has not been notified by the Internal Revenue Service that the Holder is subject
to backup withholding as a result of failure to report all interest or dividends
or (C) the Internal Revenue Service has notified the Holder that the Holder is
no longer subject to backup withholding; and (ii) if applicable, an adequate
basis for exemption.
-10-
<PAGE>
-11-
<PAGE>
<TABLE>
<CAPTION>
PAYER'S NAME: FLEET NATIONAL BANK
SUBSTITUTE Part 1 - PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY BY Social Security Number
SIGNING AND DATING BELOW
FORM W-9
DEPARTMENT OF THE
TREASURY-INTERNAL OR______________________
REVENUE SERVICE Employer Identification
Number
<S> <C> <C>
PART 2 - CERTIFICATION - UNDER PENALTIES OF PERJURY, I CERTIFY THAT:
PAYER'S REQUEST FOR (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a
TAXPAYER IDENTIFICATION number to be issued to me); and
NUMBER ("TIN") (2) I am not subject to backup withholding because (i) I am exempt from backup withholding, (ii) I
have not been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding
as a result of failure to report all interest or dividends, or (iii) the IRS has notified me that I am
no longer subject to backup withholding.
CERTIFICATE INSTRUCTION -- You must cross out item (2) in Part 2 above if you have been notified by
the IRS that you are subject to backup withholding because of under reporting interest or dividends on
your tax return. However, if after being notified by the IRS that you were subject to backup
withholding you received another notification from the IRS stating that you are no longer subject to
backup withholding, do not cross out item (2).
Part 3
SIGNATURE..........................................DATE.................,
1997 Awaiting TIN [ ]
NAME (Please Print)........................................................
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF SUBSTITUTE FORM W-9.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (i) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (ii) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number within 60 days, 31% of all reportable
payments made to me thereafter will be withheld until I provide a number.
Signature....................................................Date..............
Name (Please Print)............................................................
- --------------------------------------------------------------------------------
-12-
<PAGE>
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
================================================================================
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1 and 7)
To be completed ONLY if the New Notes issued in consideration of Old Notes
exchanged, or certificates for Old Notes in a principal amount not surrendered
for exchange are to be mailed to someone other than the undersigned or to the
undersigned at an address other than that below.
Mail to:
Name:________________________________________________________________________
(Please Print)
Address:_____________________________________________________________________
(Zip Code)
===============================================================================
DESCRIPTION OF OLD NOTES
(See Instructions 2 and 7)
<TABLE>
<CAPTION>
Name(s) and Address(es) of Certificate(s)
Registered Holder(s) (Attach additional signed list, if necessary)
(Please fill in, in blank)
<S> <C> <C> <C>
Certificate Number(s)/*/ Aggregate Principal Amount Principal Amount of Old
of Notes Tendered/**/ (must be
Old Notes Evidenced by integral multiples of $1,000)
Certificate(s)
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Total
=====================================================================================================================
</TABLE>
/*/ Need not be completed if Old Notes are being tendered by book-entry
transfer.
/**/ Unless otherwise indicated, the entire principal amount of Old Notes
evidenced by any certificate will be deemed to have been tendered.
-13-
<PAGE>
(Boxes below to be checked by Eligible Institutions only)
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
DTC Account Number
Transaction Code Number
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY
IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s)
Window Ticket Number (if any)
Date of Execution of Notice of Guaranteed Delivery
Name of Institution which Guaranteed Delivery
If Guaranteed Delivery is to be made by Book-Entry Transfer:
Name of Tendering Institution
DTC Account Number
Transaction Code Number
[ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD
NOTES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH
ABOVE.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES
OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name
-------------------------------------------------------------------------
Address
----------------------------------------------------------------------
----------------------------------------------------------------------
-14-
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
PLEASE SIGN HERE
WHETHER OR NOT OLD NOTES ARE BEING
PHYSICALLY TENDERED HEREBY
X
------------------------------ -----------------
X
------------------------------ -----------------
SIGNATURE(S) OF OWNER(S) DATED
OF AUTHORIZED SIGNATORY
Area Code and Telephone Number:
---------------------------------------
This box must be signed by registered holder(s) of Old Notes as their name(s)
appear(s) on certificate(s) for Old Notes hereby tendered or on a security
position listing, or by any person(s) authorized to become registered holder(s)
by endorsement and documents transmitted with this Letter (including such
opinions of counsel, certifications and other information as may be required by
the Company or the Trustee for the Old Notes to comply with the restrictions on
transfer applicable to the Old Notes). If signature is by an attorney-in-fact,
trustee, executor, administrator, guardian, officer or other person acting in a
fiduciary or representative capacity, such person must set forth his or her full
title below.
Name(s)
------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title)
----------------------------------------------------------
Address
------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Tax Identification or Social Security Number(s)
---------------------------------
- --------------------------------------------------------------------------------
GUARANTEE OF SIGNATURE(S)
(See Instructions 1 and 6 to determine if required)
Authorized Signature
------------------------------------------------------------
Name
----------------------------------------------------------------------------
Name of Firm
--------------------------------------------------------------------
Title
---------------------------------------------------------------------------
Address
-------------------------------------------------------------------------
Area Code and Telephone Number
--------------------------------------------------
Dated
--------------------------------------------------------------------------
-15-
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.
Social Security numbers have nine digits separated by two hyphens: i.e., 000-00-
0000. Employer identification numbers have nine digits separated by only one
hyphen: i.e., 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
FOR THIS TYPE GIVE THE SOCIAL FOR THIS TYPE GIVE THE EMPLOYER
OF ACCOUNT: SECURITY NUMBER OF ACCOUNT: IDENTIFICATION
OF-- NUMBER OF--
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Individual The individual 6. Sole proprietorship The owner/1/
2. Two or more individuals The actual owner of the 7. A valid trust, estate, Legal entity /3/
(joint account) account or, if combined or pension trust
funds, the first
individual on the
account./2/
8. Corporate The corporation
3. Custodian account of a The minor/4/ 9. Association, club, The organization
minor (Uniform Gift to religious, charitable,
Minors Act) educational or other
tax-exempt organization
10. Partnership The partnership
4.a. The usual revocable The grantor-trustee 11. A broker or registered The broker or nominee
savings trust (grantor nominee
is also trustee)
b. So-called trust account The actual owner 12. Account with the The public entity
that is not a legal or Department of
valid trust under State Agriculture in the
law name of a public
5. The owner 1/ entity (such as a
Sole proprietorship State or local
government, school
district, or prison)
that receives
agricultural program
payments
</TABLE>
- --------------------------------
/1/ You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your SSN or EIN.
/2/ List first and circle the name of the person whose number you furnish.
/3/ List first and circle the name of the legal trust, estate, or pension
trust. (Do not furnish the identifying number of the personal
representative or trustee unless the legal entity itself is not designated
in the account title.)
/4/ Circle the minor's name and furnish the minor's social security number.
-16-
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know
your number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and apply
for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
The following is a list of payees exempt from backup withholding and for which
no information reporting is required. For interest and dividends, all listed
payees are exempt except item (9). For broker transactions, payees listed in
items (1) through (13) and a person registered under the Investment Advisers Act
of 1940 U.C. who regularly acts as a broker are exempt. Payments subject to
reporting under sections 6041 and 6041A are generally exempt from backup
withholding only if made to payees described in items (1) through (7), except a
corporation that provides medical and health care services or bills and collects
payments for such services is not exempt from backup withholding or information
reporting. Only payees described in items (2) through (6) are exempt from
backup withholding for barter exchange transactions, patronage dividends, and
payments by certain fishing boat operators.
(1) A corporation.
(2) An organization exempt from tax under section 501(a), or an individual
retirement plan or custodial account under section 403(b)(7).
(3) The United States or any agency or instrumentality thereof.
(4) A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
(5) A foreign government, a political subdivision of a foreign government, or
an agency or instrumentality thereof.
(6) An international organization or any agency or instrumentality thereof.
(7) A foreign central bank of issue.
(8) A dealer in securities or commodities required to register in the U.S. or a
possession of the U.S.
(9) A futures commission merchant registered with the Commodity Futures Trading
Commission.
(10) A real estate investment trust.
(11) An entity registered at all times under the Investment Company Act of 1940.
(12) A common trust fund operated by a bank under section 584(a).
(13) A financial institution.
(14) A middleman known in the investment community as a nominee or listed in the
most recent publication of the American Society of Corporate Secretaries,
Inc. Nominee List.
(15) An exempt charitable remainder trust, or a non-exempt trust described in
section 4947.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under
section 1441.
. Payments to partnerships not engaged in a trade or business
in the U.S. and which have at least one nonresident partner.
. Payments of patronage dividends not paid in money.
. Payments made by certain foreign organizations.
NOTE: You may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you have
not provided your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest
dividends under section 852).
. Payments described in section 6049(b)(5) to nonresident
aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER. WRITE "EXEMPT" ON THE FACE OF THE FORM AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS,
ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, royalties, and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE. Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
taxpayer identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS. If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an under-
payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
-17-
<PAGE>
MOTORS AND GEARS, INC.
OFFER FOR ALL OUTSTANDING
10 3/4% SERIES A SENIOR NOTES DUE 2006
IN EXCHANGE FOR
10 3/4% SERIES B SENIOR NOTES DUE 2006
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON THE EARLIER
OF ________ __, 1997 (UNLESS EXTENDED) OR THE DATE ON WHICH 100% OF THE OLD
NOTES ARE VALIDLY TENDERED AND NOT WITHDRAWN (THE "EXPIRATION DATE"). TENDERED
OLD NOTES MAY BE WITHDRAWN AT ANY TIME ON OR PRIOR TO THE EXPIRATION DATE OF THE
EXCHANGE OFFER.
TO OUR CLIENTS:
Enclosed for your consideration is a Prospectus, dated ________ __, 1997
(as the same may be amended or supplemented from time to time, the
"Prospectus"), and the related Letter of Transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of Motors and Gears,
Inc. (the "Company") to exchange its 10 3/4% Series B Senior Notes Due 2006 (the
"New Notes") for its outstanding 10 3/4% Series A Senior Notes due 2006 (the
"Old Notes"), upon the terms and subject to the conditions described in the
Prospectus and the Letter of Transmittal. The Exchange Offer is being made in
order to satisfy certain obligations of the Company contained in the
Registration Rights Agreement dated November 7, 1996, by and among the Company,
Donaldson, Lufkin & Jenrette Securities Corporation, BT Securities Corporation
and Jefferies & Co., Inc.
Holders of Old Notes who cannot deliver all required documents to the
Exchange Agent on or prior to the Expiration Date (as defined below), or who
cannot complete the procedures for book-entry transfer on a timely basis, must
follow guaranteed delivery described in the Prospectus under "The Exchange Offer
- --Guaranteed Delivery Procedures."
This material is being forwarded to you as the beneficial owner of the Old
Notes carried by us in your account but not registered in your name. A TENDER
OF SUCH OLD NOTES MAY ONLY BE MADE BY US AS THE HOLDER OF RECORD AND PURSUANT TO
YOUR INSTRUCTIONS.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Old Notes held by us for your account, pursuant to the terms and
conditions set forth in the enclosed Prospectus and Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in
order to permit us to tender the Old Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on _________ __, 1997, unless extended by the Company. Any
Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any time
before the Expiration Date.
Your attention is directed to the following:
<PAGE>
1. The Exchange Offer is for any and all Old Notes.
2. The Exchange Offer is subject to certain conditions set forth in the
Prospectus in the section captioned "The Exchange Offer--Certain Conditions to
the Exchange Offer."
3. Any transfer taxes incident to the transfer of Old Notes from the
holder to the Company will be paid by the Company, except as otherwise provided
in Instruction 9 of the Letter of Transmittal.
4. The Exchange Offer expires at 5:00 p.m., New York City time, on
________ __, 1997, unless extended by the Company.
If you wish to have us tender your Old Notes, please so instruct us by
completing, executing and returning to us the instruction form on the back of
this letter. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATIONAL
PURPOSES ONLY AND MAY NOT BE USED DIRECTLY BY YOU TO TENDER OLD NOTES HELD BY US
AND REGISTERED IN OUR NAME FOR YOUR ACCOUNT OR BENEFIT.
<PAGE>
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by Motors and
Gears, Inc. with respect to its Old Notes.
This will instruct you to tender the Old Notes held by you for the account
of the undersigned, upon and subject to the terms and conditions set forth in
the Prospectus and the related Letter of Transmittal.
Please tender the Old Notes held by you for my account as indicated below:
AGGREGATE PRINCIPAL AMOUNT OF OLD NOTES
---------------------------------------
10 3/4% Series A Senior Notes
Due 2006 _________________________________________________________________
[ ] Please do not tender any Old Notes held by
you for my account.
Dated:________________ , 1997 _________________________________
_________________________________
Signature(s)
_________________________________
_________________________________
_________________________________
Please print name(s) here
_________________________________
_________________________________
Address(es)
_________________________________
Area Code and Telephone Number
_________________________________
Tax Identification or Social
Security No(s).
None of the Old Notes held by us for your account will be tendered unless
we receive written instructions from you to do so. Unless a specific contrary
instruction is given in the space provided, your signature(s) hereon shall
constitute an instruction to us to tender all the Old Notes held by us for your
account.
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR
MOTORS AND GEARS, INC.
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as defined below) of Motors and
Gears, Inc. (the "Company") made pursuant to the Prospectus, dated _______ __,
1997 (as the same may be amended or supplemented from time to time, the
"Prospectus"), and the related Letter of Transmittal (the "Letter of
Transmittal") if the Letter of Transmittal and all other required documents
cannot be delivered or transmitted by facsimile transmission, mail or hand
delivery to Fleet National Bank (the "Exchange Agent") on or prior to 5:00 p.m.,
New York City time, on the Expiration Date (as defined in the Prospectus) or the
procedures for delivery by book-entry transfer cannot be completed on a timely
basis. See "The Exchange Offer -- Guaranteed Delivery Procedures" section in
the Prospectus. The term "Old Notes" means the Company's outstanding 10 3/4%
Series A Senior Notes due 2006.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON THE EARLIER
OF ________ __, 1997 (UNLESS EXTENDED) OR THE DATE ON WHICH 100% OF THE OLD
NOTES ARE VALIDLY TENDERED AND NOT WITHDRAWN (THE "EXPIRATION DATE"). TENDERED
OLD NOTES MAY BE WITHDRAWN AT ANY TIME ON OR PRIOR TO THE EXPIRATION DATE OF THE
EXCHANGE OFFER.
Deliver to: Fleet National Bank, Exchange Agent:
By Mail:
Fleet National Bank
Mail Code: CTOPT06D
Corporate Trust Operations Department
P.O. Box 1440
Hartford, Connecticut 06143
By Overnight Courier:
Fleet National Bank
Mail Code: CTOPT06D
Corporate Trust Operations
Department
1 Talcott Plaza, 6th Floor
Hartford, Connecticut 06120
By Facsimile:
(860) 986-7908
By Hand:
Fleet National Bank
Corporate Trust Operations Department
Customer Service Window
1 Talcott Plaza, 5th Floor
Hartford, Connecticut 06120
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID
DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and
conditions set forth in the Prospectus and the Letter of Transmittal (which
together constitute the "Exchange Offer"), receipt of which are hereby
acknowledged, the aggregate principal amount of Old Notes set forth below
pursuant to the guaranteed delivery procedure described in "The Exchange Offer -
- - Guaranteed Delivery Procedures" section in the Prospectus and the Letter of
Transmittal.
Principal Amount of Old Notes Signature(s)_________________________
Tendered $___________________________
Certificate Nos. Please Print the Following Information
(if available)_____________________
Names(s) of Registered Holders________
______________________________________
Total Principal Amount
Represented by Old Notes
Certificate(s)______________________ Address_______________________________
______________________________________
If Old Notes will be tendered by book-
entry transfer, provide the following
information:
Area Code and Telephone Number(s)
DTC Account Number____________________ ______________________________________
Dated:___________________ , 1997
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or entity identified in Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," hereby guarantees to deliver to the Exchange Agent, at its address
set forth above, either the Old Notes tendered hereby in proper form for
transfer, or confirmation of the book-entry transfer of such Old Notes pursuant
to the procedures for book-entry transfer set forth in the Prospectus, in either
case together with a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), with any required signature guarantees, and any other
documents required by the Letter of Transmittal within three New York Stock
Exchange trading days after the date of execution of this Notice of Guaranteed
Delivery.
Name of Firm________________________ ______________________________
(Authorized Signature)
Address_____________________________ Name___________________________
____________________________________ Date___________________________
Zip Code
Area Code and
Telephone Number_____________________
<PAGE>
MOTORS AND GEARS, INC.
Offer for all Outstanding
10 3/4% Series A Senior Notes due 2006
in Exchange for
10 3/4% Series B Senior Notes due 2006
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON THE EARLIER
OF ________ __, 1997 (UNLESS EXTENDED) OR THE DATE ON WHICH 100% OF THE OLD
NOTES ARE VALIDLY TENDERED AND NOT WITHDRAWN (THE "EXPIRATION DATE"). TENDERED
OLD NOTES MAY BE WITHDRAWN AT ANY TIME ON OR PRIOR TO THE EXPIRATION DATE OF THE
EXCHANGE OFFER.
To: Brokers, Dealers, Commercial Bank,
Trust Companies and Other Nominees:
Motors and Gears, Inc. (the "Company") is offering, upon and subject to
the terms and conditions set forth in the Prospectus, dated _________ __,
1997 (as the same may be amended or supplemented from time to time, the
"Prospectus"), and the enclosed Letter of Transmittal (the "Letter of
Transmittal"), to exchange (the "Exchange Offer") its 10 3/4% Series B
Senior Notes Due 2006 (the "New Notes") for its outstanding 10 3/4% Series A
Senior Notes Due 2006 (the "Old Notes"). The Exchange Offer is being made
in order to satisfy certain obligations of the Company contained in the
Registration Rights Agreement dated November 7, 1996 by and among the
Company, Donaldson, Lufkin & Jenrette Securities Corporation, BT Securities
Corporation and Jefferies & Co., Inc.
We are requesting that you contact your clients for whom you hold Old
Notes registered in your name or in the name of your nominee regarding the
Exchange Offer. For your information and for forwarding to your clients for
whom you hold Old Notes registered in your name or in the name of your
nominee, or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated ________ __, 1997;
2. The Letter of Transmittal for your use and for the information of
your clients, including Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange
Offer if time will not permit all required documents to reach the Exchange
Agent (as defined below) prior to the Expiration Date (as defined below) or
if the procedures for book-entry transfer cannot be completed on a timely
basis;
<PAGE>
4. A form of letter which may be sent to your clients for whose
account you hold Old Notes registered in your name or the name of your
nominee, with space provided for obtaining such clients' instructions with
regard to the Exchange Offer;
5. Return envelopes addressed to Fleet National Bank, the Exchange
Agent (the "Exchange Agent") for the Old Notes.
Your prompt action is requested. The Exchange Offer will expire at
5:00 p.m., New York City time, on _________ __, 1997, unless extended by the
Company (the "Expiration Date"). Old Notes tendered pursuant to the
Exchange Offer may be withdrawn, subject to the procedures described in the
Prospectus, at any time prior to 5:00 p.m., New York City time, on the
Expiration Date.
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Exchange Agent, all in accordance with the instructions set forth in the
Letter of Transmittal and the Prospectus.
If holders of Old Notes wish to tender but time will not permit all
required documents to reach the Exchange Agent prior to the Expiration Date
or to comply with the book-entry transfer procedures on a timely basis, a
tender may be effected by following the guaranteed delivery procedures
described in the Prospectus under "The Exchange Offer--Guaranteed Delivery
Procedures."
The Company will, upon request, reimburse brokers, dealers, commercial
banks and trust companies for reasonable and necessary costs and expenses
incurred by them in forwarding the Prospectus and the related documents to
the beneficial owners of Old Notes held by them as nominee or in a fiduciary
capacity. The Company will pay or cause to be paid all stock transfer taxes
applicable to the exchange of Old Notes pursuant to the Exchange Offer,
except as set forth in Instruction 9 of the Letter of Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or
requests for additional copies of the enclosed materials, should be directed
to Fleet National Bank, the Exchange Agent for the Old Notes, at its address
set forth on the front of the Letter of Transmittal.
Very truly yours,
MOTORS AND GEARS, INC.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR
ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF
EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS
EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
Enclosures
