<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-5374
VARLEN CORPORATION
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(Exact name of Registrant as specified in its charter)
DELAWARE 13-2651100
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Shuman Boulevard
P.O. Box 3089
Naperville, Illinois 60566-7089
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 420-0400
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
None None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of March 31, 1994, was $103,400,660.
The number of outstanding shares of the Registrant's Common Stock, par value
$.10 per share, as of the close of business on March 31, 1994, was 4,851,157
shares.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
1. The Registrant's 1993 Annual Report to Stockholders is incorporated herein
by reference to the following extent: Industry Segments and Officers into
Part I; and Quarterly Market and Dividend Information, Summary of
Operations, Summary of Financial Condition, Shares Listed, Management's
Discussion and Analysis of Financial Condition and Results of Operations,
and the Consolidated Balance Sheets, Consolidated Statements of Earnings,
Consolidated Statements of Stockholders' Equity and Consolidated Statements
of Cash Flows with related Notes and Independent Auditors' Report into Part
II.
2. The Registrant's Proxy Statement filed pursuant to Regulation 14A within
120 days after January 31, 1994, is incorporated herein by reference to the
following extent: The information set forth under the captions, Election
of Directors, Executive Compensation and Pension Plans, Certain
Relationships and Related Transactions and Security Ownership of Certain
Beneficial Owners and Management into Part III.
<PAGE>
PART I
Item I. BUSINESS
GENERAL
Varlen Corporation (the "Registrant") designs, manufactures and markets
engineered industrial products primarily for specialized applications in the
transportation and laboratory equipment markets. The Registrant's principal
business strategy is to employ its product development capabilities, advanced
manufacturing processes and marketing skills in market niches where the
Registrant can achieve a market leadership position. The Registrant's operations
are conducted primarily through subsidiaries and a division that are relatively
autonomous, while its small corporate headquarters staff oversees financial
controls and provides strategic direction. Management continually emphasizes
improvements in quality, product performance and delivery time, cost reductions
and other value adding activities. Although many of the markets for the
Registrant's products are mature, the Registrant seeks growth opportunities
through technological and product improvement and by acquiring and developing
new products that can be sold through its existing distribution networks. In
addition, the Registrant's development efforts increasingly focus on new
products specifically designed for international markets.
DEVELOPMENT OF THE COMPANY
The Registrant was founded by The Dyson-Kissner-Moran Corporation ("DKM")
in 1969 for the purpose of acquiring and managing businesses which manufacture
products for industrial markets. The Registrant's original business produced
parts for the railroad industry; however, over the years the Registrant
diversified its operations to serve many markets. Since 1984, the Registrant has
sold or discontinued smaller businesses, heavily construction-related or bid
businesses and businesses manufacturing commodity products where the Registrant
could not apply its design, manufacturing or marketing skills to create a
competitive advantage. Businesses acquired since 1986 include the Registrant's
heavy duty truck component business, automotive parts business, laboratory
appliance and petroleum analysis instrument and testing services businesses.
Although each of these businesses presents unique design and marketing
challenges, they each employ basic manufacturing processes, such as machining,
forging, casting, metal forming, welding and plastic molding, that have
historically been at the core of the Registrant's operations. In January 1993,
the Registrant purchased all of its outstanding stock owned by DKM.
The following table sets forth certain basic information with respect to
the Registrant's current businesses, which are divided into two industry
segments: transportation products and laboratory and other products.
<PAGE>
<TABLE>
<CAPTION>
PRODUCTS PRIMARY MARKETS
TRANSPORTATION PRODUCTS
SEGMENT
<S> <C> <C>
Keystone Railway Railroad shock absorption Locomotive and railcar
Equipment Company products including manufacturers, lessors,
hydraulic cushioning, railroads, railcar
draft gears and maintenance facilities;
elastomeric pads; hopper mine, mill, off-highway
car outlet gates. vehicle manufacturers.
Domestic and international
markets.
Unit Rail Anchor Railroad track fastening Railroad and track
Company systems. contractors. Domestic
and international markets.
Consolidated Metco, Truck and trailer hubs. Class 8 trucks, over the
Inc. Aluminum permanent mold road trailers and office
and die castings, fuel equipment manufacturers.
water separators and
structural foam plastic
parts.
Means Industries, Precision high volume Original equipment
Inc. stamped metal components automotive manufacturers
and automatic transmission and tier 1 suppliers to
reaction plates. the automotive industry.
After-market transmission
rebuilders. Parts are
found on cars, trucks and
vans.
LABORATORY AND OTHER PRODUCTS
SEGMENT
Precision Scientific, Constant temperature Industrial, governmental,
Inc. appliances including educational and clinical
waterbaths, incubators, research and development
ovens, autoclaves. laboratories. Markets
worldwide.
Precision Scientific Process instruments for Quality control and
Petroleum Instru- physical property process analysis for oil
ments Company analysis of petroleum refineries, petro-
products. chemical plants,
petroleum trans-
porters and end users.
Markets worldwide.
Alcor Petroleum Laboratory instruments, Quality control analysis
Instruments, Inc. testing services and for jet fuel. Markets
reference samples for worldwide.
physical property
analysis of petroleum
products.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRODUCTS PRIMARY MARKETS
<S> <C> <C>
Walter Herzog GmbH Laboratory instruments Quality control analysis
for physical property for oil refineries,
analysis of petroleum petrochemical plants,
products. petroleum transporters
and end users. Markets
worldwide.
National Metalwares, Fabricated tubular steel Household, institutional
Inc. products. and juvenile furniture
manufacturers, lawn and
garden and toy manufac-
turers.
</TABLE>
TRANSPORTATION PRODUCTS
In the transportation products segment, the Registrant serves three basic
markets: the railroad industry, the heavy duty truck and trailer industries and
the automotive industry.
RAIL
For the railroad industry, the Registrant's most extensive line of products
is its hydraulic cushioning and draft gear shock absorption devices, which are
designed to minimize or prevent the damage that locomotives and freight cars and
their cargo can incur during coupling and normal operations. The Registrant
believes that it is the only company which offers railroads a complete range of
such devices utilizing hydraulic, steel friction and synthetic polymer
technologies. Hydraulic cushioning devices weigh between 800 and 1200 pounds and
are between three and five feet in length. Hydraulic cushioning is the preferred
method of protecting high value freight (such as automobiles, paper, and
construction products) from damage during shipment. The Registrant believes it
is the leading producer of hydraulic cushioning devices for North American
railroads. Draft gears weigh between 150 and 700 pounds and are between one and
three feet in length. The Registrant's draft gears are used on locomotives and
rail cars transporting less easily damaged goods (coal, ore, grains, etc.),
where such devices serve to protect the rail cars themselves from damage. The
Registrant provides shock absorption devices to builders of new freight cars and
locomotives and also refurbishes and retrofits devices already in service,
including models originally manufactured by others.
The Registrant is also a leading producer of rail anchors for North
American railroads and believes it offers the broadest range of styles and sizes
of these products. Rail anchors are precision, forged steel devices which are
attached directly to the rail track and are designed to prevent the rail from
longitudinal movement or buckling as a result of traffic and temperature
conditions. Approximately 5,000 to 8,000 rail anchors are used per mile of
track. Rail anchors are manufactured to customer orders, usually in large
numbers requiring careful production scheduling, and are required to meet
specifications of organizations such as the American Railway Engineering
Association. The Registrant also produces outlet gates designed to permit the
discharge of a commodity from a covered hopper car.
<PAGE>
Through ongoing product development, the Registrant is committed to
expanding its market share in both the North American and international railroad
industries. Currently, the Registrant is focusing on opportunities in Europe,
Asia, the former Soviet Union and other international markets. The Registrant
believes that its experience and technological leadership in the North American
railroad freight market can be successfully transferred to international
markets. As the European community opens its borders, European rail hauls are
expected to become longer and to use heavier cars, requiring more sophisticated
shock absorption products. The Registrant has already developed and obtained
approval from the Union Internationale des Chemins de Fer (the European
railroads standards organization) for a product designed specifically for use by
European railroads.
North American railroads have been increasing their share of the freight
transportation market. The Registrant believes that this increase should create
demand for the Registrant's products as new rail cars are built, old rail cars
are refurbished and the railroads expend funds to maintain and improve their
tracks. As freight railroad systems are expanded and updated throughout the
world, the Registrant believes that its wide-range of highly engineered products
should be well positioned to meet the growing demand.
In the rail products portion of its business, the Registrant's products
compete on engineering features, quality, service and price. There are a small
number of manufacturers in each of the shock absorption device markets and the
rail anchor markets. New competitors in the Registrant's rail products markets
have been discouraged from entering these markets because of the relatively
large capital investment required, the time it takes to receive railroad
approval of particular designs and products and the relatively mature status
of these markets. However, the existing competitors in these markets continue
to compete intensely.
HEAVY DUTY TRUCKS AND TRAILERS
The Registrant designs, manufactures and markets lightweight components for
heavy duty over-the-road trucks and trailers. These components include axle
hubs, parts for suspension systems and clutch housings and are made using
permanent mold, die casting and structural foam plastic processes.
The Registrant's customer base in this area includes both original truck
and trailer manufacturers and end-user fleets. The Registrant's cast aluminum
products offer significant weight savings over available iron or forged aluminum
products without sacrificing strength. For example, the Registrant's aluminum
axle hubs are up to 320 pounds lighter than iron hubs on an 18 wheel
tractor-trailer. Due to U.S. highway weight regulations, lightweight components
can be an important consideration for heavy payload haulers. By saving on their
truck weight, haulers can carry an increased payload or, alternatively, increase
fuel efficiency.
<PAGE>
The Registrant's truck component business has benefitted from its new
product development, its customer base expansion and its relationships with key
customers, such as Freightliner and Paccar, who have been increasing their
market share in this industry. With certain of these customers, the Registrant
has been able to establish itself as a sole source supplier of certain
components.
The Registrant's heavy duty truck products compete on quality, engineering
expertise, delivery and price. These products compete with those manufactured
from different materials or using different industrial processes. The Registrant
believes that its ability to offer customers products that are designed and
engineered to their specifications is a competitive advantage in establishing
and maintaining these customer relationships and enhances its opportunities for
expansion in export markets.
AUTOMOTIVE
For the automotive industry, the Registrant produces precision stamped
metal components for use in engine, steering, transmission and suspension
systems. The Registrant's ability to design and engineer tight tolerance
components that can be manufactured in high volume with high quality ratings has
enabled it to become a direct supplier to original equipment manufacturers,
principally divisions of General Motors Corporation ("GM"), Chrysler
Corporation ("Chrysler") and Ford Motor Company ("Ford"). The Registrant also
sells automotive parts to both U.S. and foreign-owned manufacturers that sell
directly to GM, Ford, Chrysler and U.S. production facilities of foreign-owned
automobile manufacturers. While the Registrant produces parts for all North
American GM passenger vehicles, the principal GM platforms for the Registrant's
automotive products consist of light trucks, vans, sport utility vehicles and
rear-wheel drive passenger cars. Parts are also produced for many Chrysler
models, including the "LH" and "Neon" program's, and for many Ford products, but
primarily the CT-20 platform used in Ford's Escort and Tracer models.
The Registrant's automotive business has been helped by increasing industry
sales and through providing parts for popular new models and platforms. Among
the Registrant's principal automotive products are steel reaction plates that
are primarily used in light truck transmissions, including mini-vans and sport
utility vehicles whose sales have increased as a percentage of the overall
passenger vehicle market. The Registrant believes growth opportunities should
present themselves as newer vehicle models which utilize components manufactured
by the Registrant achieve market acceptance and the Registrant's components
receive further acceptance by foreign-owned automotive related manufacturers.
Competition for the sale of these products is intense, coming from numerous
companies, including divisions of GM, Ford and Chrysler, which have comparable
facilities and greater financial and other resources than the Registrant. The
Registrant competes for sales of these products on quality, just-in-time
delivery and price.
OTHER INFORMATION
Marketing of the Registrant's transportation products is done through sales
personnel employed by the Registrant and independent sales representatives. Each
product group is sold through separate marketing and distribution channels to a
different customer base. The Registrant's
<PAGE>
automotive parts business uses an internal sales force to market its products
directly to its customers.
The primary materials used for the manufacture of products in the
transportation products segment are cold rolled and hot rolled steel, special
alloy steel, bar, castings, forgings, tubing and rod, aluminum ingots and
plastic resin. The Registrant has not experienced any difficulties in obtaining
such materials, although long lead times exist for certain steel products. The
machinery and equipment used for the manufacturing of these products, which
management considers adequate for current operations, consist primarily of heavy
duty forging and heat-treating equipment, metal cutting machine tools, heavy
duty metal stamping equipment, welding equipment, injection molding presses,
casting equipment, tools, dies, furnaces, molds, painting and plating equipment.
Backlog for this industry segment was $46.2 million, $44.2 million and
$33.4 million as of January 31, 1994, January 31, 1993 and January 31, 1992,
respectively. All of the current backlog is expected to be filled during the
current fiscal year.
Sales of transportation products to Freightliner and GM amounted to 14% and
11% of the Registrant's total sales in 1993, 12% and 11% in 1992 and 11% and 11%
in 1991, respectively. In addition, the Registrant's sales of shock absorption
devices and related parts for railroad freight cars and locomotive engines
accounted for 14%, 14% and 12% of the Registrant's total sales in 1993, 1992 and
1991, respectively.
LABORATORY AND OTHER PRODUCTS
In the laboratory and other products segment, the Registrant produces the
following categories of products: laboratory appliances, petroleum analysis
instruments, petroleum reference samples and tubular steel components. The
Registrant also provides testing services which test customer's petroleum
products for certain attributes.
LABORATORY APPLIANCES
The Registrant designs, manufactures and markets laboratory appliances for
the life sciences industry, which include water baths, ovens, micro-biological
and cell biology incubators, autoclaves, safety refrigerators and vacuum pumps.
These products are designed primarily to provide constant temperature conditions
for organic research materials. These products are sold under well established
brand names, such as "Precision-TM-" and "NAPCO-TM-". The Registrant's
laboratory appliances are marketed domestically and internationally, primarily
through four major distributors (Fisher Scientific, VWR Scientific, Baxter
Scientific Products and Curtin Matheson Scientific, Inc.). This market
consists of industrial, educational, clinical and governmental laboratories.
The Registrant's marketing staff provides sales support to the Registrant's
distributors. Because laboratory appliances of the type produced by the
Registrant are essential to many life sciences research projects, the level of
governmental and private sector spending for research affects sales of the
Registrant's laboratory appliances. The Registrant believes that a moderation in
pharmaceutical and biotechnology research in recent years has been an important
factor affecting sales of the Registrant's laboratory appliances.
<PAGE>
Since the acquisition of these laboratory appliance businesses, the
Registrant has invested in re-engineering and updating its products and
production techniques in order to improve product quality, shorten production
cycle time and lower manufacturing costs. In recent years, emphasis has been
placed on international markets, including direct export sales and sales to U.S.
distributors for foreign end-users. The Registrant's laboratory appliance
business competes on product quality, features, reliability, delivery and price.
User brand preference and the ability to maintain strong relationships with its
distribution system and to provide customer service are of prime competitive
importance as there is significant worldwide competition from several companies
that specialize in the production of similar products in this fragmented
industry.
PETROLEUM ANALYSIS INSTRUMENTS AND RELATED SERVICES
The Registrant designs, manufactures and markets instruments which analyze
the physical properties of petroleum, such as freeze point, flash point, pour
point, viscosity and vapor pressure; engages in the testing of petroleum
products; and sells petroleum product reference samples. The instruments,
testing services and reference samples are used for quality assurance purposes,
to test for compliance with industry standards and to enhance refinery
efficiency. These products and services are used in petroleum refineries and by
end-users of petroleum products. The instruments consist of on-line process
analyzers and automatic and manual laboratory analyzers. The on-line analyzers
are used to help control the refining process, by constantly sampling the stream
of petroleum products to provide data which assists in the fine-tuning of the
refining process. Testing services are provided at the Registrant's in-house
facility which tests customer's petroleum products for thermal stability and
viscosity. Petroleum reference samples are used to calibrate petroleum
analyzers to proper specifications.
The Registrant's petroleum analysis instruments are sold world-wide to over
600 petroleum refiners and to transporters, governmental agencies, pipeline
companies and large users of petroleum products (airlines, railroads and the
U.S. military). Although the number of U.S. refineries is declining, the
Registrant's sales to overseas refiners and to existing refineries in the
process of upgrading and automating their production processes are expected to
provide growth opportunities in these product lines. The Registrant recently
brought to market new instruments which are helping to meet the petroleum
industry's growing need for quality control and increased process and laboratory
productivity. The Registrant's ability to engineer on-line analyzers for
specific applications and to provide timely service at their place of
installation is of competitive importance. With manufacturing facilities in the
United States and Germany, the Registrant believes it is well-positioned to
maintain a leading position in this global market. The Registrant's petroleum
analysis instruments compete primarily on product quality, engineering features,
reliability and service. There are a small number of competitors in this
limited market, some of which use alternate technologies.
<PAGE>
TUBULAR STEEL COMPONENTS
The Registrant is a leading integrated manufacturer of tubular steel
components for consumer products, primarily in the household, juvenile and
commercial furniture industries, but also for manufacturers of lawn and garden
equipment and toys. While these markets have weakened during the past three
years due to competition from imports, reduction in the number of potential
customers and the recession, the Registrant's tubular steel component business
has remained profitable by aggressively reducing costs and adding new customers
who can benefit from the Registrant's ability to totally control engineering,
manufacturing, fabrication and chrome plating or painting at its facilities.
This business competes primarily on its overall ability to design products to
meet its customer's needs, delivery and price. It competes with numerous U.S.
manufacturers, including the in-house operations of existing and potential
customers, and its competitive position is affected by the import of finished
goods that compete with the products manufactured by its customers.
OTHER INFORMATION
The primary materials used for the manufacture of the products in this
segment are stainless steel, cold rolled carbon steel and electronic components.
The Registrant has not experienced any difficulties in obtaining such materials.
Marketing of these products is done through company sales personnel, independent
sales representatives and distributors throughout the U.S. and international
markets. The machinery and equipment used for the manufacturing of these
products, which management considers adequate for current operations, consist
primarily of tube mills and metal forming, fabrication, welding, plating and
painting equipment, together with a complement of tools, dies, jigs and gauges.
Backlog for this industry segment was $8.4 million, $7.8 million and $12.1
million as of January 31, 1994, January 31, 1993 and January 31, 1992,
respectively. All of the current backlog is expected to be filled during the
current fiscal year. In addition, the Registrant's sales of petroleum analysis
instruments and related parts accounted for 10%, 11% and 11% of the Registrant's
total sales in 1993, 1992 and 1991, respectively.
RESEARCH AND DEVELOPMENT
In 1993, 1992 and 1991, the Registrant spent $4.3 million, $3.6 million and
$2.8 million, respectively, on research and development activities, all of which
was Registrant sponsored. Of these amounts, research and development spending on
new products was $1.8 million, $1.5 million and $1.3 million for 1993, 1992 and
1991, respectively.
PATENTS, TRADE NAMES AND TRADEMARKS
The Registrant applies for and maintains patents, trade names and
trademarks where the Registrant believes that such patents, trade names and
trademarks are reasonably required to protect the Registrant's rights in its
products. The Registrant does not believe that any single patent, trade name or
trademark or related group of such rights, other than the "Precision-TM-",
"NAPCO-TM-" and "Herzog" trade names and related trademarks, are materially
important to its businesses or its ability to compete. In many instances the
Registrant's technology is not patented but is maintained by the Registrant as
proprietary.
<PAGE>
SEASONALITY
In non-recessionary times, the Registrant's first quarter has historically
been the strongest quarter of the year. During the second and fourth quarters,
the Registrant traditionally encounters scheduled shutdowns and slowdowns at
customers' manufacturing plants and reduced sales in the laboratory and other
products segment. During the second and third quarters, the Registrant generally
experiences a slowing of railbed maintenance of way orders.
EMPLOYEES
As of January 31, 1994, the Registrant employed a total of 2,030 persons,
1,346 of whom were employed in its Transportation Products segment, 667 of whom
were employed in its Laboratory and Other Products segment and 17 of whom were
employed at the Registrant's corporate headquarters. Of the employees employed
by the Transportation Products and Laboratory and Other Products segments, 579
and 383, respectively, are covered by collective bargaining agreements. The
Registrant believes it has a good working relationship with its employees.
ENVIRONMENTAL MATTERS
The Registrant's manufacturing operations are subject to federal, state,
local and foreign environmental laws and regulations which impose limitations on
the discharge of pollutants into the air and water and establish standards for
the treatment, storage and disposal of hazardous waste. The Registrant has
established a Company-wide environmental compliance program that stresses
periodic environmental audits and management review of compliance procedures at
the operating company level. The Registrant believes that it is in substantial
compliance with applicable environmental laws and regulations.
Compliance with these environmental laws and regulations has not had, nor is it
expected to have, a material effect on the Registrant's earnings, competitive
position or capital expenditures through fiscal 1995. The amount of capital
expenditures expected to be spent on environmental compliance costs in fiscal
1994 and 1995 are approximately $153,000 and $160,000, respectively.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information set forth under the caption "Officers" on
the inside back cover of the Registrant's 1993 Annual Report to Stockholders,
which information is hereby incorporated herein by reference.
Item 2. PROPERTIES
The following table sets forth certain information with respect to the principal
properties of the Registrant. The expiration date of each applicable lease is
given for leased properties; all other properties are owned. Unless otherwise
noted, all properties are manufacturing facilities.
<TABLE>
<CAPTION>
Expiration Date Approximate
Approximate of Lease Capacity
Operation Square Feet (If applicable) Utilization(1)
- --------- ----------- --------------- --------------
<S> <C> <C> <C>
Executive Office 10,000(2) 10/15/97 N/A
Naperville, IL
Transportation Products
- -----------------------
Atchison, KS 50,000(3) N/A 42%
Camp Hill, PA 105,000 N/A 60%
McPherson, KS 95,000(3) N/A 60%
Saginaw, MI 77,000 N/A 75%
Melvindale, MI 45,000 N/A 75%
Vassar, MI 76,000 N/A 60%
Portland, OR 179,000 N/A 85%
Monroe, NC 66,000 N/A 85%
Clackamas, OR 55,000 N/A 85%
Cashiers, NC 80,000 N/A 85%
Laboratory and Other Products
- -----------------------------
Aurora, IL 166,000 N/A 65%
Chicago, IL 125,000 9/15/97 50%
Bellwood, IL 35,000 5/31/96 26%
San Antonio, TX 28,000 4/30/99 24%
Lauda, Germany 24,000 N/A 22%
Lauda, Germany 6,000 6/30/95 22%
Discontinued Operations
- -----------------------
McPherson, KS 54,000(4) N/A N/A
Bell Gardens, CA 18,000 N/A 63%
Chicago, IL 32,000 N/A 50%
<FN>
(1) Full capacity being deemed a 24 hour day, 7 day week for this purpose.
(2) Office space.
(3) Treated as a financing lease for financial reporting purposes.
(4) Idle plant.
N/A Not applicable.
</TABLE>
<PAGE>
Item 3. LEGAL PROCEEDINGS
Not applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Reference is made to the information set forth under the captions "Quarterly
Market and Dividend Information" and "Shares Listed" in the Registrant's 1993
Annual Report to Stockholders, which information is hereby incorporated herein
by reference. Note: The information contained under the caption "Quarterly
Market and Dividend Information" in the Registrant's 1993 Annual Report includes
over-the-counter market quotations which reflect interdealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
Item 6. SELECTED FINANCIAL DATA
Reference is made to the information set forth under the captions "Summary of
Operations" and "Summary of Financial Condition" in the Registrant's 1993 Annual
Report to Stockholders, which information is hereby incorporated herein by
reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Reference is made to the information set forth under the caption, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Registrant's 1993 Annual Report to Stockholders, which information is hereby
incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the information set forth under the captions "Consolidated
Balance Sheets", "Consolidated Statements of Earnings", "Consolidated Statements
of Stockholders' Equity", "Consolidated Statements of Cash Flows", "Notes to
Consolidated Financial Statements" and "Independent Auditors' Report" in the
Registrant's 1993 Annual Report to Stockholders, which information is hereby
incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information set forth under the caption "Election of
Directors" in the Registrant's Proxy Statement filed pursuant to Regulation 14A
within 120 days after January 31, 1994, which information is hereby incorporated
herein by reference, and to the information set forth under the caption
"Executive Officers of the Registrant", which appears as a separate item
immediately preceding Item 2 included in PART I hereof, which information is
hereby incorporated herein by reference.
None of the executive officers bear any family relationship to one another. The
executive officers of the Registrant are elected annually by the Board of
Directors.
Item 11. EXECUTIVE COMPENSATION
Reference is made to the information set forth under the captions "Executive
Compensation" and "Certain Relationships and Related Transactions" in the
Registrant's Proxy Statement filed pursuant to Regulation 14A within 120 days
after January 31, 1994, which information is hereby incorporated herein by
reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information set forth under the captions "Election of
Directors" and "Security Ownership of Certain Beneficial Owners and Management"
in the Registrant's Proxy Statement filed pursuant to Regulation 14A within 120
days after January 31, 1994, which information is hereby incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information set forth under the captions "Election of
Directors" and "Certain Relationships and Related Transactions" in the
Registrant's Proxy Statement filed pursuant to Regulation 14A within 120 days
after January 31, 1994, which information is hereby incorporated herein by
reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1),
(a)(2)
& (d) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The consolidated financial statements, together with the related notes
and supporting schedules filed as part of this Form 10-K, are listed
in the accompanying Index to Consolidated Financial Statements and
Schedules.
<PAGE>
(b) REPORTS ON FORM 8-K
None
(a)(3)
& (c) EXHIBITS
Set forth below is a list of the Exhibits to this Form 10-K in
accordance with the requirements of Items 14(a) (3) and (c) of Form
10-K and Item 601 of Regulation S-K:
(3) (i) Registrant's Articles of Incorporation, as amended
(incorporated herein by reference to Exhibit (3)(a)
to the Registrant's Annual Report on Form 10-K for
the fiscal year ended January 31, 1988).
(ii) Registrant's By-laws, as amended (incorporated herein
by reference to Exhibit (3)(b) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
January 31, 1987).
(4) (a) Revolving Credit Agreement by and among the Registrant, the Borrowing
Subsidiaries, the Lenders Party Thereto and The First National Bank of
Chicago, as Agent, dated as of December 6, 1993.
(10) (a) Registrant's 1980 Incentive Stock Option Plan, as amended
(incorporated herein by reference to Exhibit (10)(b) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1989) and as further amended on March 26, 1990
(incorporated herein by reference to Exhibit (10)(b) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1990).
(b) Varlen Corporation Profit Sharing and Retirement Savings Plan
(incorporated herein by reference to Exhibit(10)(c) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1987), as amended on February 19, 1987, December 10, 1987,
April 11, 1988, November 28, 1988 and August 29, 1989 (incorporated
herein by reference to Exhibit (10)(c) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31, 1990), as
further amended on December 1, 1992 (incorporated herein by reference
to Exhibit 10(h) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended January 31, 1993), as further amended and
restated on August 1, 1993 (incorporated herein by reference to
Exhibit (10) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended July 31, 1993).
(c) Registrant's 1989 Incentive Stock Option Plan, (incorporated herein
by reference to Exhibit (10)(h) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31, 1989) and as further
amended on March 26, 1990 (incorporated herein by reference to Exhibit
(10)(g) to the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1990).
<PAGE>
(d) Varlen Corporation Excess Benefits Plan (incorporated herein by
reference to Exhibit (10)(i) to the Registrant's Annual Report on Form
10-K for the fiscal year ended January 31, 1990).
(e) Varlen Corporation Supplemental Executive Retirement Plan
(incorporated herein by reference to Exhibit (10)(j) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1990).
(f) Trust Agreement Between Varlen Corporation and Fidelity Management
Trust Company dated November 30, 1992 (incorporated herein by
reference to Exhibit (10)(g) to the Registrant's Annual Report on Form
10-K for the fiscal year ended January 31, 1993).
(g) Stock Purchase Agreement dated December 17, 1992 between The Dyson-
Kissner-Moran Corporation and the Registrant (incorporated herein by
reference to Exhibit 5(a) to the Registrant's Report on Form 8-K dated
January 8, 1993).
(h) Form of letter agreement between the Registrant and Richard L. Wellek
(incorporated herein by reference to Exhibit (10)(j) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1993).
(i) Form of letter agreement between the Registrant and each of Richard A.
Nunemaker, Raymond A. Jean and George W. Hoffman (incorporated herein
by reference to Exhibit (10)(k) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31, 1993).
(j) Trust Indenture for the Registrant's $69,000,000 6 1/2% Convertible
Subordinated Debentures Due 2003 from the Registrant to the Harris
Trust and Savings Bank (incorporated herein by reference to Exhibit
(4) to the Registrant's Report on Form 8-K dated May 27, 1993).
(k) Registrant's 1993 Incentive Stock Option Plan adopted May 25, 1993.
(l) Registrant's 1993 Directors Incentive Stock Grant Plan adopted
May 25, 1993.
(m) Registrant's 1993 Deferred Incentive Stock Purchase Plan adopted May
25, 1993.
(11) Computation of Per Share Earnings for the Fiscal Years Ended January
31, 1994, 1993 and 1992.
(13) 1993 Annual Report to Stockholders.
(21) List of Subsidiaries.
(23) Consent of Deloitte & Touche.
(24) Board of Directors' power of attorney for the signing of Varlen
Corporation's 1993 Annual Report on Form 10-K.
(27) Financial Data Schedule.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
VARLEN CORPORATION
(Registrant)
By /s/ Richard A. Nunemaker
------------------------
Richard A. Nunemaker
Vice President, Finance and
Chief Financial Officer
Dated: April 22, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Richard L. Wellek President, Chief April 22, 1994
- --------------------- Executive Officer
Richard L. Wellek and Director
(Principal Executive
Officer)
/s/ Richard A. Nunemaker Vice President, Finance April 22, 1994
- ------------------------ and Chief Financial
Richard A. Nunemaker Officer
(Principal Financial
Officer and Principal
Accounting Officer)
<PAGE>
Signature Date
- --------- ----
/s/ Richard A. Nunemaker April 22, 1994
- -------------------------
Richard A. Nunemaker
as attorney-in-fact for
Rudolph Grua, Director
/s/ Richard A. Nunemaker April 22, 1994
- -------------------------
Richard A. Nunemaker
as attorney-in-fact for
Ernest H. Lorch, Director
/s/ Richard A. Nunemaker April 22, 1994
- -------------------------
Richard A. Nunemaker
as attorney-in-fact for
L. William Miles, Director
/s/ Richard A. Nunemaker April 22, 1994
- -------------------------
Richard A. Nunemaker
as attorney-in-fact for
Greg A. Rosenbaum, Director
/s/ Richard A. Nunemaker April 22, 1994
- -------------------------
Richard A. Nunemaker
as attorney-in-fact for
Theodore A. Ruppert, Director
<PAGE>
VARLEN CORPORATION
AND SUBSIDIARIES
Annual Report (Form 10-K)
Consolidated Financial Statements and Schedules
Submitted in Response to Item 14
Years ended January 31, 1994, 1993 and 1992
<PAGE>
VARLEN CORPORATION
AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedules
CONSOLIDATED FINANCIAL STATEMENTS
INCORPORATED BY REFERENCE
The consolidated balance sheets of the Registrant and subsidiaries as of January
31, 1994 and 1993, and the related consolidated statements of earnings,
consolidated statements of stockholders' equity and consolidated statements of
cash flows for each of the years in the three-year period ended January 31,
1994, together with the related notes and the report of Deloitte & Touche,
independent auditors, all contained in the Registrant's 1993 Annual Report to
Stockholders, are incorporated herein by reference thereto. The following
additional consolidated financial information should be read in conjunction with
the consolidated financial statements in such 1993 Annual Report to
Stockholders. All other schedules are omitted as the required information is
inapplicable or the information is presented in the financial statements or
related notes.
ADDITIONAL CONSOLIDATED FINANCIAL INFORMATION
- Schedules:
- V - Property, Plant, and Equipment
- VI - Accumulated Depreciation and Amortization
of Property, Plant, and Equipment
- VIII - Valuation and Qualifying Accounts
- X - Supplementary Income Statement Information
<PAGE>
DELOITTE & TOUCHE
[LOGO]
Two Prudential Plaza
180 North Stetson Avenue
Chicago, Illinois 60601-6779
Telephone: (312)946-3000
Facsimile: (312)946-2600
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Varlen Corporation
Naperville, Illinois
We have audited the consolidated financial statements of Varlen Corporation
and subsidiaries as of January 31, 1994 and 1993, and for each of the three
years in the period ended January 31, 1994, and have issued our report thereon
dated March 7, 1994; such consolidated financial statements and report are
included in your 1993 Annual Report to Stockholders and are incorporated herein
by reference. Our audits also included the consolidated financial statement
schedules of Varlen Corporation and subsidiaries, listed in Item 14. These
consolidated financial statement schedules are the responsibility of the
Corporation's management. Our responsibility is to express an opinion based
upon our audits. In our opinion, such consolidated financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
/s/Deloitte & Touche
March 7, 1994
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
<PAGE>
SCHEDULE V
VARLEN CORPORATION
AND SUBSIDIARIES
Property, Plant and Equipment
Three years ended January 31, 1994
(in thousands)
<TABLE>
<CAPTION>
Balance at Balance
Classification beginning Additions Retirements at end
period of period at cost or sales Other of period
- -------------- --------- --------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
Year ended
1/31/94:
Land $ 3,624 $ --- $ 240 $ (376) $ 3,008
Buildings 23,575 944 1,907 (147) 22,465
Machinery &
equipment 72,446 10,296 1,452 (63) 81,227
------- ------- ------ -------- --------
$99,645 $11,240 $3,599 $ (586) $106,700
------- ------- ------ -------- --------
------- ------- ------ -------- --------
(a)(b)
Year ended
1/31/93:
Land $ 4,271 $ --- $ 672 $ 25 $ 3,624
Buildings 24,328 1,018 2,011 240 23,575
Machinery &
equipment 66,308 8,549 1,854 (557) 72,446
------- ------- ------ -------- --------
$94,907 $ 9,567 $4,537 $ (292) $99,645
------- ------- ------ -------- --------
------- ------- ------ -------- --------
(a)
Year ended
1/31/92:
Land $ 4,274 $ --- $ --- $ (3) $ 4,271
Buildings 23,706 604 --- 18 24,328
Machinery &
equipment 59,870 7,345 858 (49) 66,308
------- ------- ------ -------- --------
$87,850 $ 7,949 $ 858 $ (34) $94,907
------- ------- ------ -------- --------
------- ------- ------ -------- --------
(a)
<FN>
(a) Includes reclassifications and foreign currency translation adjustments.
(b) Includes property, plant and equipment of companies acquired.
</TABLE>
<PAGE>
Schedule VI
VARLEN CORPORATION
AND SUBSIDIARIES
Accumulated Depreciation and Amortization of
Property, Plant and Equipment
Three years ended January 31, 1994
(in thousands)
<TABLE>
<CAPTION>
Balance at
Classification beginning Depreciation Retirements, sales Balance at
period of period expense (a) and other end of period
- -------------- ---------- ------------ ------------------ -------------
<S> <C> <C> <C> <C>
Year ended
1/31/94:
Buildings $ 6,719 $ 1,016 $ 268 $ 7,467
Machinery &
equipment 38,147 9,279 1,060 46,366
------- ------- ------ -------
$44,866 $10,295 $1,328 $53,833
------- ------- ------ -------
------- ------- ------ -------
(b)
Year ended
1/31/93:
Buildings $ 5,583 $1,185 $ 49 $ 6,719
Machinery &
equipment 30,888 8,303 1,044 38,147
------- ------- ------ -------
$36,471 $9,488 $1,093 $44,866
------- ------- ------ -------
------- ------- ------ -------
(b)
Year ended
1/31/92:
Buildings $ 4,166 $1,113 $ (304) $ 5,583
Machinery &
equipment 24,108 7,681 901 30,888
------- ------- ------ -------
$28,274 $8,794 $ 597 $36,471
------- ------- ------ -------
------- ------- ------ -------
(b)
<FN>
(a) Depreciation of property, plant, and equipment is computed by the
straight-line method using the following useful lives:
Classification Years
-------------- -----
Buildings 10-45
Machinery & Equipment 3-12
(b) Includes reclassifications and foreign currency translation adjustments.
</TABLE>
<PAGE>
SCHEDULE VIII
VARLEN CORPORATION
AND SUBSIDIARIES
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Three years ended January 31, 1994
(in thousands)
Additions
Balance at charged to Balance
beginning costs and at end
Description of period expenses Deductions of period
----------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Valuation accounts
deducted from assets
to which they apply:
Allowance for
doubtful accounts
(deducted from
accounts receivable):
Year ended 1/31/94 $1,826 $ 256 $ 875(a) $1,207
Year ended 1/31/93 1,490 630 294(a) 1,826
Year ended 1/31/92 1,762 450 722(a) 1,490
Allowance related to
deferred tax assets:
Year ended 1/31/94 $1,423 $ 42 $ --- $1,465
Year ended 1/31/93 1,423 --- --- 1,423
Year ended 1/31/92 1,423 --- --- 1,423
Valuation accounts
related to reserve
for loss on disposal
of discontinued
operations:
Year ended 1/31/94 $ 378 $ --- $ (233)(b) $ 611
Year ended 1/31/93 --- --- (378)(b) 378
Year ended 1/31/92 579 --- 579 (b) ---
<FN>
(a) Write-offs, net of recoveries, foreign currency translation adjustments
and reserves related to certain companies disposed of during the period.
(b) Losses incurred on disposition of assets and operating earnings and losses
(gains) subsequent to date of discontinuance charged (credited) to the
valuation account.
</TABLE>
<PAGE>
SCHEDULE X
VARLEN CORPORATION
AND SUBSIDIARIES
Supplementary Income Statement Information
Three Years Ended January 31, 1994
(in thousands)
<TABLE>
<CAPTION>
Charged to costs and expenses
Year ended January 31
-----------------------------
Item 1994 1993 1992
---- ---- ---- ----
<S> <C> <C> <C>
Maintenance and repairs $7,302 $5,546 $4,747
Amortization of intangible $2,606 $2,452 $2,450
assets
</TABLE>
<PAGE>
INDEX TO EXHIBIT
(3) (i) Registrant's Articles of Incorporation, as amended
(incorporated herein by reference to Exhibit (3)(a)
to the Registrant's Annual Report on Form 10-K for
the fiscal year ended January 31, 1988).
(ii) Registrant's By-laws, as amended (incorporated herein
by reference to Exhibit (3)(b) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
January 31, 1987).
(4) (a) Revolving Credit Agreement by and among the Registrant, the Borrowing
Subsidiaries, the Lenders Party Thereto and The First National Bank of
Chicago, as Agent, dated as of December 6, 1993.
(10) (a) Registrant's 1980 Incentive Stock Option Plan, as amended
(incorporated herein by reference to Exhibit (10)(b) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1989) and as further amended on March 26, 1990
(incorporated herein by reference to Exhibit (10)(b) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1990).
(b) Varlen Corporation Profit Sharing and Retirement Savings Plan
(incorporated herein by reference to Exhibit(10)(c) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1987), as amended on February 19, 1987, December 10, 1987,
April 11, 1988, November 28, 1988 and August 29, 1989 (incorporated
herein by reference to Exhibit (10)(c) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31, 1990), as
further amended on December 1, 1992 (incorporated herein by reference
to Exhibit 10(h) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended January 31, 1993), as further amended and
restated on August 1, 1993 (incorporated herein by reference to
Exhibit (10) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended July 31, 1993).
(c) Registrant's 1989 Incentive Stock Option Plan, (incorporated herein
by reference to Exhibit (10)(h) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31, 1989) and as further
amended on March 26, 1990 (incorporated herein by reference to Exhibit
(10)(g) to the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1990).
(d) Varlen Corporation Excess Benefits Plan (incorporated herein by
reference to Exhibit (10)(i) to the Registrant's Annual Report on Form
10-K for the fiscal year ended January 31, 1990).
<PAGE>
(e) Varlen Corporation Supplemental Executive Retirement Plan
(incorporated herein by reference to Exhibit (10)(j) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1990).
(f) Trust Agreement Between Varlen Corporation and Fidelity Management
Trust Company dated November 30, 1992 (incorporated herein by
reference to Exhibit (10)(g) to the Registrant's Annual Report on Form
10-K for the fiscal year ended January 31, 1993).
(g) Stock Purchase Agreement dated December 17, 1992 between The Dyson-
Kissner-Moran Corporation and the Registrant (incorporated herein by
reference to Exhibit 5(a) to the Registrant's Report on Form 8-K dated
January 8, 1993).
(h) Form of letter agreement between the Registrant and Richard L. Wellek
(incorporated herein by reference to Exhibit (10)(j) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1993).
(i) Form of letter agreement between the Registrant and each of Richard A.
Nunemaker, Raymond A. Jean and George W. Hoffman (incorporated herein
by reference to Exhibit (10)(k) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31, 1993).
(j) Trust Indenture for the Registrant's $69,000,000 6 1/2% Convertible
Subordinated Debentures Due 2003 from the Registrant to the Harris
Trust and Savings Bank (incorporated herein by reference to Exhibit
(4) to the Registrant's Report on Form 8-K dated May 27, 1993).
(k) Registrant's 1993 Incentive Stock Option Plan adopted May 25, 1993.
(l) Registrant's 1993 Directors Incentive Stock Grant Plan adopted
May 25, 1993.
(m) Registrant's 1993 Deferred Incentive Stock Purchase Plan adopted May
25, 1993.
(11) Computation of Per Share Earnings for the Fiscal Years Ended January
31, 1994, 1993 and 1992.
(13) 1993 Annual Report to Stockholders.
(21) List of Subsidiaries.
(23) Consent of Deloitte & Touche.
(24) Board of Directors' power of attorney for the signing of Varlen
Corporation's 1993 Annual Report on Form 10-K.
(27) Financial Data Schedule.
<PAGE>
REVOLVING CREDIT AGREEMENT
BY AND AMONG
VARLEN CORPORATION,
THE BORROWING SUBSIDIARIES
AND LENDERS PARTY HERETO
AND
THE FIRST NATIONAL BANK OF CHICAGO,
AS AGENT
DATED AS OF DECEMBER 6, 1993
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C> <C>
ARTICLE I DEFINITIONS......................................................... 1
ARTICLE II THE CREDITS......................................................... 13
2.1. Commitment.......................................................... 13
2.2. Ratable Loans; Types of Advances.................................... 14
2.3. Minimum Amount of Each Advance...................................... 14
2.4. Fees................................................................ 14
2.4.1. Commitment Fee........................................... 14
2.4.2. Upfront Fee.............................................. 14
2.4.3. Agent Fees............................................... 14
2.5 Applicable Margin................................................... 14
2.6 Reductions in Aggregate Commitment.................................. 15
2.7. Principal Payments.................................................. 15
2.7.1. Optional Payments........................................ 15
2.7.2. Currency Fluctuations; Permitted Excess over Aggregate
Commitment............................................... 15
2.7.3. Termination.............................................. 16
2.8. Method of Selecting Types and Interest Periods for New Advances..... 16
2.9. Conversion and Continuation of Outstanding Advances................. 16
2.9.1. Dollar Advances.......................................... 16
2.9.2. Foreign Currency Advances................................ 16
2.9.3. General Provisions....................................... 17
2.10. Changes in Interest Rate, etc....................................... 17
2.11. Rates Applicable After Default...................................... 17
2.12. Method of Payment................................................... 17
2.12.1. General.................................................. 17
2.12.2. Currency of Payment...................................... 18
2.13. Notes; Telephonic Notices........................................... 18
2.14. Interest Payment Dates; Interest and Fee Basis...................... 18
2.15. Notification by Agent............................................... 19
2.16. Lending Installations............................................... 19
2.17. Non-Receipt of Funds by the Agent................................... 19
2.18. Withholding Tax Exemption........................................... 19
2.19. Extension of Facility Termination Date.............................. 20
2.20. Change in Circumstances............................................. 20
2.20.1. Taxes.................................................... 20
2.20.2. Yield Protection......................................... 21
2.20.3. Changes in Capital Adequacy Regulations.................. 22
2.20.4. Availability of Types of Advances........................ 22
2.20.5. Funding Indemnification.................................. 22
2.20.6. Lender Statements; Survival of Indemnity................. 22
ARTICLE III THE LETTER OF CREDIT SUBFACILITY.................................... 23
3.1. Obligation to Issue................................................. 23
3.2. Types and Amounts................................................... 23
3.3. Conditions.......................................................... 24
3.4. Procedure for Issuance of Facility Letters of Credit................ 24
3.5. Reimbursement Obligations; Automatic Alternate Base Rate Advance;
Duties of Issuing Banks............................................. 25
3.6. Participation....................................................... 25
3.7. Payment of Reimbursement Obligations................................ 26
3.8. Compensation for Facility Letters of Credit......................... 27
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
3.9. Letter of Credit Collateral Account................................. 28
ARTICLE IV CONDITIONS PRECEDENT................................................ 28
4.1. Initial Advance and Facility Letter of Credit....................... 28
4.2. Each Advance and Facility Letter of Credit.......................... 28
4.3. First Advance or Facility Letter of Credit to New Borrowing
Subsidiaries........................................................ 29
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BORROWER.......................... 30
5.1. Corporate Existence and Standing.................................... 30
5.2. Authorization and Validity.......................................... 30
5.3. No Conflict; Government Consent..................................... 30
5.4. Financial Statements................................................ 30
5.5. Material Adverse Change............................................. 30
5.6. Taxes............................................................... 30
5.7. Litigation and Contingent Obligations............................... 31
5.8. Subsidiaries........................................................ 31
5.9. ERISA............................................................... 31
5.10. Accuracy of Information............................................. 31
5.11. Regulation U........................................................ 31
5.12. Material Agreements................................................. 31
5.13. Compliance With Laws................................................ 31
5.14. Ownership of Properties............................................. 32
5.15. Investment Company Act.............................................. 32
5.16. Public Utility Holding Company Act.................................. 32
5.17. Subordinated Indebtedness........................................... 32
5.18. Insurance........................................................... 32
5.19. Solvency............................................................ 32
5.20. Benefits............................................................ 32
ARTICLE V-A REPRESENTATIONS AND WARRANTIES OF BORROWING SUBSIDIARIES............
33
5A.1. Corporate Existence and Standing.................................... 33
5A.2. Authorization and Validity.......................................... 33
5A.3. No Conflict; Government Consent..................................... 33
5A.4. Filing.............................................................. 33
5A.5. No Immunity......................................................... 34
5A.6. Investment Company Act.............................................. 34
5A.7. Public Utility Holding Company Act.................................. 34
5A.8. Regulation U........................................................ 34
ARTICLE VI COVENANTS........................................................... 34
6.1. Financial Reporting................................................. 34
6.2. Use of Proceeds..................................................... 35
6.3. Notice of Default................................................... 35
6.4. Conduct of Business................................................. 35
6.5. Taxes............................................................... 36
6.6. Insurance........................................................... 36
6.7. Compliance with Laws................................................ 36
6.8. Maintenance of Properties........................................... 36
6.9. Inspection.......................................................... 36
6.10. Dividends........................................................... 36
6.11. Indebtedness........................................................ 36
6.12. Merger.............................................................. 37
6.13. Sale of Assets...................................................... 37
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
6.14. Sale of Accounts.................................................... 37
6.15. Sale and Leaseback.................................................. 37
6.16. Investments and Acquisitions........................................ 38
6.17. Liens............................................................... 38
6.18. Fixed Asset Expenditures............................................ 40
6.19. Rentals............................................................. 40
6.20. Affiliates.......................................................... 40
6.21. Subordinated Indebtedness........................................... 40
6.22. Financial Covenants................................................. 40
6.22.1. Interest Coverage Ratio.................................. 40
6.22.2. Leverage Ratio........................................... 40
6.22.3. Operating Cash Flow to Senior Debt....................... 40
6.22.4. Net Worth................................................ 40
6.23. Foreign Assets...................................................... 41
ARTICLE VII DEFAULTS............................................................ 41
ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES...................... 42
8.1. Acceleration........................................................ 42
8.2. Amendments.......................................................... 43
8.3. Preservation of Rights.............................................. 43
ARTICLE IX GENERAL PROVISIONS.................................................. 44
9.1. Survival of Representations......................................... 44
9.2. Governmental Regulation............................................. 44
9.3. Taxes............................................................... 44
9.4. Headings............................................................ 44
9.5. Entire Agreement.................................................... 44
9.6. Several Obligations; Benefits of this Agreement..................... 44
9.7. Expenses; Indemnification........................................... 44
9.8. Numbers of Documents................................................ 44
9.9. Accounting.......................................................... 45
9.10. Severability of Provisions.......................................... 45
9.11. Nonliability of Lenders............................................. 45
9.12. Language............................................................ 45
9.13. CHOICE OF LAW....................................................... 45
9.14. CONSENT TO JURISDICTION............................................. 45
9.15. SERVICE OF PROCESS.................................................. 45
9.16. WAIVER OF JURY TRIAL................................................ 46
9.17. ERISA Representation................................................ 46
9.18. Confidentiality..................................................... 46
9.19. Joint and Several Liability......................................... 46
ARTICLE X THE AGENT........................................................... 46
10.1. Appointment......................................................... 46
10.2. Powers.............................................................. 46
10.3. General Immunity.................................................... 46
10.4. No Responsibility for Loans, Recitals, etc.......................... 46
10.5. Action on Instructions of Lenders................................... 47
10.6. Employment of Agents and Counsel.................................... 47
10.7. Reliance on Documents; Counsel...................................... 47
10.8. Agent's Reimbursement and Indemnification........................... 47
10.9. Rights as a Lender.................................................. 47
10.10. Lender Credit Decision.............................................. 47
10.11. Successor Agent..................................................... 48
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
ARTICLE XI SETOFF; RATABLE PAYMENTS............................................ 48
11.1. Setoff.............................................................. 48
11.2. Ratable Payments.................................................... 48
ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS................... 48
12.1. Successors and Assigns.............................................. 48
12.2. Participations...................................................... 49
12.2.1. Permitted Participants; Effect........................... 49
12.2.2. Benefit of Setoff........................................ 49
12.3. Assignments......................................................... 49
12.3.1. Permitted Assignments.................................... 49
12.3.2. Effect; Effective Date................................... 49
12.4. Dissemination of Information........................................ 50
12.5. Tax Treatment....................................................... 50
ARTICLE XIII NOTICES............................................................. 50
13.1. Giving Notice....................................................... 50
13.2. Change of Address................................................... 50
ARTICLE XIV BORROWER RESPONSIBILITY FOR BORROWING SUBSIDIARY OBLIGATIONS........
50
14.1 Direct Obligations.................................................. 50
14.2 Obligations Unconditional........................................... 51
14.3. Discharge Only Upon Payment in Full; Reinstatement in Certain
Circumstances....................................................... 51
14.4. Waiver.............................................................. 51
14.5. Stay of Acceleration................................................ 52
14.6 Payments............................................................ 52
14.7 Subrogation......................................................... 52
ARTICLE XV COUNTERPARTS........................................................ 52
<CAPTION>
EXHIBITS
<S> <C> <C> <C> <C>
EXHIBIT "A-1" BORROWER NOTE.................................................................... 56
EXHIBIT "A-2" BORROWING SUBSIDIARY NOTE........................................................ 58
EXHIBIT "B" ELECTION TO PARTICIPATE............................................................ 60
EXHIBIT "C" FORM OF APPLICATION FOR STANDBY FACILITY LETTER OF CREDIT.......................... 62
EXHIBIT "D-1" FORM OF OPINION OF COUNSEL TO BORROWER........................................... 63
EXHIBIT "D-2" FORM OF OPINION OF COUNSEL TO BORROWING SUBSIDIARY............................... 78
EXHIBIT "E" LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTION..................................... 84
EXHIBIT "F" COMPLIANCE CERTIFICATE............................................................. 85
EXHIBIT "G" FORM OF SUBSIDIARY GUARANTY........................................................ 87
EXHIBIT "H" ASSIGNMENT AGREEMENT............................................................... 95
<CAPTION>
SCHEDULES
<S> <C> <C> <C> <C>
SCHEDULE "1" PERCENTAGES....................................................................... 104
SCHEDULE "2" LENDING INSTALLATIONS............................................................. 105
SCHEDULE "3" LITIGATION........................................................................ 107
SCHEDULE "4" SUBSIDIARIES AND OTHER INVESTMENTS................................................ 108
SCHEDULE "5" INDEBTEDNESS AND LIENS............................................................ 111
</TABLE>
iv
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REVOLVING CREDIT AGREEMENT
This Agreement, dated as of December 6, 1993, is among Varlen Corporation, a
Delaware corporation, the Borrowing Subsidiaries who may from time to time
become party hereto, the Lenders and The First National Bank of Chicago, as
Agent. The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement:
"Acquisition" means any transaction, or any series of related transactions,
consummated on or after the date of this Agreement, by which the Borrower or any
of its Subsidiaries (i) acquires (A) all or a substantial part of the assets
(other than through a purchase of inventory in the ordinary course of business),
(B) one or more manufacturing lines or (C) a going business or division, of any
Person whether through purchase of assets, merger or otherwise or (ii) directly
or indirectly acquires (in one transaction or as the most recent transaction in
a series of transactions) control of at least 10% (in number of votes) of the
securities of a corporation which have ordinary voting power for the election of
directors (other than securities having such power only by reason of the
happening of a contingency) or a 10% (by percentage or voting power) ownership
interest in any partnership or joint venture (other than corporate partnerships
or joint ventures covered by the preceding clause).
"Advance" means a borrowing hereunder consisting of the aggregate amount of
the several Loans made by the Lenders to the Borrower of the same Type and, in
the case of Eurocurrency Advances, denominated in the same Eurocurrency and, in
the case of Fixed Rate Advances, for the same Interest Period.
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person owns 20% or
more of any class of equity securities (or other ownership interests) of the
controlled Person having the right to elect directors (or similar Persons)
without the happening of a contingency or possesses, directly or indirectly, the
power to direct or cause the direction of the management or policies of the
controlled Person, whether through ownership of stock, by contract or otherwise.
"Agent" means The First National Bank of Chicago in its capacity as agent
for the Lenders pursuant to Article X, and not in its individual capacity as a
Lender, and any successor Agent appointed pursuant to Article X.
"Aggregate Available Commitment" means at any time the Aggregate Commitment
minus the Facility Letter of Credit Obligations.
"Aggregate Commitment" means $80,000,000, as such amount may be reduced from
time to time pursuant to the terms hereof.
"Agreement" means this revolving credit agreement, as it may be amended,
modified, supplemented and/or restated, and as in effect from time to time.
"Agreement Accounting Principles" means generally accepted accounting
principles as in effect as of the date of this Agreement, applied in a manner
consistent with that used in preparing the financial statements referred to in
Section 5.4.
"Alternate Base Rate" means, for any day, a rate of interest per annum equal
to the higher of (i) the Corporate Base Rate for such day and (ii) the sum of
Federal Funds Effective Rate for such day plus 1/2% per annum.
"Alternate Base Rate Advance" means an Advance which bears interest at the
Alternate Base Rate.
"Alternate Base Rate Loan" means a Loan which bears interest at the
Alternate Base Rate.
<PAGE>
"Applicable Margin" means, at any date of determination thereof with respect
to any Advance, the commitment fees payable pursuant to Section 2.4.1 and
Facility Letter of Credit Fees, the respective rates per annum for such Advance,
commitment fees and Facility Letter of Credit Fees calculated in accordance with
the terms of Section 2.5.
"Article" means an article of this Agreement unless another document is
specifically referenced.
"Assessment Rate" means, for any CD Interest Period, the assessment rate per
annum (rounded upwards to the next higher multiple of 1/100 of 1% if the rate is
not such a multiple) payable to the Federal Deposit Insurance Corporation (or
any successor) for the insurance of domestic time deposits of First Chicago, as
determined by First Chicago on the first day of such CD Interest Period.
"Authorized Officer" (i) of the Borrower means the President, the Vice
President, Finance and Chief Financial Officer, the Executive Vice President or
any Group Vice President thereof, and (ii) of any other Borrowing Entity means
the President, any Managing Director or any Controller/Treasurer thereof, each
such enumerated Person acting singly.
"Borrower" means Varlen Corporation, a Delaware corporation, and its
permitted successors and assigns.
"Borrower Note" means a promissory note, in substantially the form of
Exhibit "A-1" hereto, duly executed by the Borrower and payable to the order of
a Lender in a principal amount up to and including its Commitment, including any
amendment, modification, renewal or replacement of such promissory note.
"Borrowing Date" means a date on which an Advance is or is to be made
hereunder or a Facility Letter of Credit is or is to be issued hereunder.
"Borrowing Entities" means, collectively, the Borrower and any Borrowing
Subsidiaries.
"Borrowing Notice" is defined in Section 2.8.
"Borrowing Subsidiary" means any Wholly-Owned Subsidiary which has satisfied
the provisions of Section 4.3 hereof, and its permitted successors and assigns.
"Borrowing Subsidiary Note" means a promissory note, in substantially the
form of Exhibit "A-2" hereto, duly executed by a Borrowing Subsidiary and
payable to the order of a Lender in a principal amount up to and including its
Commitment, including any amendment, modification, renewal or replacement of
such promissory note.
"Borrowing Subsidiary Obligations" means, with respect to each Borrowing
Subsidiary, any and all amounts or obligations payable or performable by such
Borrowing Subsidiary under or in respect of this Agreement or its Borrowing
Subsidiary Note, including without limitation all principal and interest payable
hereunder or under such Borrowing Subsidiary Note in respect of Loans made to
such Borrowing Subsidiary and all obligations arising under or resulting from
any Facility Letter of Credit issued for the benefit and upon the application of
such Borrowing Subsidiary.
"Business Day" means (i) with respect to any borrowing, payment or rate
selection of Eurocurrency Advances, a day (other than a Saturday or Sunday) on
which banks generally are open in Chicago, New York, London and, for currencies
other than Eurodollars, the principal financial center of the country in whose
currency the Advance is to be funded, for the conduct of commercial lending
activities and on which dealings in the relevant Eurocurrency are carried on in
the London interbank market and (ii) for all other purposes, a day (other than a
Saturday or Sunday) on which banks generally are open in Chicago for the conduct
of commercial lending activities.
"Capitalized Lease" of a Person means any lease of Property by such Person
as lessee which would be capitalized on a balance sheet of such Person prepared
in accordance with Agreement Accounting Principles.
2
<PAGE>
"Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with
Agreement Accounting Principles.
"Cash Flow Incurrence Test" means, with respect to any Acquisition, a
pro-forma incurrence test, calculated as of the most recent fiscal quarter of
the Borrower for which the Borrower was obligated (pursuant to Section 6.1) to
deliver financial statements on or prior to such date of calculation (the "End
Quarter"), the satisfaction of which requires THE RATIO OF:
(i) the sum of (a) Operating Cash Flow for such End Quarter and the
three immediately preceding fiscal quarters PLUS (b) either (1) EBITDA of
the Target of the Acquisition for such End Quarter and the three immediately
preceding fiscal quarters (PROVIDED that if the fiscal quarters of such
Target are not coterminous with those of the Borrower, then for the most
recently ended fiscal quarter of such Target for which financial statements
are available and which ended within 75 days of the last day of the End
Quarter and the three immediately preceding fiscal quarters of such Target)
or (2) if the Borrower is acquiring 50% or less of the Target of such
Acquisition (and the Acquisition is of voting stock or other ownership
interests in a Person) and the acquisition agreement (or other relevant
document) (x) requires the payment of any Mandatory Cash Payments to the
Borrower or any Subsidiary, the amount of such Mandatory Cash Payments that
(on a pro forma basis) would have been so required to be paid for such four
fiscal quarters, adjusted for withholding taxes (if any), plus the amount
calculated under clause (y), if any, (y) requires the payment of any
Contingent Cash Payments to the Borrower or any Subsidiary, the amount of
such Contingent Cash Payments accepted by the Agent (as described in the
definition of Contingent Cash Payments) that (on a pro forma basis) would
have been paid for such four fiscal quarters, adjusted for withholding taxes
(if any), plus the amount calculated under clause (x), if any, (z) does not
require the payment of any Mandatory Cash Payments or any Contingent Cash
Payments, zero TO
(ii) the sum of (x) Senior Debt PLUS (y) debt to be assumed by the
Borrower or any of its Subsidiaries pursuant to the Acquisition, MINUS (z)
the cash and Marketable Securities acquired by the Borrower or any of its
Subsidiaries in such Acquisition.
to be greater than or equal to .20 to 1.0.
"CD Interest Period" means, with respect to a Fixed CD Rate Advance, a
period of 30, 60, 90 or 180 days commencing on a Business Day selected by a
Borrowing Entity pursuant to this Agreement. If such CD Interest Period would
end on a day which is not a Business Day, such CD Interest Period shall end on
the next succeeding Business Day.
"Change in Control" means any of the following events that occur after the
date of this Agreement: (i) all or substantially all of the Borrower's assets
are sold as an entirety to any Person or related group of Persons; (ii) there
shall be consummated any consolidation or merger of the Borrower (A) in which
the Borrower is not the continuing or surviving corporation (other than a
consolidation or merger with a Wholly-Owned Subsidiary of the Borrower in which
all shares of Common Stock of the Borrower outstanding immediately prior to the
effectiveness thereof are changed into or exchanged for the same consideration)
or (B) pursuant to which the Common Stock of the Borrower is converted into
cash, securities or other property, in each case other than a consolidation or
merger of the Borrower in which the holders of the Common Stock of the Borrower
immediately prior to the consolidation or merger have, directly or indirectly,
at least a majority of the Common Stock of the continuing or surviving
corporation immediately after such consolidation or merger; or (iii) any Person,
or any Persons acting together which would constitute a "group" for purposes of
Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (other than the Borrower, any Subsidiary, any employee stock purchase or
program, retirement plan or automatic dividend reinvestment plan or any
substantially similar plan of the Borrower or any Subsidiary or any Person
holding securities of the Borrower for or pursuant to the terms of any such
employee benefit plan), together with any Affiliates and Subsidiaries thereof,
shall beneficially own (as defined in Rule 13 d-3 of the Exchange Act) at least
35% of the total voting power of all classes of capital stock of the Borrower
3
<PAGE>
entitled to vote generally in the election of directors of the Borrower,
PROVIDED that the failure of any event to constitute a "Change in Control" for
the purposes of Section 7.12 shall not be deemed to waive or otherwise affect
the application of any other provision of this Agreement to such event.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"Commercial Letter of Credit" means a commercial or trade Letter of Credit
issued by an Issuing Bank pursuant to Section 3.1.
"Commitment" means, for each Lender, the obligation of such Lender to make
Loans and participate in Facility Letters of Credit not exceeding an amount
equal to the product of (i) the then existing Aggregate Commitment and (ii) the
Percentage applicable to such Lender.
"Contingent Cash Payments" means those cash payments required (upon the
occurrence of a contingency) to be paid to the Borrower or any Subsidiary
pursuant to the terms of an acquisition agreement (or other relevant document)
described in the definition of "Cash Flow Incurrence Test" and which are
accepted by the Agent as likely to be paid (because of the likely occurrence of
the applicable contingency), such payments to include, without limitation, those
required on account of royalty payments, license and technical transfer fees,
administrative reimbursements, dividends, interest, principal and other return
of capital payments which (in each case) are contingent.
"Contingent Obligation" of a Person means (without duplication) any
agreement, undertaking or arrangement by which such Person assumes, guarantees,
endorses, contingently agrees to purchase or provide funds for the payment of,
or otherwise becomes or is contingently liable upon, the obligation or liability
of any other Person (including but not limited to Financial Guaranties), or
agrees to maintain the net worth or working capital or other financial condition
of any other Person, or otherwise assures any creditor of such other Person
against loss, including, without limitation, any comfort letter, operating
agreement, take-or-pay contract or Letter of Credit reimbursement obligation.
The amount of any Contingent Obligation that is not a Financial Guaranty of a
Person or a standby Letter of Credit reimbursement obligation shall, at any
date, be the amount of such obligation which is reasonably susceptible to
quantification as a matured obligation (taking into account the likelihood that
such Contingent Obligation will mature into an actual obligation). The amount of
any Contingent Obligation that is a standby Letter of Credit reimbursement
obligation shall be the LC Contingent Reimbursement Value. The amount of any
Financial Guaranty of a Person at any date shall be the maximum amount that may
become payable (conditionally or unconditionally) by such Person as of such date
thereunder.
"Conversion/Continuation Notice" is defined in Section 2.9.3.
"Controlled Group" means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with the Borrower or any of its Subsidiaries, are treated as a
single employer under Section 414 of the Code.
"Corporate Base Rate" means a rate per annum equal to the corporate base
rate of interest announced by First Chicago from time to time, changing when and
as said corporate base rate changes.
"Default" means an event described in Article VII.
"Dollar" or "$" means United States Dollars.
"Dollar Equivalent" of (i) any Advance (other than a Foreign Currency
Advance) as of any date, means the Dollar amount of such Advance outstanding (or
to be made) on such date, (ii) any Foreign Currency Advance as of any date,
means the amount of Dollars into which the amount of such Foreign Currency
Advance outstanding (or to be made) on such date may be converted at the spot
rate at which Dollars are offered to the Agent in London for the Foreign
Currency in which such Foreign Currency Advance is (or is to be) denominated in
an amount comparable to the amount of such Advance at approximately 11:00 a.m.
(London time) on the second Business Day prior to the date such Foreign Currency
Advance was initially (or is to be) made, (iii) any Facility Letter of Credit as
of any date, means the Dollar stated amount of such
4
<PAGE>
Facility Letter of Credit undrawn on such date, and (iv) any Reimbursement
Obligation as of any date, means the Dollar amount of the then unreimbursed
payments or disbursements made by Lenders, the Issuing Banks and/or the Agent
(without duplication) in respect of draws under any Facility Letter of Credit.
"Domestic Borrowing Subsidiary" means any Domestic Subsidiary that is also a
Borrowing Subsidiary.
"Domestic Subsidiary" means any Subsidiary which is incorporated or
organized under the laws of the United States of America, any state thereof or
the District of Columbia.
"Earnings" means, (i) when used with respect to the Borrower, income from
operations on a consolidated basis for the Borrower and its Subsidiaries
excluding equity earnings in non-consolidated Subsidiaries and Affiliates plus
cash dividends from non-consolidated Subsidiaries and Affiliates, and (ii) when
used with respect to any other Person, income from operations on a consolidated
basis for such Person and its Subsidiaries excluding equity earnings in
non-consolidated Subsidiaries and Affiliates plus cash dividends from
non-consolidated Subsidiaries and Affiliates.
"EBITA" means, for any period, the sum of Earnings before Net Interest,
income taxes and amortization expense for such period PLUS any non-cash charges
and expenses incurred during such period related to the disposition of
businesses or entire facilities or to the revaluation of intangibles MINUS any
cash payments made during such period with respect to any non-cash charges and
expenses related to the disposition of businesses or entire facilities
previously taken into account, all determined in accordance with Agreement
Accounting Principles on a consolidated basis for the Borrower and its
Subsidiaries.
"EBITDA" means, for any Acquisition Target for any period, (i) where the
Acquisition is of voting securities or other ownership interests in a
corporation, partnership interest or joint venture, Earnings before Net
Interest, income taxes, depreciation expense and amortization expense for such
period, all determined in accordance with Agreement Accounting Principles on a
consolidated basis for the Target and its Subsidiaries, and (ii) where the
Target consists of assets of a Person (including, without limitation, a going
business or division or one or more manufacturing lines) other than voting
securities or other ownership interests in another Person, the income from
operations before Net Interest, income taxes, depreciation expense and
amortization expense generated by the assets comprising the Target during such
period.
"Effective Date" is defined in Section 4.1.
"Election to Participate" means a letter agreement, in the form of Exhibit
"B" attached hereto, pursuant to which a Subsidiary agrees to become a Borrowing
Subsidiary hereunder.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any rule or regulation issued thereunder.
"Eurocurrency" means Dollars and, to the extent such currencies are freely
transferable and convertible into Dollars and are available in the London
interbank market, the lawful currencies of France, Germany, Italy, Japan,
Switzerland, Canada, the United Kingdom and any other country agreed to by the
Required Banks.
"Eurocurrency Advance" means an Advance denominated in a Eurocurrency which
bears interest at the Eurocurrency Rate, including, but not limited to,
Eurodollar Advances.
"Eurocurrency Base Rate" means either (i) with respect to any Eurocurrency
Advance for any specified Eurocurrency Interest Period, the rate of interest per
annum equal to the rate for (in the case of Eurodollar Advances) Dollar deposits
(and in the case of Advances in any other Eurocurrency, deposits in such
Eurocurrency) in the approximate amount of such Eurocurrency Advance with
maturities equal to such Eurocurrency Interest Period which appears on Telerate
Page 3750 (or, in the case of Advances in any other Eurocurrency, on the
appropriate Telerate Page for such Eurocurrency) or, if there is more than one
such rate for the applicable Eurocurrency, the average of such rates rounded to
the nearest 1/100 of 1%, as of 11 a.m. (London time) two Business Days prior to
the first day of such Eurocurrency Interest Period or (ii) if no such rate of
interest appears on Telerate Page 3750 (or, in the case of Advances in any other
Eurocurrency, on the appropriate Telerate Page for such Eurocurrency), for any
specified Eurocurrency Interest
5
<PAGE>
Period, the rate of interest per annum determined by the Agent to be the rate at
which deposits in the applicable Eurocurrency are offered by First Chicago to
first-class banks in the London interbank market at approximately 11 a.m.
(London time) two Business Days prior to the first day of such Eurocurrency
Interest Period for delivery on such day, in the approximate amount of First
Chicago's pro rata share of such Eurocurrency Advance and having a maturity
equal to such Eurocurrency Interest Period. The term "Telerate Page 3750" means
the display designated as "Page 3750" on the Associated Press-Dow Jones Telerate
Service (or such other page as may replace Page 3750 on the Associated Press-Dow
Jones Telerate Service or such other service as may be nominated by the British
Bankers' Association as the information vendor for the purpose of displaying
British Bankers' Association interest rate settlement rates for Dollar
deposits). Any Eurocurrency Rate determined on the basis of the rate displayed
on Telerate Page 3750 in accordance with the foregoing provisions of this
subparagraph shall be subject to corrections, if any, made in such rate and
displayed by the Associated Press-Dow Jones Telerate Service within one hour of
the time when such rate is first displayed by such service.
"Eurocurrency Interest Period" means, with respect to a Eurocurrency
Advance, a period of one, two, three or six months commencing on a Business Day
selected by the Borrowing Entity pursuant to this Agreement. Such Eurocurrency
Interest Period shall end on (but exclude) the day which corresponds numerically
to such date one, two, three or six months thereafter; PROVIDED, HOWEVER, that
if there is no such numerically corresponding day in such next, second, third or
sixth succeeding month, such Eurocurrency Interest Period shall end on the last
Business Day of such next, second, third or sixth succeeding month; and PROVIDED
FURTHER, HOWEVER, that if a Eurocurrency Interest Period would otherwise end on
a day which is not a Business Day, such Eurocurrency Interest Period shall end
on the next succeeding Business Day; PROVIDED, HOWEVER, that if said next
succeeding Business Day falls in a new calendar month, such Eurocurrency
Interest Period shall end on the immediately preceding Business Day.
"Eurocurrency Loan" means a Loan denominated in a Eurocurrency which bears
interest at the Eurocurrency Rate, including, but not limited to, Eurodollar
Loans.
"Eurocurrency Rate" means, with respect to any Eurocurrency Advance for any
specified Eurocurrency Interest Period, a rate per annum equal to the sum of (i)
the percentage indicated as the Applicable Margin for the Eurocurrency Rate PLUS
(ii) the quotient of (a) the Eurocurrency Base Rate applicable to such
Eurocurrency Advance and Eurocurrency Interest Period, divided by (b) either (1)
for any Eurodollar Advance, a number equal to one minus the Reserve Requirement
(expressed as a decimal) applicable to such Eurocurrency Advance and
Eurocurrency Interest Period or (2) for any other Eurocurrency Advance, the
number one. The Eurocurrency Rate shall be rounded to the next higher multiple
of 1/16 of 1% if the rate is not such a multiple.
"Eurodollar Advance" means an Advance denominated in Dollars which bears
interest at the Eurocurrency Rate.
"Eurodollar Loan" means a Loan denominated in Dollars which bears interest
at the Eurocurrency Rate.
"Exchange Act" is defined in the definition of "Change of Control" in this
Article I.
"Excluded Tax" is defined in Section 2.20.1(a).
"Extension Date" means (i) initially, December 6, 1995 and (ii) thereafter,
December 6, 1996.
"Extension Request" is defined in Section 2.19.
"Facility Letter of Credit" means a Commercial Letter of Credit or Standby
Letter of Credit issued hereunder.
"Facility Letter of Credit Fee" is defined in Section 3.8.
"Facility Letter of Credit Obligations" means, as at the time of
determination thereof, the sum of (a) the Reimbursement Obligations then
outstanding and (b) the aggregate then undrawn face amount of the then
outstanding Facility Letters of Credit.
6
<PAGE>
"Facility Termination Date" means December 6, 1997 or such (x) later date as
the Facility Termination Date may be extended to in accordance with Section 2.19
or (y) earlier date as the Aggregate Commitment may be terminated in accordance
with this Agreement.
"Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10 a.m. (Chicago
time) on such day for such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by the Agent.
"Financial Guaranties" of a Person means (without duplication) any
agreement, undertaking or arrangement by which such Person assumes, guarantees,
endorses or contingently agrees to provide funds for the repayment of money
borrowed by or advanced to or for the account of another Person. The amount of
any Financial Guaranty of a Person at any date shall be the maximum amount that
may become payable (conditionally or unconditionally) by such Person as of such
date thereunder.
"Financial Letter of Credit" means any Standby Letter of Credit which
represents an irrevocable obligation to the beneficiary on the part of the
Issuing Bank (i) to repay money borrowed by or advanced to or for the account of
the account party or (ii) to make any payment on account of any indebtedness
undertaken by the account party, in the event the account party fails to fulfill
its obligation to the beneficiary.
"First Chicago" means The First National Bank of Chicago in its individual
capacity, and its successors.
"Fixed CD Base Rate" means, with respect to any Fixed CD Rate Advance for
any specified CD Interest Period, the per annum rate determined by the Agent to
be the arithmetic average of the prevailing bid rates quoted to the Agent at or
before 10 a.m. (Chicago time) on the first day of such CD Interest Period by
three New York or Chicago certificate of deposit dealers of recognized standing
selected by the Agent in its sole discretion for the purchase on such day at
face value of certificates of deposit of First Chicago in the approximate amount
of First Chicago's relevant Fixed CD Rate Loan and having a maturity equal to
such CD Interest Period.
"Fixed CD Rate" means, with respect to any Fixed CD Rate Advance for any
specified CD Interest Period, a rate per annum equal to the sum of (i) the
quotient of (a) the Fixed CD Base Rate applicable to such Fixed CD Rate Advance
and CD Interest Period, divided by (b) one minus the Reserve Requirement
(expressed as a decimal) applicable to such Fixed CD Rate Advance and CD
Interest Period PLUS (ii) the Assessment Rate applicable to such CD Interest
Period, PLUS (iii) the percentage indicated as the Applicable Margin for the
Fixed CD Rate. The Fixed CD Rate shall be rounded to the next higher multiple of
1/100 of 1% if the rate is not such a multiple.
"Fixed CD Rate Advance" means an Advance which bears interest at a Fixed CD
Rate.
"Fixed CD Rate Loan" means a Loan which bears interest at a Fixed CD Rate.
"Fixed Rate" means the Fixed CD Rate or the Eurocurrency Rate.
"Fixed Rate Advance" means an Advance which bears interest at a Fixed Rate.
"Fixed Rate Loan" means a Loan which bears interest at a Fixed Rate.
"Foreign Borrowing Subsidiary" means any Foreign Subsidiary that is also a
Borrowing Subsidiary.
"Foreign Currency" means any currency other than Dollars.
"Foreign Currency Advance" means any Eurocurrency Advance in a Foreign
Currency.
"Foreign Currency Loan" means any Eurocurrency Loan in a Foreign Currency.
"Foreign Subsidiary" means any Subsidiary that is not a Domestic Subsidiary.
7
<PAGE>
"Governmental Agency" means any government (foreign or domestic) or any
state or other political subdivision thereof, or governmental body, agency,
authority, department or commission (including without limitation any taxing
authority or political subdivision) or instrumentality (including without
limitation any court or tribunal) exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government and any
corporation, partnership or other entity, directly or indirectly majority-owned
by or subject to the control of any of the foregoing.
"Guarantors" means all of the Borrower's Subsidiaries as of the Effective
Date (other than Foreign Subsidiaries) and any other New Subsidiaries (other
than Foreign Subsidiaries) which have satisfied the provisions of Section
6.16(b)(ii) hereof, and their respective successors and assigns.
"Guaranty" means that certain Guaranty dated as of December 6, 1993 executed
by the Guarantors in favor of the Agent, for the ratable benefit of the Lenders,
as it may be amended, modified, supplemented and/or restated (including to add
new Guarantors), and as in effect from time to time.
"Implied Senior Indebtedness Rating" means the higher of (i) the artificial
long term debt rating achieved by increasing the Borrower's long term debt
rating on the Subordinated Debt (as identified in the most recent Rating Letter)
by 2 grade levels or (ii) the Borrower's long term debt rating on any senior
Indebtedness (as identified in the most recent Rating Letter).
"Indebtedness" of a Person means (without duplication) such Person's (i)
obligations for borrowed money, (ii) obligations representing the deferred
purchase price of Property or services (other than accounts payable arising in
the ordinary course of such Person's business payable on terms customary in the
trade), PROVIDED that such deferral was initially for a period of one year or
longer, (iii) obligations, whether or not assumed, secured by Liens on property
now or hereafter owned or acquired by such Person, (iv) obligations which are
evidenced by notes, acceptances, or other instruments, (v) Capitalized Lease
Obligations and (vi) Contingent Obligations.
"Intangible Assets" means, as of any specified date, the amount shown as
"Goodwill and other intangible assets, less accumulated amortization" (or any
successor line item) for the most recently ended fiscal quarter of the Borrower
for which financial statements were delivered under Section 6.1.
"Interest Coverage Ratio" means, as of any fiscal quarter end, a ratio of
(i) EBITA for such fiscal quarter and the three immediately preceding fiscal
quarters to (ii) Net Interest for such fiscal quarter and the three immediately
preceding fiscal quarters, all determined in accordance with Agreement
Accounting Principles on a consolidated basis for the Borrower and its
Subsidiaries.
"Interest Period" means a CD Interest Period or a Eurocurrency Interest
Period.
"Investment" of a Person means any loan, advance (other than commissions,
travel and other advances to officers, directors and employees made in the
ordinary course of business or in connection with compensatory plan
arrangements), extension of credit (other than accounts receivable arising in
the ordinary course of business), deposit account or contribution of capital by
such Person to any other Person or any investment in, or purchase or other
acquisition of, the stock, partnership interests, notes, debentures or other
securities of any other Person made by such Person.
"Issuance Date" is defined in Section 3.4(a).
"Issuance Notice" is defined in Section 3.4(c).
"Issuing Bank" is defined in Section 3.1.
"Judgment Currency" is defined in Section 2.12.2.
"LC Contingent Reimbursement Value" means, when used in the definition of
"Contingent Obligation" herein, (i) for standby Letters of Credit with respect
to which the Borrower has shown or will show, on its consolidated financial
statements, a charge against Net Income and has accrued or will accrue a
corresponding liability relating to the partial or total occurrence of the
contingency against which the Letter of Credit is issued, ZERO, (ii) for standby
Letters of Credit issued in support of Indebtedness reflected on the
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<PAGE>
consolidated financial statements of the Borrower, ZERO and (iii) for standby
Letters of Credit issued in support of Indebtedness not reflected on the
consolidated financial statements of the Borrower, THE FACE AMOUNT OF SUCH
LETTER OF CREDIT.
"Lenders" means the lending institutions listed on the signature pages of
this Agreement and their respective successors and assigns.
"Lending Installation" means, with respect to a Lender or the Agent, any
office, branch, subsidiary or affiliate of such Lender or the Agent.
"Letter of Credit" of a Person means a letter of credit or similar
instrument which is issued upon the application of such Person or upon which
such Person is an account party or a co-obligor.
"Letter of Credit Collateral Account" is defined in Section 3.9.
"Letter of Credit Request" is defined in Section 3.4(a).
"Level I Status" is defined in Section 2.5.
"Level II Status" is defined in Section 2.5.
"Level III Status" is defined in Section 2.5.
"Leverage Ratio" means a ratio of (i) the difference between (a) total
liabilities MINUS (b) Subordinated Indebtedness MINUS (c) cash and Marketable
Securities in excess of $1,000,000 to (ii) the sum of (a) Net Worth (after
reversing out the effects of cumulative translation adjustments) PLUS (b)
Subordinated Indebtedness MINUS (c) Intangible Assets acquired after the
Effective Date, all determined on a consolidated basis for the Borrower and its
Subsidiaries.
"Lien" means any lien (statutory or other), mortgage, pledge, hypothecation,
assignment as security, deposit arrangement for security, encumbrance or similar
preference, priority or other security agreement or arrangement of any kind or
nature whatsoever (including, without limitation, the interest of a vendor or
lessor under any conditional sale, Capitalized Lease or other title retention
agreement).
"Loan" means, with respect to a Lender, such Lender's portion of any
Advance.
"Loan Documents" means this Agreement, the Notes, the Guaranty and, if any
pledge agreement is ever delivered hereunder pursuant to Section 6.16(a)(iii)
hereof, such pledge agreement.
"Mandatory Cash Payments" means those cash payments required (without the
occurrence of any contingency) to be paid to the Borrower or any Subsidiary
pursuant to the terms of an acquisition agreement (or other relevant document)
described in the definition of "Cash Flow Incurrence Test", such payments to
include, without limitation, those required on account of royalty payments,
license and technical transfer fees, administrative reimbursements, dividends,
interest, principal and other return of capital payments which (in each case)
are mandatory.
"Marketable Securities" means any of the following: (i) obligations of, or
fully guaranteed by, the United States of America or any agency or
instrumentality thereof maturing not more than 12 months after the date of
acquisition; (ii) Commercial paper rated A-l or better by S&P or P-l or better
by Moody's; (iii) Demand deposit accounts maintained in the ordinary course of
business; (iv) Certificates of deposit and bankers' acceptances issued by and
time deposits with commercial banks (whether domestic or foreign) having capital
and surplus in excess of $100,000,000 or with any Lender; and (v) obligations of
any United States state or any political subdivision of such a state, or any
agency or instrumentality of such a state or political subdivision, maturing not
more than 12 months after acquisition that are rated A or better by S&P or A or
better by Moody's.
"Material Adverse Effect" means a material adverse effect on (i) the
business, Property, condition (financial or otherwise), results of operations,
or prospects of the Borrower and its Subsidiaries taken as a whole, (ii) the
ability of the Borrower to perform its obligations under the Loan Documents, or
(iii) the validity or enforceability of any of the Loan Documents or the rights
or remedies of the Agent or the Lenders thereunder.
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<PAGE>
"MONY Letters of Credit" means those certain Facility Letters of Credit to
be issued by First Chicago, as an Issuing Bank, which Facility Letters of Credit
shall be (a) Standby Letters of Credit, each with a termination date on or
before March 30, 1994, (b) issued as of the date of this Agreement
notwithstanding the procedure contained in Section 3.4(a), and (c) issued for
the benefit of MONY Life Insurance Company of America, The Mutual Life Insurance
Company of New York and Mutual Benefit Life Insurance Company in Rehabilitation
(or their respective successors and assigns) as credit support for the
Borrower's Indebtedness to such entities referred to on Schedule "5" hereto.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement to which the Borrower or any
member of the Controlled Group is a party to which more than one employer is
obligated to make contributions.
"Net Assets" means total assets MINUS current liabilities, all determined on
a consolidated basis for the Borrower and its Subsidiaries.
"Net Income" means, for any period, the net income (or loss) of the Borrower
and its Subsidiaries on a consolidated basis for such period taken as a single
accounting period determined in conformity with Agreement Accounting Principles
(PLUS any non-cash charges and expenses incurred during such period related to
the disposition of businesses or entire facilities or to the revaluation of
intangibles and MINUS any cash payments made during such period with respect to
any non-cash charges and expenses related to the disposition of businesses or
entire facilities previously taken into account); PROVIDED, HOWEVER, that to the
extent reported as a separate item on the Borrower's financial statements
delivered pursuant to Section 6.1, there shall be excluded (i) the income (or
loss) of any non-Subsidiary Affiliate of the Borrower or other Person (other
than a Subsidiary of the Borrower) in which any Person (other than the Borrower
or any of its Subsidiaries) has a joint interest, except to the extent of the
amount of dividends, distributions or other cash amounts actually paid to the
Borrower, or any of its Subsidiaries by such Affiliate or other Person during
such period and (ii) the income (or loss) of any Person accrued prior to the
date that such Person becomes a Subsidiary of the Borrower or is merged into or
consolidated with the Borrower or any of its Subsidiaries or that Person's
assets are acquired by the Borrower or any of its Subsidiaries.
"Net Interest" means, for any period, total interest expense MINUS total
interest income.
"Net Worth" means the aggregate amount of common shareholders' equity as
determined from a consolidated balance sheet of the Borrower and its
Subsidiaries, prepared in accordance with Agreement Accounting Principles.
"New Subsidiary" is defined in Section 6.16(b).
"Notes" means, collectively, the Borrower Notes and the Borrowing Subsidiary
Notes.
"Notice of Assignment" is defined in Section 12.3.2.
"Obligations" means all unpaid principal of and accrued and unpaid interest
on the Notes, the Facility Letter of Credit Obligations and all other
liabilities (if any), whether actual or contingent, of the Borrowing Entities
with respect to Facility Letters of Credit, all accrued and unpaid fees and all
expenses, reimbursements, indemnities and other obligations of the Borrowing
Entities to the Lenders or to any Lender, the Agent or any indemnified party
hereunder arising under the Loan Documents, including the Borrowing Subsidiary
Obligations.
"Operating Cash Flow" for any period means, for the Borrower and its
Subsidiaries on a consolidated basis, without duplication, the sum of (i) Net
Income for such period, (ii) depreciation expense for such period, (iii)
amortization expense for such period and (iv) any non-cash losses (MINUS any
non-cash gains) arising outside of the ordinary course of business which have
been included in the determination of Net Income for such period (to the extent
reported as a separate item on the Borrower's financial statements), all
calculated in accordance with Agreement Accounting Principles.
"Participants" is defined in Section 12.2.1.
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"Payment Date" means the last day of each March, June, September and
December.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Percentage" means, for each Lender the percentage set forth opposite its
name on Schedule "1" attached hereto, as such percentage (and such schedule) may
be modified from time to time pursuant to the terms hereof, including but not
limited to the provisions of Section 12.3.2.
"Performance Letter of Credit" means any Standby Letter of Credit which
represents an irrevocable obligation to the beneficiary on the part of the
Issuing Bank to make payment on account of any default by the account party in
the performance of a nonfinancial or commercial obligation.
"Permitted Acquisition" means an Acquisition: (i) made at a time when no
Default or Unmatured Default exists or would exist after giving effect to such
Acquisition, (ii) for which the board of directors or other governing body of
such Person being acquired has approved the terms of such Acquisition (if such
Acquisition is a tender offer for the securities of a Person that is required to
file periodic reports under the Exchange Act, or if by the terms of such
Acquisition such board or other governing body approval is required) or for
which (in any other case) the board of directors or other governing body of the
Person owning the stock or assets being acquired (as the case may be) has
approved the terms of such Acquisition, (iii) for which the Borrower has
demonstrated to the Lenders that, after giving effect to such Acquisition, the
Borrower can satisfy the Cash Flow Incurrence Test (PROVIDED that this test need
only be satisfied if the purchase price of the subject Acquisition, excluding
assumed liabilities, either (a) equals or exceeds $10,000,000 or (b) when added
to the purchase price of each other Acquisition, the purchase price of which
(excluding any liabilities assumed) was less than $10,000,000, made during the
same fiscal year, equals or exceeds $10,000,000) and (iv) for which the Borrower
has first provided the Lenders with (a) financial information with respect to
the Target of such Acquisition (including historical financial statements, to
the extent available) and (b) a description of the Target of such Acquisition.
"Person" means any natural person, corporation, firm, joint venture,
partnership, association, enterprise, trust or other entity or organization, or
any Governmental Agency.
"Plan" means an employee pension benefit plan which is covered by Title IV
of ERISA or subject to the minimum funding standards under Section 412 of the
Code as to which the Borrower or any member of the Controlled Group may have any
liability.
"Property" of a Person means any and all property and assets, whether real,
personal, tangible, intangible, or mixed, of such Person.
"Purchasers" is defined in Section 12.3.1.
"Rating Letter" means a letter addressed to the Borrower from either Moody's
or S&P which contains a long term debt rating for either the Subordinated Debt
or any of the Borrower's long term senior Indebtedness, as any such letter may
be modified, supplemented or terminated by Moody's or S&P.
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor thereto or other
regulation or official interpretation of said Board of Governors relating to
reserve requirements applicable to member banks of the Federal Reserve System.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks for the purpose of purchasing or carrying margin
stocks applicable to member banks of the Federal Reserve System.
"Regulation X" means Regulation X of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
obtaining of credit for the purpose of purchasing or carrying margin stock from
(among others) member banks of the Federal Reserve System.
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<PAGE>
"Reimbursement Obligations" means, at any time, the aggregate (without
duplication) of the Obligations of the Borrowing Entities to the Lenders, the
Issuing Banks and/or the Agent in respect of all unreimbursed payments or
disbursements made by the Lenders, the Issuing Banks and/or the Agent under or
in respect of draws made under the Facility Letters of Credit.
"Rentals" of a Person means the aggregate fixed amounts payable by such
Person under any lease of Property having an original term (including any
required renewals or any renewals at the option of the lessor or lessee) of one
year or more, but does not include any amounts payable under Capitalized Leases
of such Person.
"Reportable Event" means a reportable event as defined in Section 4043 of
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event, provided, however, that a failure to meet the
minimum funding standard of Section 412 of the Code and of Section 302 of ERISA
shall be a Reportable Event regardless of the issuance of any such waiver of the
notice requirement in accordance with either Section 4043(a) of ERISA or Section
412(d) of the Code.
"Required Lenders" means Lenders in the aggregate having at least 66 2/3% of
the Aggregate Commitment or, if the Aggregate Commitment has been terminated,
Lenders in the aggregate holding at least 66 2/3% of the sum of (i) the Dollar
Equivalent of the aggregate unpaid principal amount of the outstanding Advances
PLUS (ii) the Facility Letter of Credit Obligations.
"Reserve Requirement" means, with respect to any Fixed Rate Advance for any
Interest Period, the maximum aggregate reserve requirement (including all basic,
supplemental, marginal and other reserves) which is imposed under Regulation D
on new non-personal time deposits of $100,000 or more with a maturity equal to
that of such Fixed CD Rate Advance for such CD Interest Period (in the case of
Fixed CD Rate Advances) or on "Eurocurrency liabilities" with a maturity equal
to that of such Eurodollar Advance for such Eurocurrency Interest Period (in the
case of Eurodollar Advances).
"S&P" means Standard and Poor's Corporation.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Senior Debt" means total Indebtedness, other than Subordinated
Indebtedness, MINUS cash and Marketable Securities of the Borrower in excess of
$1,000,000, all determined for the Borrower and its Subsidiaries on a
consolidated basis (without duplication).
"Single Employer Plan" means a Plan maintained by the Borrower or any member
of the Controlled Group for employees of the Borrower or any member of the
Controlled Group.
"Specified Currency" is defined in Section 2.12.2.
"Specified Place" is defined in Section 2.12.2.
"Standby Letter of Credit" means an irrevocable standby Letter of Credit
issued by an Issuing Bank pursuant to Section 3.1, that is either a Financial
Letter of Credit or a Performance Letter of Credit.
"Status" means, at any date of determination thereof, whichever of Level I
Status, Level II Status or Level III Status exists at such date.
"Subject Country" is defined in Section 5A.4.
"Subordinated Debt" means the Borrower's $69,000,000 original principal
amount Convertible Subordinated Debentures due 2003, issued pursuant to that
certain Indenture dated May 27, 1993, between the Borrower and Harris Trust and
Savings Bank, as Trustee.
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"Subordinated Indebtedness" of a Person means any Indebtedness of such
Person the payment of which is subordinated to payment of the Obligations to the
written satisfaction of the Required Lenders. In the case of the Borrower, such
Subordinated Indebtedness shall include, but shall not be limited to, the
Subordinated Debt.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, association, joint venture or similar business
organization more than 50% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled. Unless otherwise
expressly provided, all references herein to a "Subsidiary" shall mean a
Subsidiary of the Borrower.
"Substantial Portion" means, with respect to the Property of the Borrower
and its Subsidiaries, Property which (i) represents more than 10% of the
consolidated assets of the Borrower and its Subsidiaries as would be shown in
the consolidated financial statements of the Borrower and its Subsidiaries as at
the beginning of the twelve-month period ending with the month in which such
determination is made, or (ii) is responsible for more than 10% of the
consolidated net sales or of the consolidated net income of the Borrower and its
Subsidiaries as reflected in the financial statements referred to in clause (i)
above.
"Target" means, (i) when used with respect to (x) an Acquisition of
securities of a corporation which have ordinary voting power for the election of
directors (other than securities having such power only by reason of the
happening of a contingency) or (y) ownership interests in any partnership or
joint venture, such corporation, partnership or joint venture, and (ii) when
used with respect to an Acquisition of any assets other than those described in
clause (i), the assets being so acquired.
"Taxes" is defined in Section 2.20.1.
"Transferee" is defined in Section 12.4.
"Type" means, with respect to any Advance, its nature as a Alternate Base
Rate Advance, Fixed CD Rate Advance, Eurodollar Advance or other Eurocurrency
Advance.
"Unfunded Liabilities" means the amount (if any) by which the present value
of all vested nonforfeitable benefits under all Single Employer Plans exceeds
the fair market value of all such Plan assets allocable to such benefits, all
determined as of the then most recent valuation date for such Plans.
"Unmatured Default" means an event which but for the lapse of time or the
giving of notice, or both, would constitute a Default.
"Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of the
outstanding voting securities of which shall at the time be owned, directly or
indirectly, by such Person or one or more Wholly-Owned Subsidiaries of such
Person, or by such Person and one or more Wholly-Owned Subsidiaries of such
Person, or (ii) any partnership, association, joint venture or similar business
organization 100% of the ownership interests having ordinary voting power of
which shall at the time be so owned.
The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms.
ARTICLE II
THE CREDITS
2.1. COMMITMENT. From and including the date of this Agreement and prior
to the Facility Termination Date, each Lender severally agrees, on the terms and
conditions set forth in this Agreement, to make Loans to any of the Borrowing
Entities from time to time in amounts such that the Dollar Equivalent of all
Advances (as of the respective dates of determination of such Dollar Equivalent
amounts) does not exceed in the aggregate at any one time outstanding (after
giving effect to the intended use of proceeds of any Advance used to repay any
outstanding Reimbursement Obligations or previously-made Advances) the
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amount of such Lender's Percentage of the Aggregate Available Commitment (except
to the extent such excess results from currency fluctuations as permitted under
Sections 2.7.2 and 2.9.3). Subject to the terms of this Agreement, any of the
Borrowing Entities may borrow, repay and reborrow at any time prior to the
Facility Termination Date. The Commitments to lend hereunder shall expire on the
Facility Termination Date.
2.2. RATABLE LOANS; TYPES OF ADVANCES. Each Advance hereunder shall
consist of Loans made from the several Lenders ratably in proportion to the
ratio that their respective Commitments bear to the Aggregate Commitment. The
Advances may be Alternate Base Rate Advances, Fixed CD Rate Advances or
Eurocurrency Advances, or a combination thereof, selected by the relevant
Borrowing Entity in accordance with Sections 2.8 and 2.9; PROVIDED, HOWEVER,
that (i) Eurocurrency Advances denominated in a Foreign Currency may be
outstanding in not more than six Foreign Currencies at any one time and (ii)
there shall not be more than ten Fixed Rate Advances outstanding at any one
time.
2.3. MINIMUM AMOUNT OF EACH ADVANCE. Each Fixed Rate Advance shall be in
an amount having a Dollar Equivalent of not less than $1,000,000 (and in
multiples of $500,000 if in excess thereof), and each Alternate Base Rate
Advance shall be in the minimum amount of $200,000 (and in multiples of $100,000
if in excess thereof); PROVIDED, HOWEVER, that any Alternate Base Rate Advance
may be in the amount of the unused Aggregate Available Commitment.
2.4. FEES. In addition to the Facility Letter of Credit Fees and issuance
fees identified in Section 3.8, the Borrower agrees to pay the following fees:
2.4.1. COMMITMENT FEE. The Borrower agrees to pay to the Agent for the
ratable account of each Lender, for the period from the date hereof to and
including the Facility Termination Date, a commitment fee at a rate per
annum equal to the annual percentage rate indicated as the Applicable Margin
for the commitment fee on the daily unborrowed portion of such Lender's
Percentage of the Aggregate Available Commitment, the accrued but unpaid
portion of which shall be payable on each Payment Date hereafter and on the
Facility Termination Date. All accrued commitment fees shall be payable on
the effective date of any termination of the obligations of the Lenders to
make Loans and issue or participate in Facility Letters of Credit hereunder,
and commitment fees shall cease to accrue thereafter. For purposes of
calculating the commitment fee hereunder, the principal amount of each
Foreign Currency Advance shall be the Dollar Equivalent of such Foreign
Currency Advance as determined under clause (ii) of the definition herein of
"Dollar Equivalent".
2.4.2. UPFRONT FEE. The Borrower agrees to pay to each Lender, on the
date that this Agreement is executed, an upfront fee in an amount equal to
.15% of such Lender's Commitment.
2.4.3. AGENT FEES. The Borrower agrees to pay certain fees to the
Agent on the dates and in the amounts set forth in that certain fee letter
between the Borrower and the Agent dated September 29, 1993, as it may be
amended from time to time.
2.5 APPLICABLE MARGIN. The Applicable Margin set forth below, with respect
to each Advance and for commitment fees and Facility Letter of Credit Fees
payable hereunder, shall be subject to adjustment (upwards or downwards, as
appropriate) based on the Borrower's Status as at the end of each fiscal quarter
in accordance with the table set forth below. The Borrower's Status as at the
last day of each fiscal quarter shall be determined from the annual or quarterly
financial statements of the Borrower which first included such fiscal quarter or
the most recent Rating Letter (dated or updated within the prior twelve months)
received by the Borrower, and in each case delivered by the Borrower to the
Lenders pursuant to Section 6.1. The Borrower's Status on the Effective Date
shall be based upon the Compliance Certificate delivered pursuant to Section
4.1. The adjustment, if any, to the Applicable Margin shall be effective five
days after the Agent has received such annual or quarterly financial statements
or such Rating Letter, as the case may be.
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In the event that the Borrower shall at any time fail to furnish to the Lenders
such financial statements within the time limitations specified by Section 6.1,
then the Borrower's Status shall be Level III Status from the date of such
failure until the fifth day after such financial statements are so delivered.
<TABLE>
<CAPTION>
APPLICABLE MARGIN LEVEL I STATUS LEVEL II STATUS LEVEL III STATUS
- --------------------------------------------- -------------------- ------------------- --------------------
<S> <C> <C> <C>
Eurocurrency Rate............................ .75 % 1.00 % 1.375%
Fixed CD Rate................................ .875% 1.125 % 1.50 %
Commitment Fee............................... .25 % .30 % .30 %
Standby Letter of Credit
Fee Financial).............................. .75 % 1.00 % 1.375%
Standby Letter of Credit
Fee (Performance)........................... .375% .50 % .50 %
</TABLE>
For purposes of this Agreement, the Borrower's Status will be determined
based on the following definitions:
"Level I Status" exists at any date if, as of the last day of the then most
recently ended fiscal quarter of the Borrower, either (i) the Interest Coverage
Ratio is greater than 5.0 to 1.0 or (ii) the Implied Senior Indebtedness Rating
is equivalent to a long term debt rating of BBB or higher by S&P or Baa or
higher by Moody's.
"Level II Status" exists at any date if, as of the last day of the then most
recently ended fiscal quarter of the Borrower, (i) the requirements necessary to
achieve Level I Status shall not have been satisfied and (ii) the Interest
Coverage Ratio is greater than 3.0 to 1.0.
"Level III Status" exists at any date if the requirements necessary to
achieve Level I Status or Level II Status shall not have been satisfied.
2.6 REDUCTIONS IN AGGREGATE COMMITMENT. The Borrower may, at its option,
permanently reduce the Aggregate Commitment in whole, or in part ratably among
the Lenders in integral multiples of $5,000,000, upon at least three Business
Days' written notice to the Agent, which notice shall specify the amount of any
such reduction; provided, however, that the amount of the Aggregate Commitment
may not be reduced below the sum of (i) the Dollar Equivalent of the aggregate
principal amount of the then outstanding Advances plus (ii) the Facility Letter
of Credit Obligations.
2.7. PRINCIPAL PAYMENTS.
2.7.1. OPTIONAL PAYMENTS. Any Borrowing Entity may from time to time
pay or pre-pay, without penalty or premium, all outstanding Alternate Base
Rate Advances, or, in a minimum aggregate amount of $200,000 or any integral
multiple of $100,000 in excess thereof, any portion of the outstanding
Alternate Base Rate Advances upon same day notice to the Agent. A Fixed Rate
Advance may be paid or prepaid prior to the last day of the applicable
Interest Period, subject to Section 2.20.5.
2.7.2. CURRENCY FLUCTUATIONS; PERMITTED EXCESS OVER AGGREGATE
COMMITMENT. If at any time the Agent shall determine that the aggregate
principal amount of outstanding Advances and Facility Letter of Credit
Obligations (after determining the Dollar Equivalent thereof) is greater
than 110% of the Aggregate Commitment then in effect, one or more of the
Borrowing Entities shall, upon one (1) Business Day's written notice to the
Borrower from the Agent, prepay an aggregate principal amount of Advances
such that the Dollar Equivalent of the aggregate principal amount of
outstanding Advances and Facility Letter of Credit Obligations does not
exceed 110% of the Aggregate Commitment then in effect, PROVIDED that this
Section 2.7.2 shall not be interpreted to permit any Borrowing Entity to
request the making of a new Advance or the issuance or extension of a
Facility Letter of Credit if the aggregate principal amount of outstanding
Advances and Facility Letter of Credit Obligations would, after giving
effect to such new Advance or Facility Letter of Credit, exceed the
Aggregate Commitment then in effect; PROVIDED FURTHER, HOWEVER, that a
Borrowing Entity may request continuations and conversions of existing
Advances as described in Section 2.9 when the Dollar Equivalent of the
aggregate principal amount of outstanding Advances and Facility Letter of
Credit Obligations would, after giving effect to
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such continuation or conversion, exceed the Aggregate Commitment so long as
the Dollar Equivalent of the aggregate principal amount of outstanding
Advances and Facility Letter of Credit Obligations would not, after giving
effect to such continuation or conversion, exceed 110% of the Aggregate
Commitment.
2.7.3. TERMINATION. Each Borrowing Subsidiary shall repay, on the
Facility Termination Date, the entire unpaid principal amount of the
Advances made to it and repay (or cash collateralize) all other Borrowing
Subsidiary Obligations applicable to it. The Borrower shall pay in full, on
the Facility Termination Date, the entire unpaid principal amount of the
Advances made to it and repay (or cash collateralize) all other unpaid
Obligations, all as more fully set forth in Section 3.9 and Article XIV.
2.8. METHOD OF SELECTING TYPES AND INTEREST PERIODS FOR NEW ADVANCES. A
Borrowing Entity shall select the Type of Advance and, in the case of each
Eurocurrency Advance, the Eurocurrency applicable thereto and, in the case of
each Fixed Rate Advance, the Interest Period applicable thereto from time to
time. A Borrowing Entity shall give the Agent irrevocable notice (a "Borrowing
Notice") not later than 10:00 a.m. (Chicago time) on the Borrowing Date of each
Alternate Base Rate Advance, at least one Business Day before the Borrowing Date
of each Fixed CD Rate Advance and at least three Business Days before the
Borrowing Date for each Eurocurrency Advance, specifying:
(i) the name of the Borrowing Entity,
(ii) the Borrowing Date, which shall be a Business Day, of such Advance,
(iii) the aggregate amount of such Advance,
(iv) the Type of Advance selected,
(v) in the case of each Eurocurrency Advance, the Eurocurrency applicable
thereto, and
(vi) in the case of each Fixed Rate Advance, the Interest Period applicable
thereto.
In the case of Eurocurrency Advances (other than Eurodollar Advances), not later
than 11:00 a.m. (London time) on the Borrowing Date thereof, each Lender shall
make available its Eurocurrency Loan or Eurocurrency Loans, in funds immediately
available in London, in the Foreign Currency selected by the Borrowing Entity,
to the Agent at its London address specified in Schedule "2" attached hereto or
at any other Lending Installation of the Agent specified in writing by the Agent
to the Borrower. In the case of all other Advances, not later than noon (Chicago
time) on each Borrowing Date, each Lender shall make available its Loan or
Loans, in funds immediately available in Chicago, in Dollars, to the Agent at
its Chicago address specified in Schedule "2" or at any other Lending
Installation of the Agent specified in writing by the Agent to the Borrower. The
Agent will make the funds so received from the Lenders immediately available to
the Borrower at the Agent's aforesaid address, as applicable.
2.9. CONVERSION AND CONTINUATION OF OUTSTANDING ADVANCES.
2.9.1. DOLLAR ADVANCES. Alternate Base Rate Advances shall continue as
Alternate Base Rate Advances unless and until such Alternate Base Rate
Advances are converted into Fixed Rate Advances, in Dollars. Each Fixed Rate
Advance, in Dollars, of any Type shall continue as a Fixed Rate Advance, in
Dollars, of such Type until the end of the then applicable Interest Period
therefor, at which time such Fixed Rate Advance shall be automatically
converted into an Alternate Base Rate Advance unless repaid or unless the
applicable Borrowing Entity shall have given the Agent a
Conversion/Continuation Notice requesting that, at the end of such Interest
Period, such Fixed Rate Advance either continue as a Fixed Rate Advance, in
Dollars, of such Type for the same or another Interest Period or be
converted into an Advance, in Dollars, of another Type. Subject to the terms
of Sections 2.20.5 and 2.3, the Borrower may elect from time to time to
convert all or any part of an Advance, in Dollars, of any Type into any
other Type or Types of Advances, in Dollars.
2.9.2. FOREIGN CURRENCY ADVANCES. Each Eurocurrency Advance, in a
Foreign Currency, shall continue as such until the end of the then
applicable Interest Period therefor, at which time such Eurocurrency Advance
shall automatically be deemed to be continued as a Eurocurrency Advance in
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the same amount and the same Foreign Currency with a Eurocurrency Interest
Period of one month (commencing on the last day of the expiring Interest
Period), unless the applicable Borrowing Entity shall have given the Agent a
Conversion/Continuation Notice requesting that, at the end of such Interest
Period, such Eurocurrency Advance continue as a Eurocurrency Advance in the
same Foreign Currency for the same or another Eurocurrency Interest Period.
2.9.3. GENERAL PROVISIONS. The applicable Borrowing Entity shall give
the Agent irrevocable notice (a "Conversion/Continuation Notice") of each
conversion of an Advance or continuation of a Fixed Rate Advance (as
permitted by the provisions of Sections 2.9.1 and 2.9.2) not later than
10:00 a.m. (Chicago time) on, in the case of a conversion into an Alternate
Base Rate Advance, at least one Business Day prior to, in the case of a
conversion into a Fixed CD Rate Advance or a continuation of a Fixed CD Rate
Advance, or three Business Days prior to, in the case of a conversion into
or continuation of a Eurocurrency Advance, the date of the requested
conversion or continuation, specifying:
(i) the requested date, which shall be a Business Day, of such
conversion or continuation;
(ii) the aggregate amount, Eurocurrency and Type of the Advance which is
to be converted or continued; and
(iii) the amount and Type(s) of Advance(s) into which such Advance is to
be converted or continued and, in the case of a conversion into or
continuation of a Fixed Rate Advance, the duration of the Interest
Period applicable thereto.
Notwithstanding the provisions of Sections 2.9.1 and 2.9.2, no Fixed Rate
Advance shall be continued as or converted into a Fixed Rate Advance for a
new Interest Period if the Dollar Equivalent of the aggregate principal
amount of Advances and Facility Letter of Credit Obligations to be
outstanding after giving effect to such continuation or conversion would
exceed 110% of the Aggregate Commitment then in effect.
2.10. CHANGES IN INTEREST RATE, ETC. Each Alternate Base Rate Advance
shall bear interest on the outstanding principal amount thereof, for each day
from and including the date such Advance is made or is converted from a Fixed
Rate Advance into an Alternate Base Rate Advance pursuant to Section 2.9.1 to
(but excluding) the date it becomes due or is converted into a Fixed Rate
Advance pursuant to Section 2.9.1 hereof, at a rate per annum equal to the
Alternate Base Rate for such day. Changes in the rate of interest on that
portion of any Advance maintained as an Alternate Base Rate Advance will take
effect simultaneously with each change in the Alternate Base Rate. Each Fixed
Rate Advance shall bear interest from and including the first day of the
Interest Period applicable thereto to (but not including) the last day of such
Interest Period at the interest rate determined as applicable to such Fixed Rate
Advance. No Interest Period may end after the Facility Termination Date.
2.11. RATES APPLICABLE AFTER DEFAULT. Notwithstanding anything to the
contrary contained in Section 2.8 or 2.9, during the continuance of a Default or
Unmatured Default no Advance may be made as, converted into or continued as (as
such terms are used in Section 2.9) a Fixed Rate Advance (except with the
consent of the Required Lenders). During the continuance of a Default the
Required Lenders may, at their option, by notice to the Borrower (which notice
may be revoked at the option of the Required Lenders notwithstanding any
provision of Section 8.2 requiring unanimous consent of the Lenders to changes
in interest rates), declare that (i) each Fixed Rate Advance shall bear interest
for the remainder of the applicable Interest Period at the rate otherwise
applicable to such Interest Period plus 2% per annum and (ii) each Alternate
Base Rate Advance shall bear interest at a rate per annum equal to the Alternate
Base Rate otherwise applicable to the Alternate Base Rate Advance plus 2% per
annum.
2.12. METHOD OF PAYMENT.
2.12.1. GENERAL. All payments of the Obligations hereunder shall be
made, without setoff, deduction, or counterclaim, in immediately available
funds, to the Agent, in Dollars, at the Agent's address for Dollar Advances,
as specified in Schedule "2" hereto (or, in the case of payments of
principal of and interest on Foreign Currency Advances, in the Foreign
Currency borrowed, at the
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Agent's address for Foreign Currency Advances, as specified in Schedule "2"
hereto), or at any other Lending Installation of the Agent specified in
writing by the Agent to the Borrower, by noon (local time) on the date when
due and shall be applied ratably by the Agent among the Lenders. Each
payment delivered to the Agent for the account of any Lender shall be
delivered promptly by the Agent to such Lender, in the same type of funds
that the Agent received, at such Lender's address for Dollar Advances or for
Foreign Currency Advances, as specified in Schedule "2" hereto, or at any
other Lending Installation specified in a notice received by the Agent from
such Lender. The Agent is hereby authorized, upon prior notice to the
Borrower, to charge the loan account of the Borrower maintained with First
Chicago for each payment of principal, interest and fees as it becomes due
hereunder.
2.12.2. CURRENCY OF PAYMENT. All payments of principal of and interest
on any Advance or of Reimbursement Obligations or any other Obligations
hereunder shall be made by the Borrowing Entity responsible therefor in the
currency borrowed (the "Specified Currency") in the manner and at the
address (the "Specified Place") specified in Section 2.12.1. Payment of the
Obligations shall not be discharged by an amount paid in another currency or
in another place, whether pursuant to a judgment or otherwise, to the extent
that the amount so paid on conversion to the Specified Currency and transfer
to the Specified Place under normal banking procedures does not yield the
amount of the Specified Currency at the Specified Place due hereunder. If,
for the purpose of obtaining judgment in any court, it is necessary to
convert a sum due hereunder in the Specified Currency into another currency
(the "Judgment Currency"), the rate of exchange which shall be applied shall
be that at which in accordance with normal banking procedures the Agent
could purchase the Specified Currency with that amount of the Judgment
Currency on the Business Day next preceding that on which such judgment is
rendered. The obligation of the Borrower in respect of any such sum due from
it to the Agent or any Lender hereunder (an "Entitled Person") shall,
notwithstanding the rate of exchange actually applied in rendering such
judgment, be discharged only to the extent that on the Business Day
following receipt by such Entitled Person of any sum adjudged to be due
hereunder or under the Notes in the Judgment Currency, such Entitled Person
may in accordance with normal banking procedures purchase and transfer to
the Specified Place the Specified Currency with the amount of the Judgment
Currency so adjudged to be due; and the Borrower hereby, as a separate
Obligation and notwithstanding any such judgment, agrees to indemnify such
Entitled Person against, and to pay such Entitled Person on demand, in the
Specified Currency, any difference between the sum originally due to such
Entitled Person in the Specified Currency and the amount of the Specified
Currency so purchased and transferred.
2.13. NOTES; TELEPHONIC NOTICES. Each Lender is hereby authorized to
record the principal amount of each of its Loans and each repayment thereof on
the schedule attached to its Notes; PROVIDED, HOWEVER, that the failure to so
record shall not affect the Borrowing Entities' obligations under such Notes.
Each Borrowing Entity hereby authorizes the Lenders and the Agent to extend,
convert or continue its Advances, effect selections of Types of its Advances and
to transfer funds, and the Issuing Bank to issue Facility Letters of Credit for
its account, based on telephonic notices made by any person or persons the Agent
or any Lender in good faith believes to be acting on behalf of such Borrowing
Entity. Each Borrowing Entity agrees to deliver promptly to the Agent a written
confirmation, if such confirmation is requested by the Agent or any Lender, of
each telephonic notice signed by any of its Authorized Officers. If the written
confirmation differs in any material respect from the action taken by the Agent
and the Lenders, the records of the Agent and the Lenders shall govern absent
manifest error.
2.14. INTEREST PAYMENT DATES; INTEREST AND FEE BASIS. Interest accrued on
each Alternate Base Rate Advance shall be payable on each Payment Date,
commencing with the first such date to occur after the date hereof, on any date
on which the Alternate Base Rate Advance is prepaid due to acceleration and at
maturity. Interest accrued on each Fixed Rate Advance shall be payable on the
last day of its applicable Interest Period, on any date on which the Fixed Rate
Advance is prepaid, whether by acceleration or otherwise, and at maturity.
Interest accrued on each Fixed Rate Advance having an Interest Period longer
than three months shall also be payable on the last day of each three-month
interval during such Interest Period. Interest and fees shall be calculated for
actual days elapsed on the basis of a 360-day year. Interest
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shall be payable for the day an Advance is made but not for the day of any
payment on the amount paid if payment is received prior to noon (local time) at
the place of payment. If any payment of principal of or interest on an Advance
shall become due on a day which is not a Business Day, such payment shall be
made on the next succeeding Business Day and, in the case of a principal
payment, such extension of time shall be included in computing interest in
connection with such payment.
2.15. NOTIFICATION BY AGENT. Promptly after receipt thereof, the Agent
will notify each Lender of the contents of each Aggregate Commitment reduction
notice, Borrowing Notice, Conversion/Continuation Notice, Letter of Credit
Request, Issuance Notice and repayment notice received by it hereunder. The
Agent will notify each Lender of the interest rate applicable to each Fixed Rate
Advance promptly upon determination of such interest rate and will give each
Lender prompt notice of each change in the Alternate Base Rate.
2.16. LENDING INSTALLATIONS. Subject to Section 2.20.6, each Lender may
book its Loans at any Lending Installation selected by such Lender and may
change its Lending Installation from time to time, PROVIDED that such Lender
shall remain the legal entity exclusively entitled to all rights and responsible
for all obligations of a Lender hereunder unless such Lender enters into an
assignment in compliance with the provisions of Section 12.3. All terms of this
Agreement shall apply to any such Lending Installation and the Notes shall be
deemed held by each Lender for the benefit of such Lending Installation. Subject
to Section 2.20.6, each Lender may, by written or telex notice to the Agent and
the Borrower, designate a Lending Installation through which Loans will be made
by it and for whose account Loan payments are to be made.
2.17. NON-RECEIPT OF FUNDS BY THE AGENT. Unless any Borrowing Entity or a
Lender, as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (i) in the case of a Lender, the
proceeds of a Loan or (ii) in the case of any Borrowing Entity, a payment of
principal, interest or fees to the Agent for the account of the Lenders, that it
does not intend to make such payment, the Agent may assume that such payment has
been made. The Agent may, but shall not be obligated to, make the amount of such
payment available to the intended recipient in reliance upon such assumption. If
such Lender or any Borrowing Entity, as the case may be, has not in fact made
such payment to the Agent, the recipient of such payment shall, on demand by the
Agent, repay to the Agent the amount so made available together with interest
thereon in respect of each day during the period commencing on the date such
amount was so made available by the Agent until the date the Agent recovers such
amount at a rate per annum equal to (i) in the case of payment by a Lender, the
Federal Funds Effective Rate for such day or (ii) in the case of payment by any
Borrowing Entity, the interest rate applicable to the relevant Loan.
2.18. WITHHOLDING TAX EXEMPTION. At least five Business Days prior to the
first date on which interest or fees are payable hereunder for the account of
any Lender, each Lender that is not incorporated under the laws of the United
States of America, or a state thereof, agrees that it will deliver to each of
the Borrower and the Agent two duly completed copies of United States Internal
Revenue Service Form 1001 or 4224, certifying in either case that such Lender is
entitled to receive payments under this Agreement and the Notes without
deduction or withholding of any United States federal income taxes. Each Lender
which so delivers a Form 1001 or 4224 further undertakes to deliver to each of
the Borrower and the Agent two additional copies of such form (or a successor
form) on or before the date that such form expires (currently, three successive
calendar years for Form 1001 and one calendar year for Form 4224) or becomes
obsolete or after the occurrence of any event requiring a change in the most
recent forms so delivered by it, and such amendments thereto or extensions or
renewals thereof as may be reasonably requested by the Borrower or the Agent, in
each case certifying that such Lender is entitled to receive payments under this
Agreement and the Notes without deduction or withholding of any United States
federal income taxes, unless an event (including without limitation any change
in treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender advises the Borrower and the Agent that
it is not capable of receiving payments without any deduction or withholding of
United States federal income tax. In the event that any Foreign Subsidiary
becomes a Borrowing Subsidiary hereunder, each Lender will (i) cooperate with
the Borrower and such Foreign Subsidiary to determine which tax and withholding
forms, if any, may be required by the laws of the country
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of incorporation of such Borrowing Subsidiary in order to establish that
payments under this Agreement and the other Loan Documents from such Foreign
Subsidiary to such Lender can be made without deduction or withholding for (or
any other liability to pay) any Taxes of such country or any Governmental Agency
thereof and (ii) file any such forms described in clause (i) as may be
applicable to such Lender, advantageous to the Borrowing Entities and not, in
the opinion of such Lender, disadvantageous to such Lender.
2.19. EXTENSION OF FACILITY TERMINATION DATE. The Borrower may request an
extension of the then current Facility Termination Date for a period of one
year, by submitting a request for an extension to the Agent (an "Extension
Request") not more than 90 days, but not less than 60 days, prior to the then
current Extension Date. Promptly upon receipt of an Extension Request, the Agent
shall deliver a copy thereof to the Lenders. Each Lender may, by an irrevocable
notice (a "Consent Notice") to the Borrower and the Agent given within 30 days
after receipt of the Extension Request by the Agent, consent to such Extension
Request of the Borrower, which consent may be given or withheld by each Lender
in its absolute and sole discretion. Failure by any Lender to give its consent
in writing within such 30 day period shall be deemed a refusal by such Lender of
such Extension Request. If less than all of the Lenders consent to the Extension
Request, the Borrower's request shall be denied and the Facility Termination
Date shall remain unchanged. If consent is obtained from all of the Lenders
prior to the then current Extension Date, the Facility Termination Date shall be
so extended and all references in the Loan Documents to "Facility Termination
Date" shall refer to the Facility Termination Date, as so extended.
2.20. CHANGE IN CIRCUMSTANCES.
2.20.1. TAXES.
(a) PAYMENTS TO BE FREE AND CLEAR. All sums payable by any
Borrowing Entity whether in respect of principal, interest, fees or
otherwise shall be paid without deduction for any present and future
taxes, levies, imposts, deductions, charges or withholdings imposed by
any country, any Governmental Agency thereof or therein, any jurisdiction
from which any or all such payments are made and any political
subdivision or taxing authority thereof or therein, EXCLUDING income and
franchise taxes (and deductions and withholdings therefor) imposed on the
Agent or any Lender (x) by the jurisdiction under the laws of which the
Agent or such Lender is organized or any Governmental Agency or taxing
authority thereof or therein, or (y) by any jurisdiction in which the
Agent's or such Lender's Lending Installations are located or any
Governmental Agency or taxing authority thereof or therein (such excluded
taxes, deductions and withholdings, collectively, "Excluded Taxes"; and
all such taxes, levies, imposts, deductions, charges and withholdings
(including Excluded Taxes), collectively, "Taxes"), which amounts shall
be paid by any Borrowing Entity as provided in Section 2.20.1(b). Any
Borrowing Entity will pay each Lender the amounts necessary such that the
net amount of the principal, interest, fees or other sums received and
retained by each Lender is not less than the amount payable under this
Agreement.
(b) GROSSING-UP OF PAYMENTS. If: (a) any Borrowing Entity or any
other Person is required by law to make any deduction or withholding
on account of any Tax (other than Excluded Taxes) or other amount from
any sum paid or expressed to be payable by any Borrowing Entity to any
Lender under this Agreement; or (b) any party to this Agreement (or any
Person on its behalf) other than any Borrowing Entity is required by law
to make any deduction or withholding from, or (other than on account of
any Excluded Tax) any payment on or calculated by reference to the amount
of, any such sum received or receivable by any Lender under this
Agreement:
(i) such Borrowing Entity shall notify the Agent of any such
requirement or any change in any such requirement as soon as any
Borrowing Entity becomes aware of it;
(ii) such Borrowing Entity shall pay any such Tax or other amount
before the date on which penalties attached thereto become due
and payable, such payment to be made (if the liability to pay
is imposed on such Borrowing Entity) for its own account or (if
that liability is imposed on any other party to this Agreement)
on behalf of and in the name of that party;
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(iii) the sum payable by such Borrowing Entity in respect of which
the relevant deduction, withholding or payment is required
shall (except, in the case of any such payment, to the extent
that the amount thereof is not ascertainable when that sum is
paid) be increased to the extent necessary to ensure that,
after the making of that deduction, withholding or payment,
that party receives on the due date and retains (free from any
liability in respect of any such deduction, withholding or
payment) a sum equal to that which it would have received and
so retained had no such deduction, withholding or payment been
required or made; and
(iv) within thirty (30) days after payment of any sum from which
such Borrowing Entity is required by law to make any deduction
or withholding, and within thirty (30) days after the due date
of payment of any Tax or other amount which it is required by
Section 2.20.1(b)(ii) to pay, it shall deliver to the Agent all
such certified documents and other evidence as to the making of
such deduction, withholding or payment as (a) are reasonably
satisfactory to other affected parties as proof of such
deduction, withholding or payment and of the remittance thereof
to the relevant taxing or other authority and (b) are
reasonably required by any such party to enable it to claim a
tax credit with respect to such deduction, withholding or
payment.
2.20.2. YIELD PROTECTION. (a) If the adoption or promulgation on or
after the date hereof of any law or any governmental or quasi-governmental
rule, regulation, policy, guideline or directive (whether or not having the
force of law), or any change on or after the date hereof in the
interpretation thereof, or the compliance of any Lender with any such
adoption, promulgation or change in interpretation,
(i) subjects any Lender or any applicable Lending Installation to any Tax on
or from payments due from any Borrowing Entity (excluding Excluded
Taxes), or changes the basis of taxation of payments to any Lender in
respect of its Loans, its interest in the Facility Letters of Credit or
other amounts due it hereunder (excluding Excluded Taxes), or
(ii) imposes, increases or deems applicable any reserve, assessment,
insurance charge, special deposit or similar requirement against assets
of, deposits with or for the account of, or credit extended by, any
Lender or any applicable Lending Installation (other than reserves and
assessments taken into account in determining the interest rate
applicable to Fixed Rate Advances), or
(iii) imposes any other condition (except with respect to Excluded Taxes) the
result of which is to increase the cost to any Lender or any applicable
Lending Installation of making, funding or maintaining Loans or issuing
Facility Letters of Credit or reduces any amount receivable by any
Lender or any applicable Lending Installation in connection with Loans
or Facility Letters of Credit, or requires any Lender or any applicable
Lending Installation to make any payment calculated by reference to the
amount of Loans held, Facility Letters of Credit issued or participated
in or interest received by it, by an amount deemed material by such
Lender,
then, within 15 days of demand by such Lender, the Borrower shall pay such
Lender that portion of such increased expense incurred or reduction in an
amount received which such Lender reasonably determines is attributable to
making, funding and maintaining its Loans, its interest in the Facility
Letters of Credit, and its Commitment.
(b) In addition to any other amounts payable by the Borrowing Entities
hereunder, each Lender may require the relevant Borrowing Entity to pay,
contemporaneously with each payment of interest on Eurocurrency Advances of
such Borrowing Entity which are denominated in pounds sterling, additional
interest on the related Eurocurrency Loan of such Lender at the percentage
calculated from time to time by such Lender to be the percentage required to
fully compensate such Lender for all reserve costs, liabilities, expenses
and assessments (other than reserve costs, liabilities, expenses and
assessments taken into account in determining the interest rate applicable
to such Eurocurrency Advance) which have been incurred by such Lender (or
its applicable Lending Installation) in complying with any and all
requirements of any relevant United Kingdom banking authority or authorities
applicable to such
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Lender (or its applicable Lending Installation) regarding the making,
funding or maintaining of such Eurocurrency Loan (including, without
limitation, any and all liquid asset maintenance requirements of the Bank of
England). A certificate of any Lender claiming compensation under the
preceding sentence, setting forth the additional interest to be paid to it
thereunder and setting forth in reasonable detail a reasonable basis
therefor, shall be conclusive in the absence of manifest error, and in
determining the amount of such interest, such Lender may use any reasonable
averaging and attribution methods. Any Lender wishing to require payment of
such additional interest (x) shall so notify the relevant Borrowing Entity
and the Agent, in which case such additional interest on the Eurocurrency
Loans of such Lender denominated in pounds sterling shall be payable in
pounds sterling to such Lender at the place indicated in such notice with
respect to each Interest Period commencing at least five Business Days after
the giving of such notice and (y) shall notify the relevant Borrowing Entity
at least five Business Days prior to each date on which interest is payable
on such Eurocurrency Loans of the amount then due it under this Section.
2.20.3. CHANGES IN CAPITAL ADEQUACY REGULATIONS. If a Lender
determines the amount of capital required or expected to be maintained by
such Lender, any applicable Lending Installation of such Lender or any
corporation controlling such Lender is increased as a result of a Change,
then, within 15 days of demand by such Lender, the Borrower shall pay such
Lender the amount necessary to compensate for any shortfall in the rate of
return on the portion of such increased capital which such Lender determines
is attributable to this Agreement, its Loans, its interest in the Facility
Letters of Credit, or its obligation to make Loans, participate in or issue
Facility Letters of Credit hereunder (after taking into account such
Lender's policies as to capital adequacy). "Change" means (i) any change
after the date of this Agreement in the Risk-Based Capital Guidelines or
(ii) any adoption of or change in any other law, governmental or
quasi-governmental rule, regulation, policy, guideline, interpretation, or
directive (whether or not having the force of law) after the date of this
Agreement which affects the amount of capital required or expected to be
maintained by any Lender or any Lending Installation or any corporation
controlling any Lender. "Risk-Based Capital Guidelines" means (i) the
risk-based capital guidelines in effect in the United States on the date of
this Agreement, including transition rules, and (ii) the corresponding
capital regulations promulgated by regulatory authorities outside the United
States implementing the July 1988 report of the Basle Committee on Banking
Regulation and Supervisory Practices entitled "International Convergence of
Capital Measurements and Capital Standards," including transition rules, and
any amendments to such regulations adopted prior to the date of this
Agreement.
2.20.4. AVAILABILITY OF TYPES OF ADVANCES. If any Lender determines
that maintenance of its Eurocurrency Loans at a suitable Lending
Installation would violate any applicable law, rule, regulation, or
directive, whether or not having the force of law, or if the Required
Lenders determine that (i) deposits of a type and maturity appropriate to
match fund Fixed Rate Advances of any Type are not available or (ii) the
interest rate applicable to any Type of Fixed Rate Advance does not
accurately reflect the cost of making or maintaining such Advance, then the
Agent shall suspend the availability of the affected Type of Advance and
require any Fixed Rate Advances of the affected Type to be repaid.
2.20.5. FUNDING INDEMNIFICATION. If any payment of a Fixed Rate
Advance occurs on a date which is not the last day of the applicable
Interest Period, whether because of acceleration, prepayment or otherwise,
or a Fixed Rate Advance is not made on the date specified by the Borrower
for any reason other than default by the Lenders, the Borrower will
indemnify each Lender for any loss or cost (including lost profits) incurred
by it resulting therefrom, including, without limitation, any loss or cost
in liquidating or employing deposits acquired to fund or maintain the Fixed
Rate Advance.
2.20.6. LENDER STATEMENTS; SURVIVAL OF INDEMNITY. To the extent
reasonably possible, each Lender shall designate an alternate Lending
Installation with respect to its Fixed Rate Loans to reduce any liability or
obligation of the Borrowing Entities to such Lender under Sections 2.20.1,
2.20.2 and 2.20.3 or to avoid the unavailability of a Type of Advance under
Section 2.20.4, so long as such designation is not disadvantageous to such
Lender. Each Lender shall deliver a written statement of such Lender as to
the amount due, if any, under Sections 2.20.1, 2.20.2, 2.20.3 or 2.20.5.
Such written statement shall set
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forth in reasonable detail the calculations upon which such Lender
determined such amount and shall be final, conclusive and binding on the
Borrower in the absence of manifest error. Determination of amounts payable
under such Sections in connection with a Fixed Rate Loan shall be calculated
as though each Lender funded its Fixed Rate Loan through the purchase of a
deposit of the type and maturity corresponding to the deposit used as a
reference in determining the Fixed Rate applicable to such Loan, whether in
fact that is the case or not. Unless otherwise provided herein, the amount
specified in the written statement shall be payable on demand after receipt
by the Borrower of the written statement. The obligations of the parties
under Sections 2.20.1, 2.20.2, 2.20.3 and 2.20.5 shall survive payment of
the Obligations and termination of this Agreement.
ARTICLE III
THE LETTER OF CREDIT SUBFACILITY
3.1. OBLIGATION TO ISSUE. Subject to the terms and conditions of this
Agreement, upon completion of an application in the form of that set forth in
Exhibit "C" hereto (or, in the case of a Commercial Letter of Credit, a form
acceptable to the Issuing Bank (as defined below) and not inconsistent with the
terms hereof) by a Borrowing Entity and in reliance upon the representations and
warranties of the Borrowing Entities herein set forth, First Chicago (and, at
the discretion of each other Lender in each such instance, each such Lender)
hereby agrees to issue for the account of the applicable Borrowing Entities
through such of such Lender's branches as it and the applicable Borrowing
Entities may jointly agree (PROVIDED that, absent any agreement with the
applicable Borrowing Entity to the contrary, First Chicago will issue Facility
Letters of Credit through its offices in Chicago, Illinois), one or more
Facility Letters of Credit in accordance with this Article III, from time to
time during the period, commencing on the Effective Date and ending on the last
Business Day prior to the Facility Termination Date (upon receipt of an
application for the issuance of a Facility Letter of Credit, the Lender to which
such application is made shall herein be referred to as the "Issuing Bank" with
respect to such prospective or actual Facility Letter of Credit). To the extent
that any term or provision of an application for a Facility Letter of Credit
hereunder conflicts with the terms and provisions of this Agreement, the terms
and provisions of this Agreement shall control.
3.2. TYPES AND AMOUNTS. An Issuing Bank shall not:
(i) issue any Facility Letter of Credit if the aggregate maximum amount then
available for drawing under Letters of Credit issued by such Issuing
Bank, after giving effect to the Facility Letter of Credit requested
hereunder, shall exceed any limit imposed by law or regulation upon such
Issuing Bank;
(ii) issue any Facility Letter of Credit if, after giving effect thereto,
the sum of (a) the Dollar Equivalent of the aggregate unpaid principal
balance of the Advances then outstanding PLUS (b) the Facility Letter
of Credit Obligations then outstanding would exceed the Aggregate
Commitment as then in effect;
(iii) issue any Letter of Credit which has an expiration date after the
Facility Termination Date;
(iv) issue any Facility Letter of Credit having an expiration date, or
containing automatic extension provisions to extend such date to a date
which is, more than twelve (12) months after the date of its issuance;
(v) issue any Facility Letter of Credit if the Facility Letter of Credit
Obligations, after giving effect to any Facility Letter of Credit
requested hereunder, would exceed $24,985,857 on or prior to March 30,
1994 and $15,000,000 thereafter; PROVIDED, HOWEVER, that $9,985,857 of
such $24,985,857 may only be represented by the MONY Letters of Credit;
or
(vi) issue any Facility Letter of Credit if any Default or Unmatured Default
exists.
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3.3 CONDITIONS. In addition to being subject to the satisfaction of the
conditions contained in Section 4.2, the obligation of an Issuing Bank to issue
any Facility Letter of Credit is subject to the satisfaction in full of the
following conditions:
(i) the applicable Borrowing Entity shall have delivered to such Issuing
Bank at such times and in such manner as such Issuing Bank may
reasonably prescribe such documents and materials as may be required
pursuant to the terms of the proposed Facility Letter of Credit (it
being understood that if any inconsistency exists between such documents
and the Loan Documents, the terms of the Loan Documents shall control)
and the proposed Facility Letter of Credit shall be reasonably
satisfactory to the Issuing Bank as to form and content; and
(ii) as of the date of issuance, no order, judgment or decree of any court,
arbitrator or governmental authority shall purport by its terms to
enjoin or restrain that Issuing Bank from issuing the requested
Facility Letter of Credit and no law, rule or regulation applicable to
that Issuing Bank and no request or directive (whether or not having
the force of law) from any governmental authority with jurisdiction
over that Issuing Bank shall prohibit or request that such Issuing Bank
refrain from the issuance of Letters of Credit generally or the
issuance of the requested Facility Letter of Credit in particular.
3.4. PROCEDURE FOR ISSUANCE OF FACILITY LETTERS OF CREDIT.
(a) The applicable Borrowing Entity shall give the Issuing Bank and the
Agent at least two (2) Business Days' prior written notice of any requested
issuance of a Facility Letter of Credit under this Agreement (a "Letter of
Credit Request") (except that, in lieu of such written notice, the
applicable Borrowing Entity may give the Issuing Bank and the Agent
telephonic notice of such request if confirmed in writing by delivery to the
Issuing Bank and the Agent (i) immediately (A) of a telecopy of the written
notice required hereunder which has been signed by an Authorized Officer or
(B) of a telex containing all information required to be contained in such
written notice and (ii) promptly (but in no event later than the requested
date of issuance) of the written notice required hereunder containing the
original signature of an Authorized Officer); such notice shall be
irrevocable and shall specify:
(1) whether the requested Facility Letter of Credit is a Commercial
Letter of Credit or a Standby Letter of Credit and, if it is a
Standby Letter of Credit, whether the applicable Borrowing Entity
believes it to be a Financial Letter of Credit or a Performance
Letter of Credit;
(2) the stated amount of the Facility Letter of Credit requested (which
stated amount shall not be less than $50,000);
(3) the effective date (which day shall be a Business Day) of issuance
of such requested Facility Letter of Credit (the "Issuance Date");
(4) the date on which such requested Facility Letter of Credit is to
expire (which date shall be a Business Day and shall in no event be
later than the Facility Termination Date);
(5) the name of the Issuing Bank chosen by the Borrower to issue the
requested Facility Letter of Credit;
(6) the purpose for which such Facility Letter of Credit is to be
issued; and
(7) the Person(s) for whose benefit the requested Facility Letter of
Credit is to be issued.
At the time such request is made, the applicable Borrowing Entity shall also
provide the Agent and the Issuing Bank a copy of the form of the Facility
Letter of Credit it is requesting be issued. Such notice, to be effective,
must be received by such Issuing Bank and the Agent not later than 2:00 p.m.
(Chicago time) on the last Business Day on which notice can be given under
this Section 3.4(a).
(b) Subject to the terms and conditions of this Article III and provided
that the applicable conditions set forth in Section 4.2 hereof have been
satisfied, the Issuing Bank shall, on the Issuance Date, issue a Facility
Letter of Credit on behalf of the applicable Borrowing Entity in accordance
with
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the Issuing Bank's usual and customary business practices unless the Issuing
Bank has actually received (i) written or telephonic notice from the
applicable Borrowing Entity specifically revoking the Letter of Credit
Request with respect to such Facility Letter of Credit, (ii) written notice
from the Agent, which complies with the provisions of Section 3.6(a) or
(iii) written or telephonic notice from the Agent stating that the issuance
of such Facility Letter of Credit would violate Section 3.2.
(c) Each Issuing Bank shall give the Agent and the applicable Borrowing
Entity written or telex notice, or telephonic notice confirmed promptly
thereafter in writing, of the issuance of a Facility Letter of Credit (the
"Issuance Notice"), which shall indicate, in the case of the issuance of a
Standby Letter of Credit, the Issuing Bank's reasonable determination as to
whether such Standby Letter of Credit is a Financial Letter of Credit or a
Performance Letter of Credit, which determination shall be conclusive absent
manifest error.
(d) An Issuing Bank shall not extend or amend any Facility Letter of
Credit (except in accordance with the specific terms of such Facility Letter
of Credit) unless the requirements of this Section 3.4 are met as though a
new Facility Letter of Credit was being requested and issued.
3.5. REIMBURSEMENT OBLIGATIONS; AUTOMATIC ALTERNATE BASE RATE ADVANCE;
DUTIES OF ISSUING BANKS.
(a) (i) Each Issuing Bank shall promptly notify the applicable Borrowing
Entity and the Agent of any draw under a Facility Letter of Credit. The
applicable Borrowing Entity or the Borrower shall reimburse the Issuing Bank
for drawings under a Facility Letter of Credit issued by it no later than
the next succeeding Business Day after the payment by that Issuing Bank
(including through the application of proceeds of Advances requested for
such purpose); and (ii) any Reimbursement Obligation with respect to any
Facility Letter of Credit not so reimbursed shall bear interest from the
date of the relevant drawings under the pertinent Facility Letter of Credit
until payment in full is received by such Issuing Bank at the Default
interest rate for Alternate Base Rate Advances calculated in accordance with
Section 2.11. If the Borrower or applicable Borrowing Entity has not
reimbursed the Issuing Bank by 10:00 a.m. on such next succeeding Business
Day (whether with the proceeds of an Advance requested hereunder or
otherwise), then the Issuing Bank shall immediately notify the Agent of such
failure. Provided that the conditions precedent set forth in Section 4.2 and
other requirements of this Agreement for the making of an Alternate Base
Rate Advance in the aggregate principal amount of such Reimbursement
Obligation (other than the requirement that the Borrowing Entity
affirmatively request such Advance) are, in the opinion of the Agent, met,
the Agent will then promptly notify the Lenders that the Borrower is deemed
to have made a request for an Alternate Base Rate Advance in the aggregate
principal amount of such Reimbursement Obligation, and each Lender shall
make available its Loan or Loans in the manner prescribed for Alternate Base
Rate Advances herein. The Agent shall then transfer the aggregate principal
amount of such Alternate Base Rate Advance to the relevant Issuing Bank in
satisfaction of the unpaid Reimbursement Obligation. Thereafter, such
Advance shall be treated as an Alternate Base Rate Advance requested by the
Borrower hereunder.
(b) Any action taken or omitted to be taken by an Issuing Bank under or
in connection with any Facility Letter of Credit, if taken or omitted in the
absence of willful misconduct or gross negligence, shall not put that
Issuing Bank under any resulting liability to any Lender or, assuming that
such Issuing Bank has complied with the procedures specified in Section 3.4
and the Agent has not given a notice contemplated by Section 3.6(a) that
continues in full force and effect, relieve that Lender of its obligations
hereunder to that Issuing Bank. In determining whether to pay under any
Facility Letter of Credit, an Issuing Bank shall have no obligation relative
to the Lenders other than to confirm that any documents required to be
delivered under such Facility Letter of Credit appear to have been delivered
in compliance and that they appear to comply on their face, with the
requirements of such Facility Letter of Credit.
3.6. PARTICIPATION.
(a) Immediately upon issuance by an Issuing Bank of any Facility Letter
of Credit in accordance with the procedures set forth in Section 3.4
(including the Facility Letter of Credit described in the
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proviso to Section 3.2(v)), each Lender shall be deemed to have irrevocably
and unconditionally purchased and received from that Issuing Bank, without
recourse, representation or warranty, an undivided interest and
participation equal to its Percentage in such Facility Letter of Credit
(including, without limitation, all obligations of the applicable Borrowing
Entity with respect thereto) and any security therefor or guaranty
pertaining thereto; PROVIDED, that a Letter of Credit issued by any Issuing
Bank shall not be deemed to be a Facility Letter of Credit for purposes of
this Section 3.6 if such Issuing Bank shall have received written notice
from the Agent on or before the Business Day prior to the date of its
issuance of such Letter of Credit that one or more of the conditions
contained in Section 4.2 is not then satisfied, and, in the event an Issuing
Bank receives such a notice, it shall have no further obligation to issue
any Facility Letter of Credit until such notice is withdrawn by the Agent or
it subsequently receives a notice from the Agent that such condition has
been effectively waived in accordance with the provisions of this Agreement.
(b) In the event that any Issuing Bank makes any payment under any
Facility Letter of Credit and the applicable Borrowing Entity or the
Borrower shall not have repaid such amount to such Issuing Bank pursuant to
Sections 3.5 and 3.7 hereof, such Issuing Bank shall promptly notify the
Agent, which shall promptly notify each Lender, of such failure, and each
Lender shall, unless a deemed Alternate Base Rate Advance in the full amount
of such unpaid Reimbursement Obligation has been or is to be made pursuant
to Section 3.5(a), promptly and unconditionally pay to the Agent for the
account of such Issuing Bank such Lender's Percentage of the amount of such
payment which has not been reimbursed (whether directly or through a deemed
Alternate Base Rate Advance), and the Agent shall promptly pay such amount
to the Issuing Bank. The failure of any Lender to make available to the
Agent for the account of any Issuing Bank its Percentage of the unreimbursed
amount of any such payment shall not relieve any other Lender of its
obligation hereunder to make available to the Agent for the account of such
Issuing Bank its Percentage of the unreimbursed amount of any payment on the
date such payment is to be made, but no Lender shall be responsible for the
failure of any other Lender to make available to the Agent its Percentage of
the unreimbursed amount of any payment on the date such payment is to be
made.
(c) Whenever an Issuing Bank receives a payment on account of a
Reimbursement Obligation, including any interest thereon, it shall promptly
pay to the Agent and the Agent shall promptly pay to each Lender which has
funded its participating interest therein, in immediately available funds,
an amount equal to such Lender's Percentage thereof.
(d) Upon the request of the Agent or any Lender, an Issuing Bank shall
furnish to such Agent or Lender copies of any Facility Letter of Credit to
which that Issuing Bank is party and such other documentation as may
reasonably be requested by the Agent or Lender.
(e) The obligations of a Lender to make payments to the Agent for the
account of each Issuing Bank with respect to a Facility Letter of Credit
shall be absolute, unconditional and irrevocable, not subject to any
counterclaim, set-off, qualification or exception whatsoever and shall be
made in accordance with the terms and conditions of this Agreement under all
circumstances.
3.7. PAYMENT OF REIMBURSEMENT OBLIGATIONS.
(a) The applicable Borrowing Entity agrees to pay to each Issuing Bank
the amount of all of its Reimbursement Obligations, interest and other
amounts payable to such Issuing Bank under or in connection with any
Facility Letter of Credit of which it is the account party immediately when
due, irrespective of any claim, set-off, defense or other right which the
Borrower or any Subsidiary may have at any time against any Issuing Bank or
any other Person, under all circumstances, including without limitation any
of the following circumstances:
(i) any lack of validity or enforceability of this Agreement or any of
the other Loan Documents;
(ii) the existence of any claim, setoff, defense or other right which
the applicable Borrowing Entity, the Borrower or any Subsidiary may
have at any time against a beneficiary named in a Facility Letter
of Credit or any permitted transferee of any Facility Letter of
Credit (or any
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Person for whom any such transferee may be acting), the Agent, the
Issuing Bank, any Lender, or any other Person, whether in
connection with this Agreement, any Facility Letter of Credit, the
transactions contemplated herein or any unrelated transactions
(including any underlying transactions between the Borrower or any
Subsidiary and the beneficiary named in any Facility Letter of
Credit);
(iii) any draft, certificate or any other document presented under the
Facility Letter of Credit (and accepted by the Issuing Bank without
gross negligence or willful misconduct) proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect;
(iv) the surrender or impairment of any security for the performance or
observance of any of the terms of any of the Loan Documents; or
(v) the occurrence of any Default or Unmatured Default.
(b) In the event any payment by or for the account of any Borrowing
Entity or any Subsidiary received by an Issuing Bank with respect to a
Facility Letter of Credit and distributed by the Agent to the Lenders on
account of their participations is thereafter set aside, avoided or
recovered from that Issuing Bank in connection with any receivership,
liquidation, reorganization or bankruptcy proceeding, each Lender which
received such distribution shall, upon demand by that Issuing Bank,
contribute such Lender's Percentage of the amount set aside, avoided or
recovered together with interest at the rate required to be paid by that
Issuing Bank upon the amount required to be repaid by it.
3.8. COMPENSATION FOR FACILITY LETTERS OF CREDIT.
(a) The Borrower shall pay to the Agent, for the ratable account of the
Lenders, based upon the Lenders' respective Percentages, a fee (the
"Facility Letter of Credit Fee") with respect to each Facility Letter of
Credit that is:
(i) a Standby Letter of Credit, for the period from the Issuance Date
thereof to but including the final expiration date thereof, in a per
annum amount equal to the product of (A) the average daily undrawn
amount of such Facility Letter of Credit during such period times
(B) either (1) with respect to a Financial Letter of Credit, the
percentage indicated in Section 2.5 as the Applicable Margin for the
Standby Letter of Credit Fee (Financial) or (2) with respect to a
Performance Letter of Credit, the percentage indicated as the
Applicable Margin for the Standby Letter of Credit Fee
(Performance), and
(ii) a Commercial Letter of Credit, in a one-time amount equal to the
greater of $150 or .25% of the face amount of such Facility Letter
of Credit.
The Facility Letter of Credit Fee relating to any (i) Standby Letter of
Credit shall be due and payable in arrears on each Payment Date and, to the
extent any such fees are then due and unpaid, on the Facility Termination
Date and (ii) Commercial Letter of Credit shall be due and payable on the
Issuance Date. The Agent shall promptly remit such Facility Letter of Credit
Fees, when paid, to the other Lenders in accordance with their Percentages
thereof.
(b) Each Issuing Bank shall have the right to receive solely for its own
account (i) an issuance fee of .15% of the face amount of each Standby
Letter of Credit issued by such Issuing Bank, payable by the applicable
Borrowing Entity on the Issuance Date and (ii) such amounts as it and the
applicable Borrowing Entity may agree, in writing, to pay to such Issuing
Bank with respect to issuance fees for any Commercial Letter of Credit. In
either case, each Issuing Bank shall be entitled to receive its reasonable
out-of-pocket costs of issuing and servicing Facility Letters of Credit. In
addition, the Borrowing Entity which is the account party on any Facility
Letter of Credit shall pay to the Issuing Bank, upon any transfer of such
Facility Letter of Credit by the beneficiary thereof to a new beneficiary, a
transfer commission equal to the greater of $100 or .25% of the amount
transferred, provided that such transfer commission shall not in any event
exceed $750.
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3.9. LETTER OF CREDIT COLLATERAL ACCOUNT. The Borrower hereby agrees that
it will, until the Facility Termination Date, maintain a special collateral
account (the "Letter of Credit Collateral Account") at the Agent's office at the
address specified pursuant to Article XIII, in the name of the Borrower but
under the sole dominion and control of the Agent, for the benefit of the
Lenders, and in which the Borrower shall have no interest other than as set
forth in Section 8.1. In addition to the foregoing, the Borrower hereby grants
to the Agent, for the benefit of the Lenders, a security interest in and to the
Letter of Credit Collateral Account and any funds that may hereafter be on
deposit in such account.
ARTICLE IV
CONDITIONS PRECEDENT
4.1. INITIAL ADVANCE AND FACILITY LETTER OF CREDIT. The Lenders shall not
be required to make the initial Advance hereunder (if Facility Letters of Credit
shall not previously have been issued) and (if the initial Advance shall not
previously have been made) an Issuing Bank shall not be obligated to issue any
Facility Letter of Credit hereunder unless the Borrower has furnished to the
Agent with sufficient copies for the Lenders, the following items (and the date
upon which all such items shall have been so furnished is hereinafter referred
to as the "Effective Date"):
(i) Copies of the certificate or articles of incorporation, together with
all amendments, and a certificate of good standing for the Borrower,
both certified by the appropriate governmental officer in its
jurisdiction of incorporation.
(ii) Copies, certified by the Secretary or Assistant Secretary of the
Borrower, of its by-laws and of its Board of Directors' resolutions
authorizing the execution of the Loan Documents to which it is a party.
(iii) An incumbency certificate, executed by the Secretary or Assistant
Secretary of the Borrower, which shall identify by name and title and
bear the signature of the officers of the Borrower authorized to sign
the Loan Documents and to make borrowings and request Facility Letters
of Credit on its behalf hereunder, upon which certificate the Agent and
the Lenders shall be entitled to rely until informed of any change in
writing by the Borrower.
(iv) A compliance certificate, signed by the President or chief financial
officer of the Borrower, in substantially the form attached hereto as
Exhibit "F".
(v) A written opinion of counsel to the Borrower, addressed to the Lenders
in substantially the form of Exhibit "D-1".
(vi) Borrower Notes payable to the order of each of the Lenders.
(vii) Written money transfer instructions, in substantially the form of
Exhibit "E" hereto, addressed to the Agent and signed by an Authorized
Officer of the Borrower, together with such other related money
transfer authorizations as the Agent may have reasonably requested.
(viii) The Guaranty executed by each Guarantor.
(ix) The insurance certificate described in Section 5.18.
(x) Such other documents as any Lender or its counsel may have reasonably
requested.
4.2. EACH ADVANCE AND FACILITY LETTER OF CREDIT. The Lenders shall not be
required to make any Advance (other than an Advance that, after giving effect
thereto and to the application of the proceeds thereof, does not increase the
aggregate amount of the sum of (x) outstanding Advances and (y) outstanding
Reimbursement Obligations, PROVIDED that, notwithstanding the foregoing
provisions of this parenthetical clause, the conditions set forth below in this
Section 4.2 shall (unless waived in accordance with the terms of
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this Agreement) be fulfilled in connection with any automatic Alternate Base
Rate Advance under Section 3.5) and the Issuing Bank shall not be obligated to
issue any Facility Letter of Credit, unless on the applicable Borrowing Date or
Issuance Date:
(i) There exists no Default or Unmatured Default.
(ii) The representations and warranties contained in Article V are true and
correct in all material respects as of such Borrowing Date or Issuance
Date, as the case may be, except to the extent any such representation
or warranty is stated to relate solely to an earlier date, in which
case such representation or warranty shall remain true and correct in
all material respects on and as of such earlier date.
(iii) If such Advance or Facility Letter of Credit is requested by a
Borrowing Subsidiary, (a) the representations and warranties of such
Borrowing Subsidiary contained in Article V-A are true and correct in
all material respects as of such Borrowing Date or Issuance Date, as
the case may be, except to the extent any such representation or
warranty is stated to relate solely to an earlier date, in which case
such representation or warranty shall remain true and correct in all
material respects on and as of such earlier date and (b) it has
complied with the provisions of Section 4.3.
(iv) All legal matters incident to the making of such Advance or issuance of
such Facility Letter of Credit shall be satisfactory to the Agent and
its counsel (in their reasonable discretion).
Each Borrowing Notice with respect to each such Advance and each Letter of
Credit Request with respect to each Facility Letter of Credit shall constitute a
representation and warranty by (a) the Borrower that the conditions contained in
Sections 4.2(i) and (ii) have been satisfied and (b) the applicable Borrowing
Subsidiary if such Advance or Facility Letter of Credit is requested by it, that
the conditions contained in Sections 4.2(i) and (iii) have been satisfied.
4.3. FIRST ADVANCE OR FACILITY LETTER OF CREDIT TO NEW BORROWING
SUBSIDIARIES. The obligations of the Lenders to make Advances and an Issuing
Bank to issue Facility Letters of Credit on the occasion of the first request
for either by each Borrowing Subsidiary are subject to the satisfaction of the
conditions set forth in Section 4.2 hereof with respect to such Borrowing
Subsidiary and the Borrower and the following additional conditions:
(i) The Agent shall have received, in sufficient number of original
counterparts for each Lender, an Election to Participate dated on or
before the date of such first Advance or Facility Letter of Credit
issuance (as the case may be) and duly executed by the relevant
Borrowing Subsidiary and the Borrower.
(ii) On or before the date of such first Advance or Facility Letter of
Credit issuance (as the case may be), the relevant Borrowing Subsidiary
shall deliver to the Agent (a) its Borrowing Subsidiary Notes, all of
which shall be duly executed by such Borrowing Subsidiary and dated on
or before the date of such Advance, (b) the corporate documentation and
certificates identified in Sections 4.1(i)-(iii) with respect to such
Borrowing Subsidiary and (c) a written opinion addressed to the
Lenders, dated the date of such Advance or Facility Letter of Credit
issuance (as the case may be), of counsel to such Borrowing Subsidiary
acceptable to the Agent, such opinion to be, in the case of a Domestic
Borrowing Subsidiary, in substantially the form of Exhibit "D-2" hereto
(or as otherwise approved by the Agent), and in the case of a Foreign
Borrowing Subsidiary, in form and substance acceptable to the Agent.
(iii) All legal details and proceedings in connection with the transactions
contemplated by this Agreement with respect to the relevant Borrowing
Subsidiary shall be satisfactory to the Lenders (in their reasonable
discretion), and the Agent shall have received all such counterpart
originals or certified or other copies of such documents and
proceedings in connection with such transactions, in form and substance
satisfactory to the Agent, as the Agent may reasonably request.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BORROWER
The Borrower represents and warrants to the Lenders that:
5.1. CORPORATE EXISTENCE AND STANDING. Each of the Borrower and its
Subsidiaries is a corporation duly incorporated, validly existing and (except
for Webco Tank Incorporated, which will be reinstated in good standing in the
State of Oklahoma within twenty Business Days of the date of this Agreement) in
good standing under the laws of its jurisdiction of incorporation and has all
requisite authority to conduct its business as a foreign corporation in each
jurisdiction in which its business is conducted, except where the failure to
have such requisite authority would not have a Material Adverse Effect.
5.2. AUTHORIZATION AND VALIDITY. The Borrower has the corporate power and
authority and legal right to execute and deliver the Loan Documents to which it
is a party and to perform its obligations thereunder. The execution and delivery
by the Borrower of the Loan Documents and the performance by it of its
obligations thereunder have been duly authorized by proper corporate
proceedings, and the Loan Documents constitute legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance with
their respective terms, except as enforceability may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors' rights
generally.
5.3. NO CONFLICT; GOVERNMENT CONSENT. Neither the execution and delivery
by the Borrower of the Loan Documents to which it is a party, nor the
consummation by the Borrower of the transactions therein contemplated to be
consummated by it, nor compliance by the Borrower with the provisions thereof,
will violate any law, rule, regulation, order, writ, judgment, injunction,
decree or award binding on the Borrower or any of its Subsidiaries or the
Borrower's or any Subsidiary's certificate or articles of incorporation or by-
laws or the provisions of any indenture, instrument or agreement to which the
Borrower or any of its Subsidiaries is a party or is subject, or by which it, or
its Property, is bound, or conflict with or constitute a default thereunder, or
result in the creation or imposition of any Lien in, of or on the Property of
the Borrower or a Subsidiary pursuant to the terms of any such indenture,
instrument or agreement. No order, consent, approval, license, authorization, or
validation of, or filing, recording or registration with, or exemption by, any
Governmental Agency, is required to authorize, or is required in connection with
the execution, delivery and performance by the Borrower of, or the legality,
validity, binding effect or enforceability against the Borrower of, any of the
Loan Documents, provided that the Borrower is required to file a copy of this
Agreement and other Loan Documents and to otherwise list or describe this
Agreement and other Loan Documents as part of its periodic filings under the
Exchange Act (although the failure to so file, list or describe this Agreement
or any other Loan Documents would not affect the legality, validity, binding
effect or enforceability of any of the Loan Documents against the Borrower).
5.4. FINANCIAL STATEMENTS. The consolidated financial statements of the
Borrower and its Subsidiaries as of and for the periods ended January 31, 1993
and July 31, 1993 heretofore delivered to the Lenders were prepared in
accordance with generally accepted accounting principles in effect on the date
such statements were prepared and fairly present the consolidated financial
condition of the Borrower and its Subsidiaries at the respective dates thereof
and the consolidated results of their operations for the periods then ended.
5.5. MATERIAL ADVERSE CHANGE. Since July 31, 1993, there has been no
change in the business, Property, prospects, condition (financial or otherwise)
or results of operations of the Borrower and its Subsidiaries, taken as a whole,
which could reasonably be expected to have a Material Adverse Effect.
5.6. TAXES. The Borrower and its Subsidiaries have filed all United States
federal tax returns and all other material tax returns which are required to be
filed by them and have paid all taxes due pursuant to said returns or pursuant
to any assessment received by the Borrower or any of its Subsidiaries, except
such taxes, if any, as are being contested in good faith and as to which
adequate reserves have been provided. As of the date of this Agreement, the
United States income tax returns of the Borrower and its Subsidiaries have been
audited by the Internal Revenue Service, or the time for audit has expired,
through the fiscal year ended
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January 31, 1990. No tax liens have been filed and no claims are being asserted
with respect to any such taxes. The charges, accruals and reserves on the books
of the Borrower and its Subsidiaries in respect of any taxes or other
governmental charges are adequate.
5.7. LITIGATION AND CONTINGENT OBLIGATIONS. Except as set forth on
Schedule "3" hereto, there is no litigation, arbitration, governmental
investigation, proceeding or inquiry pending or, to the knowledge of any of
their respective officers, threatened against or affecting the Borrower or any
of its Subsidiaries which could reasonably be expected to have a Material
Adverse Effect. Other than any liability incident to such litigation,
arbitration or proceedings, as of the date of this Agreement the Borrower has no
material contingent obligations not provided for or disclosed in the financial
statements referred to in Section 5.4.
5.8. SUBSIDIARIES. Schedule "4" hereto (as the same may have been revised
in accordance with Section 6.16) contains an accurate list of all of the
presently existing Subsidiaries of the Borrower, setting forth their respective
jurisdictions of incorporation and the percentage of their respective capital
stock owned by the Borrower or other Subsidiaries. All of the issued and
outstanding shares of capital stock of such Subsidiaries have been duly
authorized and issued and are fully paid and non-assessable.
5.9. ERISA. As of December 31, 1992, the Unfunded Liabilities of all
Single Employer Plans do not in the aggregate exceed $1,000,000. As of December
31, 1992, neither the Borrower nor any other member of the Controlled Group has
incurred any withdrawal liability to Multiemployer Plans. Each Single Employer
Plan complies in all material respects with all applicable requirements of law
and regulations and, as of the date of this Agreement, no Reportable Event has
occurred with respect to any Single Employer Plan. As of the date of this
Agreement, neither the Borrower nor any other member of the Controlled Group has
withdrawn from any Plan or initiated steps to do so, and no steps have been
taken to reorganize or terminate any Plan. As of the date of this Agreement,
neither the Borrower nor any other member of the Controlled Group has been
notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is
in reorganization or is being terminated, within the meaning of Title IV of
ERISA.
5.10. ACCURACY OF INFORMATION. No information, exhibit or report furnished
by the Borrower or any of its Subsidiaries to the Agent or to any Lender in
connection with the negotiation of, or compliance with, the Loan Documents
contained any misstatement of a material fact or omitted to state a material
fact or any fact necessary to make the statements contained therein not
materially misleading.
5.11. REGULATION U. Margin stock (as defined in Regulation U) constitutes
less than 25% of those assets of the Borrower and its Subsidiaries which are
subject to any limitation on sale, pledge, or other restriction hereunder.
5.12. MATERIAL AGREEMENTS. As of the date of this Agreement, neither the
Borrower nor any Subsidiary is a party to any agreement or instrument or subject
to any charter or other corporate restriction which could reasonably be expected
to have a Material Adverse Effect. As of the date of this Agreement, neither the
Borrower nor any Subsidiary is in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in (i)
any agreement to which it is a party, which default could reasonably be expected
to have a Material Adverse Effect or (ii) any agreement or instrument evidencing
or governing Indebtedness.
5.13. COMPLIANCE WITH LAWS. The Borrower and its Subsidiaries have
complied in all material respects with all applicable statutes, rules,
regulations, orders and restrictions of any domestic or foreign government or
Government Agency thereof, having jurisdiction over the conduct of their
respective businesses or the ownership of their respective Property. Neither the
Borrower nor any Subsidiary has received any notice to the effect that its
operations are not in material compliance with any of the requirements of
applicable federal, state and local environmental, health and safety statutes
and regulations or the subject of any federal or state investigation evaluating
whether any remedial action is needed to respond to a release of any toxic or
hazardous waste or substance into the environment, which non-compliance or
remedial action could reasonably be expected to have a Material Adverse Effect.
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5.14. OWNERSHIP OF PROPERTIES. Except as set forth on Schedule "5" hereto,
on the date of this Agreement, the Borrower and its Subsidiaries will have good
title, free of all Liens other than those permitted by Section 6.17, to all of
the Property and assets reflected in the financial statements as owned by it.
5.15. INVESTMENT COMPANY ACT. Neither the Borrower nor any Subsidiary is
an "investment company" or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended.
5.16. PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Borrower nor any
Subsidiary is a "holding company" or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
5.17. SUBORDINATED INDEBTEDNESS. The Obligations constitute senior
indebtedness which is entitled to the benefits of the subordination provisions
of all outstanding Subordinated Debt.
5.18. INSURANCE. The certificate signed by the President or Chief
Financial Officer of the Borrower, that attests to the existence and adequacy
of, and summarizes, the property and casualty insurance program carried by the
Borrower and that has been furnished by the Borrower to the Agent and the
Lenders, is complete and accurate in all material respects as of the date of
this Agreement. This summary includes the insurer's or insurers' name(s), policy
number(s), expiration date(s), amount(s) of coverage, type(s) of coverage,
exclusion(s), and deductibles. This summary also includes similar information,
and describes any reserves, relating to any self-insurance program that is in
effect.
5.19. SOLVENCY. Immediately following the making of each Loan, if any,
made on the (i) Effective Date and after giving effect to the application of the
proceeds of such Loans, and (ii) date of any Permitted Acquisition and after
giving effect to the application of the proceeds of such Loans,
(a) the fair value of the assets of the Borrower and the Subsidiaries on
a consolidated basis, at a fair valuation, will exceed the debts and
liabilities, subordinated, contingent or otherwise, of the Borrower and the
Subsidiaries on a consolidated basis;
(b) the then present fair saleable value of the property and assets of
the Borrower and the Subsidiaries on a consolidated basis will be greater
than the amount that will be required to pay the probable liability of the
Borrower and the Subsidiaries on a consolidated basis on their debts and
other liabilities, subordinated, contingent or otherwise, as such debts and
other liabilities become absolute and matured;
(c) the Borrower and the Subsidiaries on a consolidated basis will be
able to pay their debts and liabilities, subordinated, contingent or
otherwise, as such debts and liabilities become absolute and matured; and
(d) the Borrower and the Subsidiaries on a consolidated basis will not
have unreasonably small capital with which to conduct the businesses in
which they are engaged as such businesses are now conducted and are now
proposed to be conducted.
The Borrower does not intend to, or to permit any of its Subsidiaries to, incur
debts beyond its ability to pay such debts as they mature, taking into account
the timing of and amounts of cash to be received by it or any such Subsidiary
and the timing of the amounts of cash to be payable on or in respect of its
Indebtedness or the Indebtedness of any such Subsidiary.
5.20. BENEFITS. Each of the Borrower and its Subsidiaries will benefit
from the financing arrangement established by this Agreement. The Agent and the
Lenders have stated and the Borrower acknowledges that, but for the agreement by
each of the Guarantors to execute and deliver the Guaranty, the Agent and the
Lenders would not have made available the credit facilities established hereby
on the terms set forth herein.
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ARTICLE V-A
REPRESENTATIONS AND WARRANTIES OF BORROWING SUBSIDIARIES
Each Foreign Borrowing Subsidiary represents and warrants to the Lenders as
provided in this Article V-A, and each Domestic Borrowing Subsidiary represents
and warrants to the Lenders as provided in Sections 5A.1, 5A.2, 5A.3, 5A.6, 5A.7
and 5A.8 of this Article V-A that:
5A.1. CORPORATE EXISTENCE AND STANDING. Such Borrowing Subsidiary is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has all requisite authority to
conduct its business in each jurisdiction in which its business is conducted
except where the failure to have such requisite authority would not have a
Material Adverse Effect.
5A.2. AUTHORIZATION AND VALIDITY. Such Borrowing Subsidiary has the
corporate power and authority and legal right to execute and deliver the Loan
Documents to which it is a party and to perform its obligations thereunder. The
execution and delivery by such Borrowing Subsidiary of the Loan Documents to
which it is a party and the performance by it of its obligations thereunder have
been duly authorized by proper corporate proceedings, and such Loan Documents
constitute legal, valid and binding obligations of such Borrowing Subsidiary
enforceable against such Borrowing Subsidiary in accordance with their
respective terms, except as enforceability may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors' rights
generally.
5A.3. NO CONFLICT; GOVERNMENT CONSENT. Neither the execution and delivery
by such Borrowing Subsidiary of the Loan Documents to which it is a party, nor
the consummation by it of the transactions therein contemplated to be
consummated by it, nor compliance by such Borrowing Subsidiary with the
provisions thereof will violate any law, rule, regulation, order, writ,
judgment, injunction, decree or award binding on such Borrowing Subsidiary or
any of its Subsidiaries or such Borrowing Subsidiary's or any of its
Subsidiary's certificate or articles of incorporation or by-laws (or similar
documents) or the provisions of any indenture, instrument or agreement to which
such Borrowing Subsidiary or any of its Subsidiaries is a party or is subject,
or by which it, or its Property, is bound, or conflict with or constitute a
default thereunder, or result in the creation or imposition of any Lien in, of
or on the Property of such Borrowing Subsidiary or any of its Subsidiaries
pursuant to the terms of any such indenture, instrument or agreement. No order,
consent, approval, license, authorization, or validation of, or filing,
recording or registration with, or exemption by, any Governmental Agency is
required to authorize, or is required in connection with the execution, delivery
and performance of, or the legality, validity, binding effect or enforceability
of, any of the Loan Documents.
5A.4. FILING. To ensure the enforceability or admissibility in evidence of
this Agreement and the Borrowing Subsidiary Notes of such Foreign Borrowing
Subsidiary in such Foreign Borrowing Subsidiary's country of organization or
incorporation and country which is its principal place of business (each, a
"Subject Country"), it is not necessary that this Agreement or the Borrowing
Subsidiary Notes of such Foreign Borrowing Subsidiary or any other document be
filed or recorded with any court or other authority in any Subject Country or
that any stamp or similar tax be paid to or in respect of this Agreement or the
Borrowing Subsidiary Notes of such Foreign Borrowing Subsidiary. The
qualification by any Lender or the Agent for admission to do business under the
laws of any Subject Country does not constitute a condition to, and the failure
to so qualify does not affect, the exercise by any Lender or the Agent of any
right, privilege, or remedy afforded to any Lender or the Agent in connection
with the Loan Documents to which such Foreign Borrowing Subsidiary is a party or
the enforcement of any such right, privilege, or remedy against such Foreign
Borrowing Subsidiary. The performance by any Lender or the Agent of any action
required or permitted under the Loan Documents will not (i) violate any law or
regulation of any Subject Country or any political subdivision thereof, (ii)
result in any tax or other monetary liability to such party pursuant to the laws
of any such Subject Country or political subdivision or taxing authority thereof
(PROVIDED that, should any such action result in any such tax or other monetary
liability to the Lender or the Agent, the Borrower hereby agrees to indemnify
such Lender or the Agent, as the case may be, against (x) any such tax or other
monetary liability which is not an Excluded Tax and (y) any increase in an
Excluded Tax which results from such action by such Lender or the Agent and, to
the extent the Borrower makes such indemnification, the
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incurrence of such liability by the Agent or any Lender will not constitute a
Default) or (iii) violate any rule or regulation of any federation or
organization or similar entity of which such Subject Country is a member.
5A.5. NO IMMUNITY. Neither such Foreign Borrowing Subsidiary nor any of
its assets is entitled to immunity from suit, execution, attachment or other
legal process. Such Foreign Borrowing Subsidiary's execution and delivery of the
Loan Documents to which it is a party constitute, and the exercise of its rights
and performance of and compliance with its obligations under such Loan Documents
will constitute, private and commercial acts done and performed for private and
commercial purposes.
5A.6. INVESTMENT COMPANY ACT. Neither such Borrowing Subsidiary nor any
Subsidiary thereof is an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
5A.7. PUBLIC UTILITY HOLDING COMPANY ACT. Neither such Borrowing
Subsidiary nor any Subsidiary thereof 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.
5A.8. REGULATION U. Margin stock (as defined in Regulation U) constitutes
less than 25% of those assets of such Borrowing Subsidiary and its Subsidiaries
which are subject to any limitation on sale, pledge, or other restriction
hereunder.
ARTICLE VI
COVENANTS
During the term of this Agreement, unless the Required Lenders shall
otherwise consent in writing, the Borrower hereby agrees that:
6.1. FINANCIAL REPORTING. The Borrower will maintain, for itself and each
Subsidiary, a system of accounting established and administered such that
consolidated financial statements therefor can be prepared in accordance with
generally accepted accounting principles, and furnish to the Lenders:
(i) Within 91 days after the close of each of its fiscal years, an
unqualified audit report certified by a "Big 6" firm of independent
certified public accountants or other accountants reasonably acceptable
to the Lenders, prepared in accordance with generally accepted
accounting principles on a consolidated and (for itself and the
Subsidiaries) consolidating basis (consolidating statements need not be
certified by such accountants), including balance sheets as of the end
of such period, related profit and loss and changes in shareholders'
equity statements, and a statement of cash flows, accompanied by a
certificate of said accountants that, in the course of their examination
necessary for their certification of the foregoing, they have obtained
no knowledge of any Default or Unmatured Default, or if, in the opinion
of such accountants, any Default or Unmatured Default shall exist,
stating the nature and status thereof.
(ii) Within 60 days after the close of the first three quarterly periods of
each of its fiscal years, condensed consolidated and (for itself and
the Subsidiaries) consolidating unaudited balance sheets as at the
close of each such period and condensed consolidated and (for itself
and the Subsidiaries) consolidating unaudited profit and loss and
changes in shareholders' equity statements and a statement of cash
flows for the period from the beginning of such fiscal year to the end
of such quarter, all certified by its President or chief financial
officer.
(iii) Together with the financial statements required hereunder, a compliance
certificate in substantially the form of Exhibit "F" hereto signed by
its President or chief financial officer showing the calculations
necessary to determine compliance with Sections 6.11, 6.13, 6.18, 6.19,
6.22 and 6.23 of this Agreement and stating that no Default or
Unmatured Default exists, or if any Default or Unmatured Default
exists, stating the nature and status thereof.
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(iv) If the Borrower's Status is then Level I Status, promptly (a) upon
receipt thereof, any Rating Letter or correspondence modifying or
affecting any Rating Letter (including an annual update confirming any
rating received for another year) and (b) upon the happening thereof,
notice of any act taken or omitted to be taken by the Borrower which
will have a direct effect on any rating stated in any existing Rating
Letter.
(v) Within 270 days after the close of each fiscal year, a statement of the
Unfunded Liabilities of each Single Employer Plan, certified as correct
by an actuary enrolled under ERISA.
(vi) As soon as possible and in any event within 20 days after the Borrower
knows that any Reportable Event has occurred with respect to any Plan,
a statement, signed by the chief financial officer of the Borrower,
describing said Reportable Event and the action which the Borrower
proposes to take with respect thereto.
(vii) As soon as possible and in any event within 20 days after receipt by
the Borrower, a copy of (a) any written notice or claim to the effect
that the Borrower or any of its Subsidiaries is or may be liable to any
Person as a result of the release by the Borrower, any of its
Subsidiaries, or any other Person of any toxic or hazardous waste or
substance into the environment, and (b) any written notice alleging any
violation of any federal, state or local environmental, health or
safety law or regulation by the Borrower or any of its Subsidiaries,
which, in either case, could reasonably be expected to have a Material
Adverse Effect.
(viii) Promptly upon the furnishing thereof to the stockholders of the
Borrower, copies of all financial statements, reports and proxy
statements so furnished.
(ix) Promptly upon the filing thereof, copies of all definitive registration
statements and annual, quarterly or other regular reports which the
Borrower or any of its Subsidiaries files with the Securities and
Exchange Commission.
(x) As soon as available, but in any event within 90 days after the
beginning of each fiscal year of the Borrower, a copy of the plan and
forecast (including a projected consolidated balance sheet, income
statement and funds flow statement) of the Borrower for such fiscal
year.
(xi) Such other information (including non-financial information) as the
Agent or any Lender may from time to time reasonably request including,
without limitation, a copy of any management letter prepared by the
Borrower's certified public accountants in connection with their
examination of the Borrower's annual audited financial statements.
6.2. USE OF PROCEEDS. The Borrower will, and will cause each Subsidiary
to, use the Facility Letters of Credit and the proceeds of the Advances for
general corporate purposes (including Investments, Acquisitions and Indebtedness
refinancings permitted hereunder), and to repay outstanding Advances and
Reimbursement Obligations. The Borrower will not, nor will it permit any
Subsidiary to, use any of the Facility Letters of Credit or the proceeds of the
Advances to purchase or carry any "margin stock" (as defined in Regulation U)
except in compliance with Regulation X.
6.3. NOTICE OF DEFAULT. The Borrower will give prompt notice in writing to
the Lenders of the occurrence of any Default or Unmatured Default and of any
other development, financial or otherwise, which could reasonably be expected to
have a Material Adverse Effect.
6.4. CONDUCT OF BUSINESS. The Borrower will, and will cause each
Subsidiary to, (i) carry on and conduct its business in substantially the same
manner and in substantially the same fields of enterprise as it is presently
conducted (it being understood that its fields of enterprise means the
manufacturing of industrial products) and (other than sales of Subsidiaries and
mergers of the Borrower or any Subsidiary which are otherwise permitted under
this Agreement) do all things necessary to remain duly incorporated, validly
existing and in good standing as a domestic corporation in its jurisdiction of
incorporation and maintain (where material) all requisite authority to conduct
its business in each jurisdiction in which its business is conducted.
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6.5. TAXES. The Borrower will, and will cause each Subsidiary to, pay when
due all taxes, assessments and governmental charges and levies upon it or its
income, profits or Property, except those which are being contested in good
faith by appropriate proceedings and with respect to which adequate reserves
have been set aside.
6.6. INSURANCE. The Borrower will, and will cause each Subsidiary to,
maintain with financially sound and reputable insurance companies insurance on
all their material, insurable Property in such amounts and covering such risks
as is consistent with sound business practice, and the Borrower will furnish to
any Lender upon request full information as to the insurance carried.
6.7. COMPLIANCE WITH LAWS. The Borrower will, and will cause each
Subsidiary to, comply in all material respects with all laws, rules,
regulations, orders, writs, judgments, injunctions, decrees or awards to which
it may be subject and obtain and maintain in effect all consents, licenses,
permits, orders or other governmental approvals necessary in order to perform
its obligations under the Loan Documents to which it is a party.
6.8. MAINTENANCE OF PROPERTIES. The Borrower will, and will cause each
Subsidiary to, do all things reasonably necessary to maintain, preserve, protect
and keep its used and useful Property in good repair, working order and
condition (ordinary wear and tear excepted), and make all reasonably necessary
and proper repairs, renewals and replacements so that its business carried on in
connection therewith may be properly conducted at all times.
6.9. INSPECTION. The Borrower will, and will cause each Subsidiary to,
permit the Lenders, by their respective representatives and agents, to inspect
any of the Property, corporate books and financial records of the Borrower and
each Subsidiary, to examine and make copies of the books of accounts and other
financial records of the Borrower and each Subsidiary, and to discuss the
affairs, finances and accounts of the Borrower and each Subsidiary with, and to
be advised as to the same by, their respective officers at such reasonable times
and intervals as the Lenders may designate upon reasonable notice to the
Borrower. Any information, copies or records obtained by the Lenders or any of
their respective representatives or agents under this Agreement that is
proprietary or confidential in nature will be maintained in accordance with the
terms of Section 9.18.
6.10. DIVIDENDS. The Borrower will not, nor will it permit any Subsidiary
to, declare or pay any dividends on its capital stock (other than dividends
payable in its own capital stock) or redeem, repurchase or otherwise acquire or
retire for value any of its then outstanding capital stock at any time at which
a Default or Unmatured Default exists or would exist after giving effect to such
dividend, redemption, repurchase, acquisition or retirement; PROVIDED, HOWEVER,
that any Subsidiary may at any time declare and pay dividends to, and redeem,
repurchase or otherwise acquire or retire for value its capital stock held by,
the Borrower or a Wholly-Owned Subsidiary.
6.11. INDEBTEDNESS. The Borrower will not, nor will it permit any
Subsidiary to, create, incur or suffer to exist any Indebtedness, except:
(i) The Obligations.
(ii) Indebtedness existing on the date hereof and described in Schedule "5"
hereto.
(iii) Financial Guaranties.
(iv) The Guaranty.
(v) Contingent Obligations (a) arising from endorsements of instruments for
deposit or collection in the ordinary course of business, (b) in respect
of Indebtedness of the types described in clauses (i) through (v) of the
definition thereof which Indebtedness is otherwise permitted hereunder
(including, without limitation, under clause (vii) of this Section 6.11)
and (c) with respect to Letters of Credit coming within clauses (i) and
(ii) of the definition of "LC Contingent Reimbursement Value".
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(vi) Indebtedness of the Borrower to any Subsidiary, of any Subsidiary to
the Borrower or of any Subsidiary to any other Subsidiary, provided,
however, that only the Borrower may lend to Foreign Subsidiaries.
(vii) Additional Indebtedness not to exceed $35,000,000 in the aggregate.
6.12. MERGER. The Borrower will not, nor will it permit any Subsidiary to,
merge or consolidate with or into any other Person, except (i) that a Subsidiary
may merge with and into the Borrower or a Wholly-Owned Subsidiary, (ii) pursuant
to a Permitted Acquisition and (iii) in the case of a Subsidiary, in order to
effect a sale or other disposition of assets permitted under Section 6.13.
6.13. SALE OF ASSETS. (a) The Borrower will not, nor will it permit any
Subsidiary to, lease, sell or otherwise dispose of its Property, to any other
Person except for (i) leases, sales and other dispositions (as used in this
Section 6.13, each a "disposition") of inventory in the ordinary course of
business and (ii) dispositions (in each case so long as no Default or Unmatured
Default exists or would exist after giving effect thereto) of:
(x) Property which comprises substantially all of the assets of an entire
business entity, product line or manufacturing facility, PROVIDED that
the value of all Property so disposed of pursuant to this clause (x),
based upon the Borrower's financial statements most recently delivered
prior to any such disposition, does not exceed $61,988,000, PROVIDED
FURTHER that this clause (x) may only be relied upon if the Borrower has
demonstrated to the Lenders that no Default would have existed under the
Operating Cash Flow to Senior Debt covenant contained in Section 6.22.3
(as of the most recently ended fiscal quarter for which the Borrower's
financial statements have been delivered pursuant to Section 6.1),
calculated by assuming that the contemplated disposition had taken place
at the beginning of the twelve (12) month calculation period related to
such covenant;
(y) any Property other than the type covered by clause (x), PROVIDED that
the value of all Property so disposed of pursuant to this clause (y),
based upon the Borrower's financial statements most recently delivered
prior to any such disposition, does not exceed the greater of (I)
$15,497,000 or (II) 10% of the Borrower's Net Assets as reflected on
those audited financial statements of the Borrower delivered pursuant to
Section 6.1(i) showing the highest level of Net Assets of any such
financial statements delivered pursuant to such Section during the term
of this Agreement; and
(z) any Property, PROVIDED that, effective on the date of such disposition,
the Borrower permanently reduces the Aggregate Commitment by an amount
at least equal to the value of the proceeds (net of reasonable expenses
of disposition) of such disposition (and, in connection with such
reduction of the Aggregate Commitment, prepays any Advances or cash
collateralizes any Facility Letters of Credit as necessary to keep the
aggregate principal amount of outstanding Advances and Facility Letter
of Credit Obligations from exceeding the Aggregate Commitment after
giving effect to such reduction).
(b) The Agent and Lenders hereby acknowledge and agree that (i) the Property
that may be sold or otherwise disposed of under the foregoing Section 6.13(a)
includes shares of capital stock of a Subsidiary, and (ii) in the event of such
a sale or other disposition of capital stock of a Subsidiary permitted under
Section 6.13(a) that results in such Person no longer being a Subsidiary they
shall take such actions as may be reasonably requested by the Borrower to
thereupon release and discharge such former Subsidiary from all liabilities and
obligations under any Loan Document to which it may then be a party.
6.14. SALE OF ACCOUNTS. The Borrower will not, nor will it permit any
Subsidiary to, sell or otherwise dispose of any notes receivable or accounts
receivable, with or without recourse, except (i) as part of a transaction
permitted under Sections 6.12 or 6.13, or (ii) in any other transaction or
series of transactions provided that the aggregate amount of such notes and
accounts receivable sold pursuant to this clause (ii) in any fiscal year of the
Borrower does not exceed $2,000,000.
6.15. SALE AND LEASEBACK. The Borrower will not, nor will it permit any
Subsidiary to, sell or transfer any of its Property in order to concurrently or
subsequently lease as lessee such or similar Property.
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6.16. INVESTMENTS AND ACQUISITIONS. The Borrower will not, nor will it
permit any Subsidiary to,
(a) make or suffer to exist any Investments (including without
limitation, loans and advances to, and other Investments in, Subsidiaries),
or commitments therefor, or to create any Subsidiary or to become or remain
a partner in any partnership or joint venture, except:
(i) Marketable Securities.
(ii) Investments in Subsidiaries and other Investments (in each case) in
existence on the date hereof and described in Schedule "4" hereto.
(iii) Investments in Subsidiaries and non-Subsidiary Affiliates made
after the date hereof; PROVIDED, HOWEVER, that (x) only the
Borrower may make loans or advances to Foreign Subsidiaries and to
foreign non-Subsidiary Affiliates and (y) any loans or advances to
any domestic non-Subsidiary Affiliates must be evidenced by
promissory notes which are pledged to the Agent, for the benefit of
the Lenders, pursuant to a pledge agreement satisfactory in form
and substance to the Agent.
(iv) At any time that (I) Loans outstanding do not exceed $5,000,000 in
aggregate principal amount, any Investments in any debt instruments
or stock of any Person, and (II), at any time that Loans
outstanding exceed $5,000,000 in aggregate principal amount,
Investments of up to (x) $10,000,000 in debt instruments or stock
of any Person with a long term debt rating of BBB or higher by S&P
or Baa or higher by Moody's plus (y) an additional $5,000,000 in
debt instruments or stock of any Person permitted under the
foregoing clause (x) or (1) with a long term debt rating of less
than BBB by S&P and Baa by Moody's or (2) that is not rated.
(v) Investments, consisting of the capital stock of new Subsidiaries (a)
acquired pursuant to a Permitted Acquisition, (b) created for the
purpose of facilitating a Permitted Acquisition or (c) created
pursuant to any reorganization by the Borrower of its consolidated
assets not otherwise prohibited hereunder, PROVIDED that (i) the
Borrower will cause any such new Domestic Subsidiary created
pursuant to a reorganization described in this clause (c) to deliver
to the Agent, prior to the transfer of any assets to such new
Domestic Subsidiary, an executed counterpart to become a Guarantor
under the Guaranty, in the form of Exhibit "G" attached hereto, and
appropriate corporate resolutions authorizing such execution and
delivery and (ii) upon the creation of any such new Domestic
Subsidiary, the Borrower shall deliver to the Lenders a revised
Schedule "4" listing such new Subsidiary, and such revised Schedule
shall replace the old Schedule and shall be deemed to have become
part of the Agreement.
(vii) Investments consisting of notes received as part of the sales
proceeds of asset sales permitted pursuant to the terms of Section
6.13.
(viii) Investments in other Persons represented by Financial Guaranties
and other Contingent Obligations permitted under Section 6.11.
(ix) Investments held by a Subsidiary which Subsidiary is acquired
through a Permitted Acquisition, provided that such Investments
existed at the date of such Permitted Acquisition, were not created
as part of or in anticipation of such Permitted Acquisition and do
not, in the aggregate, exceed $5,000,000 at any one time
outstanding.
(b) make any Acquisition of any Person, except for Permitted
Acquisitions. Upon the consummation of any Permitted Acquisition, (i) the
Borrower may deliver to the Lenders a revised Schedule "4" listing any new
Subsidiary, if any, formed in connection with or acquired pursuant to such
Permitted Acquisition (each, a "New Subsidiary"), and such revised Schedule
shall replace the old Schedule and shall be deemed to have become part of
the Agreement and (ii) the Borrower shall or shall cause any such New
Subsidiary that is not a Foreign Subsidiary to deliver to the Agent,
promptly but in any event within 15 days, an executed counterpart to become
a Guarantor under the Guaranty, in the form of Exhibit "G" attached hereto,
and appropriate corporate resolutions authorizing such execution and
delivery.
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6.17. LIENS. The Borrower will not, nor will it permit any Subsidiary to,
create, incur, or suffer to exist any Lien in, of or on the Property of the
Borrower or any of its Subsidiaries, except:
(i) Liens for taxes, assessments or governmental charges or levies on its
Property if the same shall not at the time be delinquent or thereafter
can be paid without penalty, or are being contested in good faith and by
appropriate proceedings and for which adequate reserves in accordance
with generally accepted accounting principles shall have been set aside.
(ii) Liens imposed by law, such as bankers' setoff rights, carriers',
warehousemen's and mechanics' liens and other similar statutory or
common law liens arising in the ordinary course of business which
secure payment of obligations not more than 60 days past due, or are
being contested in good faith and by appropriate proceedings and for
which adequate reserves in accordance with generally accepted
accounting principles shall have been set aside.
(iii) Liens arising out of pledges, bonds or deposits under worker's
compensation laws, unemployment insurance, old age pensions, or other
social security or retirement benefits or similar legislation and
deposits securing obligations for self-insurance arrangements in
connection with any of the foregoing.
(iv) Easements, rights of way, building restrictions, minor defects or
irregularities in title and such other encumbrances or charges against
real property as are of a nature generally existing with respect to
properties of a similar character and which do not in any material and
adverse way affect the marketability of the same or interfere with the
use thereof in the business of the Borrower or the Subsidiaries, and
minor defects or irregularities in title to personal property as are of
a nature generally existing with respect to properties of a similar
character and which do not in any material and adverse way affect the
marketability of the same or interfere with the use thereof in the
business of the Borrower or the Subsidiaries.
(v) Liens existing on the date hereof and described in Schedule "5" hereto.
(vi) Liens which relate to Industrial Revenue Bond financings existing at
entities acquired as a Permitted Acquisition.
(vii) Liens on the Property of any Foreign Subsidiary incurred in connection
with Indebtedness permitted pursuant to Section 6.11(vii).
(viii) Deposits to secure the performance of bids, trade contracts, government
contracts, leases, statutory and warranty obligations, surety, appeal
and performance bonds and other obligations of a like nature incurred
in the ordinary course of business, PROVIDED that the aggregate amount
of all appeal bonds in connection with which Liens exist on Property of
the Borrower or its Subsidiaries shall not exceed $2,000,000 at any one
time outstanding.
(ix) Liens arising under Capitalized Leases and other leases permitted under
this Agreement (under which the Borrower or any Subsidiary is lessee).
(x) Leases and subleases granted to other Persons in the ordinary course of
business.
(xi) Liens in favor of customs and revenue authorities arising under law to
secure payments of customs duties in connection with the importation of
goods and incurred in the ordinary course of business.
(xii) Any attachment or judgment Liens not giving rise to a Default.
(xiii) Liens granted in favor of the Agent and the Lenders under any of the
Loan Documents.
(xiv) (a) Purchase money Liens incurred in the ordinary course of business,
(b) Liens securing Indebtedness of any Subsidiary which Subsidiary is
acquired after the date of this Agreement PROVIDED that such
Indebtedness is not incurred in contemplation of the acquisition by the
Borrower or any Subsidiary of its interest in such Subsidiary, and (c)
Liens incurred in order to finance the purchase by the Borrower or any
Subsidiary of equity interests in any Subsidiary or Affiliate after the
date of
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this Agreement in favor of the seller of such equity interests to
secure the purchase price thereof, PROVIDED that the principal amount
of the obligations secured by all Liens permitted under this clause
(xiv) shall not in the aggregate exceed $5,000,000 at any time
outstanding.
6.18. FIXED ASSET EXPENDITURES. The Borrower will not, nor will it permit
any Subsidiary to, expend, or be committed to expend, as of any date of
determination, on a cumulative basis from and after the Effective Date, an
amount for the acquisition of fixed assets that, when expended, will exceed the
sum of (i) $5,000,000 PLUS (ii) 150% of the Borrower's cumulative depreciation
expense, in the aggregate for the Borrower and its Subsidiaries.
6.19. RENTALS. The Borrower will not, nor will it permit any Subsidiary
to, create, incur or suffer to exist obligations for Rentals in excess of
$4,000,000 during any one fiscal year on a non-cumulative basis in the aggregate
for the Borrower and its Subsidiaries.
6.20. AFFILIATES. The Borrower will not, and will not permit any
Subsidiary to, enter into any transaction (including, without limitation, the
purchase or sale of any Property or service) with, or make any payment or
transfer to, any Affiliate except for (i) transactions involving only the
Borrower and/or one or more Domestic Subsidiaries or Wholly-Owned Subsidiaries,
(ii) transactions which are pursuant to the reasonable requirements of the
Borrower's or such Subsidiary's business, are transacted upon fair and
reasonable terms and have a net effect on the consolidated financial position of
the Borrower and its Subsidiaries no less favorable than if the Borrower or such
Subsidiary had entered into such transaction with an unrelated third-party
(rather than with such Affiliate) on market terms and (iii) compensatory
arrangements with officers, directors and employees (including, without
limitation, the payment of dividends or making of loans to or investments in,
such officers, directors and employees) not otherwise prohibited under this
Agreement.
6.21. SUBORDINATED INDEBTEDNESS. The Borrower will not, and will not
permit any Subsidiary to, (i) make any amendment or modification which would in
any way disadvantage the Lenders to the indenture, note or other agreement
evidencing or governing any Subordinated Indebtedness, or (ii) directly or
indirectly voluntarily prepay, defease or in substance defease, purchase,
redeem, retire or otherwise acquire for value (except in exchange for equity of
the Borrower), any Subordinated Indebtedness (other than the Subordinated Debt,
which may be prepaid, defeased, purchased, redeemed, retired or otherwise
acquired at any time, SO LONG AS no Default or Unmatured Default exists or would
exist after giving effect thereto).
6.22. FINANCIAL COVENANTS. The Borrower shall maintain, on a consolidated
basis with its Subsidiaries, each of the following financial covenants, each
calculated in accordance with Agreement Accounting Principles:
6.22.1. INTEREST COVERAGE RATIO. As of the end of each fiscal quarter,
an Interest Coverage Ratio greater than or equal to 2.25 to 1.0.
6.22.2. LEVERAGE RATIO. At all times, a Leverage Ratio not exceeding
2.10 to 1.0.
6.22.3. OPERATING CASH FLOW TO SENIOR DEBT. As of the end of each
fiscal quarter, a ratio of (i) Operating Cash Flow for such fiscal quarter
and the three immediately preceding fiscal quarters to (ii) Senior Debt as
of the end of such fiscal quarter, greater than or equal to .20 to 1.0.
6.22.4. NET WORTH. The Borrower shall maintain, on a consolidated
basis, at all times a Net Worth (PLUS any non-cash charges and expenses
related to the disposition of businesses or entire facilities or to the
revaluation of intangibles and MINUS any cash payments with respect to any
non-cash charges and expenses related to the disposition of businesses or
entire facilities previously taken into account) that is greater than or
equal to the sum of (i) $50,607,000 PLUS (ii) 50% of the Borrower's
quarterly Net Income, if positive, for each fiscal quarter ending after the
Effective Date PLUS (iii) repurchases of Subordinated Debt PLUS (iv) (or
MINUS, as appropriate) the amount necessary to eliminate the effects of
cumulative translation adjustments, but only to the extent included in Net
Worth.
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6.23 FOREIGN ASSETS. The aggregate net assets of all Foreign Subsidiaries
and foreign non-Subsidiary Affiliates of the Borrower, as shown on the most
recent balance sheet of the Borrower delivered pursuant to Section 6.1, (i)
shall not exceed $52,000,000 at any time during the term of this Agreement, and
(ii) shall not exceed $40,000,000 at any time prior to December 6, 1994.
ARTICLE VII
DEFAULTS
The occurrence of any one or more of the following events shall constitute a
Default:
7.1. Any representation or warranty made or deemed made by or on behalf of
the Borrower or any of its Subsidiaries to the Lenders or the Agent under or in
connection with this Agreement, any Loan, any Facility Letter of Credit, or any
certificate or information delivered in connection with this Agreement or any
other Loan Document shall be materially false on the date as of which made.
7.2. Nonpayment of principal of any Note when due, nonpayment of any
Reimbursement Obligation when due or nonpayment of interest upon any Note or of
any fee or other obligation under any of the Loan Documents within five days
after the same becomes due.
7.3. The breach by the Borrower of any of the terms or provisions of
Section 6.2, 6.3 or 6.10-6.23, inclusive.
7.4. The breach by any Borrowing Entity (other than a breach which
constitutes a Default under Section 7.1, 7.2 or 7.3) of any of the terms or
provisions of this Agreement which is not remedied within ten days after written
notice from the Agent.
7.5. Failure of the Borrower or any of its Subsidiaries to pay any
Indebtedness in excess of $2,000,000 in the aggregate when due; or the default
by the Borrower or any of its Subsidiaries in the performance of any term,
provision or condition contained in any agreement under which any Indebtedness
in excess of $2,000,000 in the aggregate was created or is governed, or any
other event shall occur or condition exist, the effect of which is to cause, or
to permit the holder or holders of such Indebtedness in excess of $2,000,000 in
the aggregate to cause, such Indebtedness to become due prior to its stated
maturity; or any Indebtedness of the Borrower or any of its Subsidiaries in
excess of $2,000,000 in the aggregate shall be declared to be due and payable or
required to be prepaid (other than by a regularly scheduled payment) prior to
the stated maturity thereof; or the Borrower or any of its Subsidiaries shall
become generally unable to, or shall admit in writing its inability to, pay its
debts generally as they become due.
7.6. The Borrower or any of its Subsidiaries shall (i) have an order for
relief entered with respect to it under the Federal bankruptcy laws as now or
hereafter in effect, (ii) make an assignment for the benefit of creditors, (iii)
apply for, seek, consent to, or acquiesce in, the appointment of a receiver,
custodian, trustee, examiner, liquidator or similar official for it or any
portion of its Property that constitutes a Substantial Portion, (iv) institute
any proceeding seeking an order for relief under the Federal bankruptcy laws as
now or hereafter in effect or seeking to adjudicate it a bankrupt or insolvent,
or seeking dissolution, winding up, liquidation, reorganization, arrangement,
adjustment or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors or fail to file an
answer or other pleading denying the material allegations of any such proceeding
filed against it, (v) take any corporate action to authorize or effect any of
the foregoing actions set forth in this Section 7.6 or (vi) fail to contest in
good faith any appointment or proceeding described in Section 7.7.
7.7. Without the application, approval or consent of the Borrower or any
of its Subsidiaries, a receiver, trustee, examiner, liquidator or similar
official shall be appointed for the Borrower or any of its Subsidiaries or any
portion of its Property that constitutes a Substantial Portion, or a proceeding
described in Section 7.6(iv) shall be instituted against the Borrower or any of
its Subsidiaries and such appointment continues undischarged or such proceeding
continues undismissed or unstayed for a period of 60 consecutive days.
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7.8. The Borrower or any of its Subsidiaries shall fail within 45 days of
its final entry to pay, bond or otherwise discharge any judgment or order for
the payment of money in excess of $2,000,000, which is not stayed on appeal or
otherwise being appropriately contested in good faith.
7.9. The Unfunded Liabilities of all Single Employer Plans shall exceed in
the aggregate $15,000,000 or any Reportable Event shall occur in connection with
any Single Employer Plan that reasonably could be expected to result in
liability of the Borrower or any of its Subsidiaries to the PBGC or to such Plan
in excess of $2,000,000.
7.10. The Borrower or any other member of the Controlled Group shall have
been notified by the sponsor of a Multiemployer Plan that it has incurred
withdrawal liability to such Multiemployer Plan in an amount which, when
aggregated with all other amounts required to be paid to Multiemployer Plans by
the Borrower or any other member of the Controlled Group as withdrawal liability
(determined as of the date of such notification), exceeds $2,000,000 or requires
payments exceeding $1,000,000 per annum.
7.11. The Borrower or any of its Subsidiaries shall be the subject of any
proceeding or investigation pertaining to the release by the Borrower or any of
its Subsidiaries, or any other Person of any toxic or hazardous waste or
substance into the environment, or any violation of any federal, state or local
environmental, health or safety law or regulation, which, in either case, could
reasonably be expected to have a Material Adverse Effect.
7.12. Any Change in Control shall occur.
7.13. The occurrence of any "default", as defined in any Loan Document
(other than this Agreement or the Notes) or the breach of any of the terms or
provisions of any Loan Document (other than this Agreement or the Notes), which
default or breach continues beyond any period of grace therein provided.
7.14. Any Guaranty shall fail to remain in full force or effect (except as
expressly permitted by its terms or as contemplated pursuant to a transaction in
compliance with Section 6.13 which results in a release of the Guarantor from
its liability under the Guaranty as described in Section 6.13(b)) or any action
shall be taken by the Borrower or any Subsidiary to discontinue or to assert the
invalidity or unenforceability of any Guaranty (except as expressly permitted by
its terms or as contemplated pursuant to a transaction in compliance with
Section 6.13 which results in a release of the Guarantor from its liability
under the Guaranty as described in Section 6.13(b)), or any Guarantor shall fail
to comply with any of the terms or provisions of any Guaranty to which it is a
party, or any Guarantor denies that it has any further liability under any
Guaranty to which it is a party, or gives notice to such effect.
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
8.1. ACCELERATION. If any Default described in Section 7.6 or 7.7 occurs
with respect to the Borrower, the obligations of the Lenders to make Loans and
of an Issuing Bank to issue Facility Letters of Credit hereunder shall
automatically terminate and the Obligations shall immediately become due and
payable without any election or action on the part of the Agent or any Lender.
If any other Default occurs and is continuing, the Required Lenders may
terminate or suspend the obligations of the Lenders to make Loans and of an
Issuing Bank to issue Facility Letters of Credit hereunder, or declare the
Obligations to be due and payable, or both, whereupon the Obligations shall
become immediately due and payable, without presentment, demand, protest or
notice of any kind, all of which each Borrowing Entity hereby expressly waives.
In addition to the foregoing following the occurrence and during the continuance
of a Default, so long as any Facility Letter of Credit has not been fully drawn
and has not been cancelled or expired by its terms, upon demand by the Agent the
Borrower shall deposit in the Letter of Credit Collateral Account cash in an
amount equal to the aggregate undrawn face amount of all outstanding Facility
Letters of Credit and all fees and other amounts due or which may become due
with respect thereto. The Borrower shall have no control over funds in the
Letter of Credit Collateral Account, which funds shall be invested by the Agent
from time to time in its discretion in certificates of deposit of First Chicago
having a maturity not exceeding thirty days.
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Such funds shall be promptly applied by the Agent to reimburse any Issuing Bank
for drafts drawn from time to time under the Facility Letters of Credit. Such
funds, if any, remaining in the Letter of Credit Collateral Account following
the payment of all Obligations in full shall, unless the Agent is otherwise
directed by a court of competent jurisdiction, be promptly paid over to the
Borrower.
8.2. AMENDMENTS. Subject to the provisions of this Article VIII, the
Required Lenders (or the Agent with the consent in writing of the Required
Lenders) and the Borrowing Entities may enter into agreements supplemental
hereto for the purpose of amending, adding, deleting or modifying any provisions
to the Loan Documents or waiving or changing in any manner the rights of the
Agent, the Lenders, the Borrowing Entities or the Guarantors hereunder or
thereunder or waiving any Default or Unmatured Default hereunder or thereunder;
PROVIDED, HOWEVER, that no such supplemental agreement shall, without the
consent of each Lender affected thereby:
(i) Extend the maturity of any Loan or Note or forgive all or any portion of
the principal amount thereof, or reduce the rate or extend the time of
payment of interest or fees thereon (except as permitted under Section
2.11).
(ii) Reduce the percentage specified in the definition of Required Lenders.
(iii) Reduce the amount or extend the payment date for, the mandatory
payments required under Section 2.7, or increase the amount of the
Commitment of any Lender hereunder, or permit any Borrowing Entity to
assign its rights under this Agreement.
(iv) Amend (a) this Section 8.2, (b) Section 3.2, 7.6 or 7.7 or (c) Article
XIV.
(v) Increase the maximum drawable amount or extend the expiration date of
any outstanding Facility Letter of Credit (except as expressly permitted
by its terms) or reduce the principal amount of or extend the time of
payment of any Reimbursement Obligation or fee associated with any
Facility Letter of Credit.
(vi) Release any Guarantor of any of the Obligations (except as contemplated
by and in accordance with Section 6.13(b)) or, except as provided in
any pledge agreement which may be entered into in connection herewith,
release all or substantially all of the Collateral (as defined therein)
or any other collateral, if any.
No amendment of any provision of this Agreement relating to the Agent as such
shall be effective without the written consent of the Agent. The Agent may waive
payment of the fees required under Sections 2.4.3 and 12.3.2 without obtaining
the consent of any other party to this Agreement.
8.3. PRESERVATION OF RIGHTS. No delay or omission of the Lenders or the
Agent to exercise any right under the Loan Documents shall impair such right or
be construed to be a waiver of any Default or an acquiescence therein, and the
making of a Loan notwithstanding the existence of a Default or the inability of
the Borrower to satisfy the conditions precedent to such Loan shall not
constitute any waiver or acquiescence. Any single or partial exercise of any
such right shall not preclude other or further exercise thereof or the exercise
of any other right, and no waiver, amendment or other variation of the terms,
conditions or provisions of the Loan Documents whatsoever shall be valid unless
in writing signed by the Lenders required pursuant to Section 8.2, and then only
to the extent in such writing specifically set forth. All remedies contained in
the Loan Documents or by law afforded shall be cumulative and all shall be
available (in accordance with the respective terms thereof) to the Agent and the
Lenders until the Obligations have been paid in full.
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ARTICLE IX
GENERAL PROVISIONS
9.1. SURVIVAL OF REPRESENTATIONS. All representations and warranties of
the Borrowing Entities contained in this Agreement shall survive delivery of the
Notes and the making of the Loans and the issuance of the Facility Letters of
Credit herein contemplated.
9.2. GOVERNMENTAL REGULATION. Anything contained in this Agreement to the
contrary notwithstanding, no Lender shall be obligated to extend credit to any
of the Borrowing Entities in violation of any limitation or prohibition provided
by any applicable statute or regulation.
9.3. TAXES. Any taxes (excluding Excluded Taxes) or other similar
assessments or charges ruled payable by any governmental or revenue authority in
respect of the Loan Documents shall be paid by the relevant Borrowing
Subsidiary, if applicable to its Borrowing Subsidiary Obligations, and the
Borrower, together with interest and penalties, if any.
9.4. HEADINGS. Section headings in the Loan Documents are for convenience
of reference only, and shall not govern the interpretation of any of the
provisions of the Loan Documents.
9.5. ENTIRE AGREEMENT. The Loan Documents embody the entire agreement and
understanding among the Borrowing Entities, the Agent and the Lenders and
supersede all prior agreements and understandings among any of the Borrowing
Entities, the Agent and the Lenders relating to the subject matter thereof.
9.6. SEVERAL OBLIGATIONS; BENEFITS OF THIS AGREEMENT. The respective
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other (except to the extent to which the
Agent is authorized to act as such). The failure of any Lender to perform any of
its obligations hereunder (including, without limitation, those under Sections
2.8 and 3.6) shall not relieve any other Lender from any of its obligations
hereunder. This Agreement shall not be construed so as to confer any right or
benefit upon any Person other than the parties to this Agreement and their
respective successors and permitted assigns.
9.7. EXPENSES; INDEMNIFICATION. The Borrowing Entities shall reimburse the
Agent for any reasonable costs, internal charges and out-of-pocket expenses
(including attorneys' fees and time charges of attorneys for the Agent, which
attorneys may be employees of the Agent) paid or incurred by the Agent in
connection with the preparation, negotiation, execution, delivery, amendment and
modification (including modifications required to add new Borrowing Entities) of
the Loan Documents. The Borrowing Entities also agree to reimburse the Agent and
the Lenders for any reasonable costs, internal charges and out-of-pocket
expenses (including attorneys' fees and time charges of attorneys for the Agent
and the Lenders, which attorneys may be employees of the Agent or the Lenders)
paid or incurred by the Agent or any Lender in connection with the collection
and enforcement of the Loan Documents. The Borrowing Entities further agree to
indemnify the Agent and each Lender, its directors, officers and employees
against all losses, claims, damages, penalties, judgments, liabilities and
expenses (including, without limitation, all expenses of litigation or
preparation therefor whether or not the Agent or any Lender is a party thereto)
which any of them may pay or incur arising out of or relating to this Agreement,
the other Loan Documents, the transactions contemplated hereby or the direct or
indirect application or proposed application of the proceeds of any Loan or the
use or intended use of any Facility Letter of Credit hereunder; PROVIDED that in
no event shall any Person be entitled to indemnification for any such losses,
claims, damages, penalties, judgments, liabilities or expenses arising out of
the gross negligence or willful misconduct of such Person or any of its
Affiliates. The obligations of the Borrowing Entities under this Section shall
survive the termination of this Agreement.
9.8. NUMBERS OF DOCUMENTS. All statements, notices, closing documents, and
requests hereunder shall be furnished to the Agent with sufficient counterparts
so that the Agent may furnish one to each of the Lenders.
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9.9. ACCOUNTING. Except as expressly provided to the contrary herein, all
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with Agreement Accounting
Principles.
9.10. SEVERABILITY OF PROVISIONS. Any provision in any Loan Document that
is held to be inoperative, unenforceable, or invalid in any jurisdiction shall,
as to that jurisdiction, be inoperative, unenforceable, or invalid without
affecting the remaining provisions in that jurisdiction or the operation,
enforceability, or validity of that provision in any other jurisdiction, and to
this end the provisions of all Loan Documents are declared to be severable.
9.11. NONLIABILITY OF LENDERS. The relationship between the Borrowing
Entities and the Lenders and the Agent shall be solely that of borrower and
lender. Neither the Agent nor any Lender shall have any fiduciary
responsibilities to the Borrowing Entities. Neither the Agent nor any Lender
undertakes any responsibility to the Borrowing Entities to review or inform the
Borrowing Entities of any matter in connection with any phase of the Borrowing
Entities' business or operations.
9.12. LANGUAGE. The Loan Documents and all notices, communications,
opinions and other documents to be furnished by or on behalf of any Borrowing
Entity pursuant to the Loan Documents shall be in the English language or, in
the case of any notices, communications, opinions or other documents submitted
in another language, accompanied by a certified English translation thereof and
in the event of any conflict between the English text and such other text of any
such document, the English text shall prevail.
9.13. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A
CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
9.14. CONSENT TO JURISDICTION. THE BORROWING ENTITIES EACH HEREBY
IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES
FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE BORROWING ENTITIES EACH
HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING
MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVE ANY
OBJECTION THEY MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN
INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR ANY
LENDER TO BRING PROCEEDINGS AGAINST THE BORROWING ENTITIES IN THE COURTS OF ANY
OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY ANY OF THE BORROWING ENTITIES
AGAINST THE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED
TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN
CHICAGO, ILLINOIS.
9.15. SERVICE OF PROCESS. EACH BORROWING SUBSIDIARY HEREBY AGREES THAT
SERVICE OF ALL WRITS, PROCESS AND SUMMONSES IN ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN THE STATE OF ILLINOIS MAY BE MADE UPON THE BORROWER (THE
"PROCESS AGENT"), PRESENTLY LOCATED AT THE ADDRESS APPLICABLE PURSUANT TO
ARTICLE XIII HEREOF. EACH BORROWING SUBSIDIARY HEREBY IRREVOCABLY APPOINTS THE
PROCESS AGENT ITS TRUE AND LAWFUL AGENT IN ITS NAME, PLACE AND STEAD TO ACCEPT
SUCH SERVICE OF ANY AND ALL SUCH WRITS, PROCESS AND SUMMONSES, AND AGREES THAT
THE FAILURE OF THE PROCESS AGENT TO GIVE ANY NOTICE OF ANY SUCH SERVICE OF
PROCESS TO ANY SUCH BORROWING SUBSIDIARY SHALL NOT IMPAIR OR AFFECT THE VALIDITY
OF SUCH SERVICE OR OF ANY JUDGMENT BASED THEREON. EACH BORROWING SUBSIDIARY
HEREBY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUIT,
ACTION OR PROCEEDING IN SAID COURTS BY THE MAILING THEREOF BY THE AGENT OR THE
LENDERS
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BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO EACH BORROWING SUBSIDIARY
ADDRESSED AS PROVIDED HEREIN. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT
THE ABILITY OF THE AGENT OR THE LENDERS TO SERVE ANY SUCH WRITS, PROCESS OR
SUMMONSES IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW OR TO OBTAIN
JURISDICTION OVER THE BORROWING ENTITIES IN SUCH OTHER JURISDICTION, AND IN SUCH
MANNER, AS MAY BE PERMITTED BY APPLICABLE LAW.
9.16. WAIVER OF JURY TRIAL. EACH OF THE BORROWING ENTITIES, THE AGENT AND
EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR
OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN
DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER.
9.17. ERISA REPRESENTATION. Each Lender hereby represents, warrants and
agrees that none of the funds, monies, assets or other consideration being used
to make its Loans or acquire its participating interest in any Facility Letters
of Credit (or any funding in respect thereof) hereunder, to acquire its rights
and interests in and under any of the Loan Documents, or to acquire any
participation in the foregoing from any other Lender are or will constitute
"plan assets" of any "employee benefit plan" as defined under ERISA and that its
rights, benefits, and interests in and under the Loan Documents will not be
"plan assets" of any "employee benefit plan" under ERISA.
9.18. CONFIDENTIALITY. Each Lender agrees to hold any confidential
information which it may receive from the Borrower or any Subsidiary pursuant to
this Agreement in confidence, except for disclosure (i) to other Lenders and
their respective Affiliates, (ii) to legal counsel, accountants, and other
professional advisors to that Lender or to a Transferee on a need-to-know basis,
(iii) upon request from regulatory officials, (iv) to any Person as required by
law, regulation, or legal process, (v) to any Person as required in connection
with any legal proceeding to which that Lender is a party, and (vi) permitted by
Section 12.4.
9.19. JOINT AND SEVERAL LIABILITY. Each Borrowing Subsidiary that is a
Domestic Subsidiary agrees that it shall be jointly and severally liable for all
Obligations under this Agreement to the same extent as if it were the Borrower
or other Borrowing Entity that incurred the same.
ARTICLE X
THE AGENT
10.1. APPOINTMENT. The First National Bank of Chicago is hereby appointed
Agent hereunder and under each other Loan Document, and each of the Lenders
irrevocably authorizes the Agent to act as the agent of such Lender. The Agent
agrees to act as such upon the express conditions contained in this Article X.
The Agent shall not have a fiduciary relationship in respect of any Borrowing
Entity or any Lender by reason of this Agreement.
10.2. POWERS. The Agent shall have and may exercise such powers under the
Loan Documents as are specifically delegated to the Agent by the terms of each
thereof, together with such powers as are reasonably incidental thereto. The
Agent shall have no implied duties to the Lenders, or any obligation to the
Lenders to take any action thereunder except any action specifically provided by
the Loan Documents to be taken by the Agent.
10.3. GENERAL IMMUNITY. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to any Borrowing Entity, the
Lenders or any Lender for any action taken or omitted to be taken by it or them
hereunder or under any other Loan Document or in connection herewith or
therewith except for its or their own gross negligence or willful misconduct.
10.4. NO RESPONSIBILITY FOR LOANS, RECITALS, ETC. Neither the Agent nor
any of its directors, officers, agents or employees shall be responsible for or
have any duty to ascertain, inquire into, or verify (i) any statement, warranty
or representation made in connection with any Loan Document or any borrowing
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hereunder; (ii) the performance or observance of any of the covenants or
agreements of any obligor under any Loan Document, including, without
limitation, any agreement by an obligor to furnish information directly to each
Lender (PROVIDED that the Agent will, upon request, verify to the extent
feasible the various transfers of funds which take place under the Agreement);
(iii) the satisfaction of any condition specified in Article IV, except receipt
of items required to be delivered to the Agent; or (iv) the validity,
effectiveness or genuineness of any Loan Document or any other instrument or
writing furnished in connection therewith. The Agent shall have no duty to
disclose to the Lenders information that is not required to be furnished by any
Borrowing Entity to the Agent at such time, but is voluntarily furnished by any
Borrowing Entity to the Agent (either in its capacity as Agent or in its
individual capacity).
10.5. ACTION ON INSTRUCTIONS OF LENDERS. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder and under any
other Loan Document in accordance with written instructions signed by the
Required Lenders, and such instructions and any action taken or failure to act
pursuant thereto shall be binding on all of the Lenders and on all holders of
Notes. The Agent shall be fully justified in failing or refusing to take any
action hereunder and under any other Loan Document unless it shall first be
indemnified to its satisfaction by the Lenders pro rata against any and all
liability, cost and expense that it may incur by reason of taking or continuing
to take any such action.
10.6. EMPLOYMENT OF AGENTS AND COUNSEL. The Agent may execute any of its
duties as Agent hereunder and under any other Loan Document by or through
employees, agents, and attorneys-in-fact and shall not be answerable to the
Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
counsel concerning all matters pertaining to the agency hereby created and its
duties hereunder and under any other Loan Document.
10.7. RELIANCE ON DOCUMENTS; COUNSEL. The Agent shall be entitled to rely
upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which counsel
may be employees of the Agent.
10.8. AGENT'S REIMBURSEMENT AND INDEMNIFICATION. The Lenders agree to
reimburse and indemnify the Agent ratably in proportion to their respective
Commitments (i) for any amounts not reimbursed by any Borrowing Entity for which
the Agent is entitled to reimbursement by any Borrowing Entity under the Loan
Documents, (ii) for any other expenses incurred by the Agent on behalf of the
Lenders, in connection with the preparation, execution, delivery and enforcement
of the Loan Documents and (iii) for any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever which may be imposed on, incurred by or
asserted against the Agent in any way relating to or arising out of the Loan
Documents or any other document delivered in connection therewith or the
transactions contemplated thereby, or the enforcement of any of the terms
thereof or of any such other documents, provided that no Lender shall be liable
for any of the foregoing to the extent they arise from the gross negligence or
willful misconduct of the Agent. The obligations of the Lenders under this
Section 10.8 shall survive payment of the Obligations and termination of this
Agreement.
10.9. RIGHTS AS A LENDER. In the event the Agent is a Lender (including
its capacity as an Issuing Bank), the Agent shall have the same rights and
powers hereunder and under any other Loan Document as any Lender and may
exercise the same as though it were not the Agent, and the term "Lender" or
"Lenders" shall, at any time when the Agent is a Lender, unless the context
otherwise indicates, include the Agent in its individual capacity. The Agent may
accept deposits from, lend money to, and generally engage in any kind of trust,
debt, equity or other transaction, in addition to those contemplated by this
Agreement or any other Loan Document, with the Borrower or any of its
Subsidiaries in which the Borrower or such Subsidiary is not restricted hereby
from engaging with any other Person. The Agent, in its individual capacity, is
not obligated to remain a Lender.
10.10. LENDER CREDIT DECISION. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and based
on the financial statements prepared by the Borrower and such other documents
and information as it has deemed appropriate, made its own credit
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analysis and decision to enter into this Agreement and the other Loan Documents.
Each Lender also acknowledges that it will, independently and without reliance
upon the Agent or any other Lender and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under this Agreement and the other Loan
Documents.
10.11. SUCCESSOR AGENT. The Agent may resign at any time by giving written
notice thereof to the Lenders and the Borrowing Entities, such resignation to be
effective upon the appointment of a successor Agent or, if no successor Agent
has been appointed, forty-five days after the retiring Agent gives notice of its
intention to resign. Upon any such resignation, the Required Lenders (with the
consent of the Borrower) shall have the right to appoint, on behalf of the
Borrowing Entities and the Lenders, a successor Agent. If no successor Agent
shall have been so appointed by the Required Lenders (with the consent of the
Borrower) within thirty days after the resigning Agent's giving notice of its
intention to resign, then the resigning Agent may appoint, on behalf of the
Borrowing Entities and the Lenders, a successor Agent. If the Agent has resigned
and no successor Agent has been appointed, the Lenders may perform all the
duties of the Agent hereunder and the Borrowing Entities shall make all payments
in respect of the Obligations to the applicable Lender and for all other
purposes shall deal directly with the Lenders. No successor Agent shall be
deemed to be appointed hereunder until such successor Agent has accepted the
appointment. Any such successor Agent shall be a commercial bank having capital
and retained earnings of at least $250,000,000. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the resigning Agent. Upon the effectiveness of the resignation of
the Agent, the resigning Agent shall be discharged from any further duties and
obligations as Agent hereunder and under the Loan Documents. After the
effectiveness of the resignation of an Agent, the provisions of this Article X
shall continue in effect for the benefit of such Agent in respect of any actions
taken or omitted to be taken by it while it was acting as the Agent hereunder
and under the other Loan Documents.
ARTICLE XI
SETOFF; RATABLE PAYMENTS
11.1. SETOFF. In addition to, and without limitation of, any rights of the
Lenders under applicable law, if the Borrower becomes insolvent, however
evidenced, or any Default occurs and is continuing, any and all deposits
(including all account balances, whether provisional or final and whether or not
collected or available) and any other Indebtedness at any time held or owing by
any Lender to or for the credit or account of the Borrower may be offset and
applied toward the payment of the Obligations owing to such Lender, whether or
not the Obligations, or any part hereof, shall then be due.
11.2. RATABLE PAYMENTS. If any Lender, whether by setoff or otherwise, has
payment made to it upon its Loans (other than payments received pursuant to
Sections 2.20.1, 2.20.2, 2.20.3 or 2.20.5) in a greater proportion than that
received by any other Lender, such Lender agrees, promptly upon demand, to
purchase a portion of the Loans held by the other Lenders so that after such
purchase each Lender will hold its ratable proportion of Loans. If any Lender,
whether in connection with setoff or amounts which might be subject to setoff or
otherwise, receives collateral or other protection for its Obligations or such
amounts which may be subject to setoff, such Lender agrees, promptly upon
demand, to take such action necessary such that all Lenders share in the
benefits of such collateral ratably in proportion to their Loans. In case any
such payment is disturbed by legal process, or otherwise, appropriate further
adjustments shall be made.
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
12.1. SUCCESSORS AND ASSIGNS. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrowing
Entities and the Lenders and their respective successors and assigns, except
that (i) none of the Borrowing Entities shall have the right to assign its
rights or obligations under the Loan Documents and (ii) any assignment by any
Lender must be made in compliance with
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Section 12.3. Notwithstanding clause (ii) of this Section, any Lender may at any
time, without the consent of any of the Borrowing Entities or the Agent, assign
all or any portion of its rights under this Agreement and its Notes to a Federal
Reserve Bank; PROVIDED, HOWEVER, that no such assignment shall release the
transferor Lender from its obligations hereunder. The Agent and the Borrowing
Entities may treat the payee of any Note as shown on the Agent's records as the
owner thereof (and as the "Lender" hereunder) for all purposes hereof unless and
until such payee complies with Section 12.3 in the case of an assignment thereof
or, in the case of any other transfer, a written notice of the transfer is filed
with the Agent (with a copy to the Borrower). Any assignee or transferee of a
Note agrees by acceptance thereof to be bound by all the terms and provisions of
the Loan Documents. Any request, authority or consent of any Person, who at the
time of making such request or giving such authority or consent is the holder as
shown on the records of the Agent of any Note, shall be conclusive and binding
on any subsequent holder, transferee or assignee of such Note or of any Note or
Notes issued in exchange therefor.
12.2. PARTICIPATIONS.
12.2.1 PERMITTED PARTICIPANTS; EFFECT. Any Lender may, in the ordinary
course of its business and in accordance with applicable law, at any time
sell to one or more banks or other entities ("Participants") participating
interests in any Loan owing to such Lender, any Note held by such Lender,
any Lender's Percentage of Facility Letters of Credit, any Commitment of
such Lender or any other interest of such Lender under the Loan Documents.
In the event of any such sale by a Lender of participating interests to a
Participant, such Lender's obligations under the Loan Documents shall remain
unchanged, such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, such Lender shall remain the
holder of any such Note (and the "Lender") for all purposes under the Loan
Documents, all amounts payable by any of the Borrowing Entities under this
Agreement shall be determined as if such Lender had not sold such
participating interests, and the Borrowing Entities and the Agent shall
continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under the Loan Documents.
12.2.2. BENEFIT OF SETOFF. Each of the Borrowing Entities agrees that
each Participant of which it has actual notice shall be deemed to have the
right of setoff provided in Section 11.1 in respect of its participating
interest in amounts owing under the Loan Documents to the same extent as if
the amount of its participating interest were owing directly to it as a
Lender under the Loan Documents, provided that each Lender shall retain the
right of setoff provided in Section 11.1 with respect to the amount of
participating interests sold to each Participant. The Lenders agree to share
with each Participant, and each Participant, by exercising the right of
setoff provided in Section 11.1, agrees to share with each Lender, any
amount received pursuant to the exercise of its right of setoff, such
amounts to be shared in accordance with Section 11.2 as if each Participant
were a Lender.
12.3. ASSIGNMENTS.
12.3.1. PERMITTED ASSIGNMENTS. Any Lender may, in the ordinary course
of its business and in accordance with applicable law, at any time assign to
one or more banks or other financial institutions ("Purchasers") all or any
part of its rights and obligations under the Loan Documents. Such assignment
shall be effected by a document substantially in the form of Exhibit "H"
hereto or in such other form as may be agreed to by the parties thereto. The
consent of the Borrower and the Agent shall be required prior to an
assignment becoming effective with respect to a Purchaser which is not a
Lender; PROVIDED, HOWEVER, that if a Default has occurred and is continuing,
the consent of the Borrower shall not be required. Such consent shall not be
unreasonably withheld or delayed.
12.3.2. EFFECT; EFFECTIVE DATE. Upon (i) delivery to the Agent of a
notice of assignment, substantially in the form attached as Annex "I" to
Exhibit "H" hereto (a "Notice of Assignment"), together with any consents
required by Section 12.3.1, and (ii) payment of a $2,500 fee to the Agent
for processing such assignment, such assignment shall become effective on
the effective date specified in such Notice of Assignment. The Notice of
Assignment shall contain (or to the extent not contained, shall constitute)
a representation by the Purchaser to the effect that none of the
consideration used to make the purchase of the Commitment, Facility Letters
of Credit and Loans under the applicable
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assignment agreement are "plan assets" as defined under ERISA and that the
rights and interests of the Purchaser in and under the Loan Documents will
not be "plan assets" under ERISA. On and after the effective date of such
assignment, such Purchaser shall for all purposes be a Lender party to this
Agreement and any other Loan Document executed by the Lenders and shall have
all the rights and obligations of a Lender under the Loan Documents, to the
same extent as if it were an original party hereto, and no further consent
or action by any of the Borrowing Entities, the Lenders or the Agent shall
be required to release the transferor Lender with respect to its Percentage
of the Aggregate Commitment, Facility Letters of Credit and Loans assigned
to such Purchaser. Upon the consummation of any assignment to a Purchaser
pursuant to this Section 12.3.2, the transferor Lender, the Agent and the
Borrowing Entities shall make appropriate arrangements so that replacement
Notes are issued to such transferor Lender and new Notes or, as appropriate,
replacement Notes, are issued (against receipt of previously issued Notes
for cancellation) to such Purchaser, in each case in principal amounts
reflecting their Commitment, as adjusted pursuant to such assignment. In
addition, within a reasonable time after the effective date of any
assignment, the Agent shall, and is hereby authorized and directed to,
revise Schedule "1" reflecting the revised Percentages of each of the
Lenders and shall distribute such revised Schedule "1" to the Lenders and
the Borrowing Entities and such revised Schedule "1" shall replace the old
Schedule "1" and become part of this Agreement.
12.4. DISSEMINATION OF INFORMATION. The Borrowing Entities authorize each
Lender to disclose to any Participant or Purchaser or any other Person acquiring
an interest in the Loan Documents by operation of law (each a "Transferee") and
any prospective Transferee any and all information in such Lender's possession
concerning the creditworthiness of the Borrower and its Subsidiaries, PROVIDED
that each Transferee and prospective Transferee agrees to be bound by the
confidentiality restrictions set forth in Section 9.18 of this Agreement.
12.5. TAX TREATMENT. If any interest in any Loan Document is transferred
to any Transferee which is organized under the laws of any jurisdiction other
than the United States or any State thereof, the transferor Lender shall cause
such Transferee, concurrently with the effectiveness of such transfer, to comply
with the provisions of Section 2.18.
ARTICLE XIII
NOTICES
13.1. GIVING NOTICE. Except as otherwise permitted by Sections 2.13 and
3.4, all notices and other communications provided to any party hereto under
this Agreement or any other Loan Document shall be in writing or by telex or by
facsimile and addressed or delivered to such party at its address set forth
below its signature hereto or at such other address as may be designated by such
party in a notice to the other parties. Any notice, if mailed and properly
addressed with postage prepaid, shall be deemed given when received; any notice,
if transmitted by telex or facsimile, shall be deemed given when transmitted
(answerback confirmed in the case of telexes).
13.2. CHANGE OF ADDRESS. Any Borrowing Entity, the Agent and any Lender
may each change the address for service of notice upon it by a notice in writing
to the other parties hereto.
ARTICLE XIV
BORROWER RESPONSIBILITY FOR BORROWING SUBSIDIARY OBLIGATIONS
14.1 DIRECT OBLIGATIONS. The Borrower hereby unconditionally and
irrevocably affirms to the Lenders its direct liability for, and guarantees to
the Lenders, the due and punctual payment of the Borrowing Subsidiary
Obligations, including, but not limited to, the due and punctual payment of
principal of and interest on the Borrowing Subsidiary Notes, and punctual
payment of all other sums now or hereafter owed by the Borrowing Subsidiaries
under the Loan Documents as and when the same shall become due (whether by
acceleration or otherwise) and according to the terms hereof and thereof. In
case of failure by any
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Borrowing Subsidiary punctually to pay any Borrowing Subsidiary Obligations, the
Borrower hereby unconditionally agrees to cause such payment to be made
punctually as and when the same shall become due and payable, whether at
maturity or by declaration or otherwise, and as if such payment were made by the
Borrowing Subsidiary.
14.2 OBLIGATIONS UNCONDITIONAL. The Obligations of the Borrower under this
Article XIV shall be irrevocable, unconditional and absolute and, without
limiting the generality of the foregoing, shall not be released, discharged or
otherwise affected by:
(a) any extension, renewal, settlement, compromise, waiver or release in
respect of any obligation of any Borrowing Subsidiary under any Loan
Document by operation of law or otherwise;
(b) any modification or amendment of or supplement to any Loan Document;
(c) any compromise, settlement, modification, amendment, waiver,
release, non-perfection or invalidity of or to any direct or indirect
security, guarantee or other liability of any third party, or Borrowing
Subsidiary Obligations;
(d) any change in the corporate existence, structure, or ownership of,
or any insolvency, bankruptcy, reorganization or other similar proceeding
affecting any Borrowing Subsidiary or its assets or any resulting release or
discharge of any Borrowing Subsidiary Obligations;
(e) the existence of any claim, set-off or other rights which the
Borrower may have at any time against any Borrowing Subsidiary, the Agent,
any Lender or any other Person, whether or not arising in connection with
this Agreement, PROVIDED that nothing herein shall prevent the assertion of
any such claim by separate suit or compulsory counterclaim;
(f) any invalidity or unenforceability relating to or against any
Borrowing Subsidiary for any reason of any Loan Document, or any provision
of applicable law or regulation purporting to prohibit the payment by any
Borrowing Subsidiary of the principal of or interest on any Borrowing
Subsidiary Note or any other amount payable by it under this Agreement; or
(g) to the extent permitted by applicable law, any other act or omission
to act or delay of any kind by any Borrowing Subsidiary, the Agent, any
Lender or any other Person or any other circumstance whatsoever that might,
but for the provisions of this paragraph, constitute a legal or equitable
discharge of the obligations of the Borrower under this Article XIV.
14.3. DISCHARGE ONLY UPON PAYMENT IN FULL; REINSTATEMENT IN CERTAIN
CIRCUMSTANCES. The Borrower's obligations under this Article XIV shall remain
in full force and effect until the Aggregate Commitment is terminated and the
principal of and interest on the Notes and all other Obligations payable under
the Loan Documents shall have been paid in full. If at any time any payment of
the principal of or interest on any Borrowing Subsidiary Note or any other
amount payable by any Borrowing Subsidiary under any Loan Document is rescinded
or must be otherwise restored or returned upon the insolvency, bankruptcy or
reorganization of any Borrowing Subsidiary or otherwise, the Borrower's
obligations under this Article XIV with respect to such payment shall be
reinstated at such time as though such payment had become due but had not been
made at such time. This Section 14.3 shall survive the termination of this
Agreement and the payment in full of the Obligations.
14.4. WAIVER. The Borrower irrevocably waives acceptance hereof,
presentment, demand, protest and any notice not provided for herein, as well as
any requirement that at any time any action be taken by any Person against any
Borrowing Subsidiary or any other Person. The Borrower waives any claim, as that
term is defined in the Federal Bankruptcy Code, which the Borrower might now
have or hereafter acquire against any Borrowing Subsidiary that arises from the
existence or performance of the Borrower's obligations under this Article XIV.
The Borrower waives any benefit of the collateral, if any, which may from time
to time secure the Obligations or any part thereof and authorizes the Agent or
the Lenders to take any action or exercise any remedy with respect thereto,
which the Agent or the Lenders in its or their sole discretion shall determine,
without notice to the Borrower. In the event the Lenders in their sole
discretion elect to give
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notice of any action with respect to the collateral, if any, securing the
Obligations or any part thereof, ten days' written notice mailed to the Borrower
by certified mail at the address shown hereon shall be deemed reasonable notice
of any matters contained in such notice.
14.5. STAY OF ACCELERATION. If acceleration of the time for payment of any
amount payable by any Borrowing Subsidiary under any of the Loan Documents is
stayed upon the insolvency, bankruptcy or reorganization of any Borrowing
Subsidiary all such amounts otherwise subject to acceleration under the terms of
this Agreement shall nonetheless be payable by the Borrower hereunder forthwith
on demand by the Agent.
14.6 PAYMENTS. All payments to be made by the Borrower pursuant to this
Article XIV shall be made at the times and in the manner and in the currency
prescribed for payments in this Agreement.
14.7 SUBROGATION. Notwithstanding any payments made or obligations
performed by the Borrower by reason of this Article XIV (including but not
limited to application of funds on account of such payments of obligations), the
Borrower hereby irrevocably waives and releases any and all rights it may have
at any time (whether arising directly or indirectly, by operation of law,
contract or otherwise) to assert any claim against any Borrowing Subsidiary or
any other Person or against any direct or indirect security on account of
payments made or obligations performed under or pursuant to this Article XIV,
including without limitation any and all rights of subrogation, reimbursement,
exoneration, contribution or indemnity, and any and all rights that would result
in the Borrower being deemed a "creditor" under the United States Bankruptcy
Code of any Borrowing Subsidiary or any other person.
ARTICLE XV
COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one agreement, and any of the parties hereto may
execute this Agreement by signing any such counterpart. This Agreement shall be
effective when it has been executed by the Borrower, the Agent and the Lenders
and each party has notified the Agent by telex or telephone, that it has taken
such action.
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IN WITNESS WHEREOF, the Borrowing Entities, the Lenders and the Agent have
executed this Agreement as of the date first above written.
VARLEN CORPORATION,
AS THE BORROWER
By: RICHARD A. NUNEMAKER
-----------------------------------
Print Name: Richard A. Nunemaker
----------------------------
Title: Vice President, Finance/CFO
--------------------------------------
Address: 55 Shuman Boulevard
P.O. Box 3089
Naperville, Illinois
60566-7089
Attention: Richard A. Nunemaker, Vice
President, Finance, Chief
Financial Officer and
Treasurer
FAX: (708) 420-7123
Telephone: (708) 420-0400
THE FIRST NATIONAL BANK OF CHICAGO,
INDIVIDUALLY AND AS AGENT
By: JULIA A. BRISTOW
-----------------------------------
Print Name: Julia A. Bristow
----------------------------
Title: Vice President
--------------------------------------
Address: One First National Plaza,
Ste. 0173
Chicago, Illinois 60670
Attention: Julia A. Bristow, Vice
President
FAX: (312) 732-1117
Telephone: (312) 732-4116
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HARRIS TRUST AND SAVINGS BANK
By: DONALD C. WELCHKO
-----------------------------------
Print Name: Donald C. Welchko
----------------------------
Title: Vice President
---------------------------------
Address: 111 W. Monroe
Chicago, Illinois 60690
Attention: Division A/Donald C.
Welchko, Vice President
FAX: (312) 461-2591
Telephone: (312) 461-7576
NATIONSBANK OF NORTH CAROLINA, N.A.
By: CARTER E. SMITH
-----------------------------------
Print Name: Carter E. Smith
----------------------------
Title: Assistant Vice President
---------------------------------
Address: 70 W. Madison Street, Ste.
5300
Chicago, Illinois 60602-4208
Attention: Carter E. Smith, Assistant
Vice President
FAX: (312) 372-9194
Telephone: (312) 372-0745
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ABN AMRO BANK N.V.
By: JOHN ELLENWOOD
-----------------------------------
Print Name: John Ellenwood
----------------------------
Title: Vice President
---------------------------------
By: ROBERT J. GRAFF
-----------------------------------
Print Name: Robert J. Graff
----------------------------
Title: Vice President
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Address: 135 S. LaSalle Street
Chicago, Illinois 60603
Attention: Sheri F. Kempel, Assistant
Vice President
FAX: (312) 606-8425
Telephone: (312) 443-2953
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EXHIBIT 10(K)
VARLEN CORPORATION
1993 INCENTIVE STOCK OPTION PLAN
1. PURPOSE. The purpose of this Plan is to advance the interests of Varlen
Corporation by providing an opportunity to selected key employees of the Company
and its Subsidiaries to purchase shares of Common Stock through the exercise of
options granted pursuant to this Plan, which may be either Incentive Options or
Nonqualified Options. By encouraging such stock ownership, the Company seeks to
establish as close an identity as feasible between the interests of the Company
and its Subsidiaries and those of such key employees and also seeks to attract,
retain, motivate and reward employees of superior ability, training and
experience.
2. DEFINITIONS
(1) BOARD means the Board of Directors of the Company.
(2) CODE means the Internal Revenue Code of 1986 and regulations
thereunder, as amended from time to time.
(3) COMMITTEE means the committee appointed by the Board responsible
for administering the Plan in accordance with Section 5.
(4) COMMON STOCK means the common stock of the Company, par value $.10
per share.
(5) COMPANY means Varlen Corporation, a Delaware corporation.
(6) DIRECTOR means each individual who is serving as a member of the
Board as of the time of reference.
(7) DISINTERESTED PERSON means a person who qualifies as such under
Rule 16b-3(c)(2)(i) under Section 16 of the Exchange Act, or any successor
definition adopted by the Securities and Exchange Commission, which
generally is defined as a Director who is not, during the one year prior to
service as a member of the Committee, or during such service, granted or
awarded equity securities pursuant to the Plan or any other plan of the
Company or its affiliates, except that participation in a formula plan,
participation in an ongoing securities acquisition plan, or an election to
receive an annual retainer fee in either cash or an equivalent amount of
securities, or partly in each, shall not disqualify a Director from being a
Disinterested Person.
(8) EMPLOYEE means an employee of the Company or any Subsidiary within
the meaning of Code Section 3401(c); "key employee" means an executive,
administrative or managerial Employee who is determined by the Committee to
be eligible to be granted Options under the Plan.
(9) EXCHANGE ACT means the Securities Exchange Act of 1934 and the
rules and regulations promulgated pursuant thereto, as amended from time to
time.
(10) INCENTIVE OPTION means a stock option intended to qualify as an
"incentive stock option" within the meaning of Code Section 422 and
designated as such.
(11) NONQUALIFIED OPTION means a stock option not intended to be an
Incentive Option and designated as a nonqualified stock option, the federal
income tax treatment of which is determined generally under Code Section 83.
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(12) OPTION means either an Incentive Option or a Nonqualified Option
granted pursuant to this Plan.
(13) PLAN means this Varlen Corporation 1993 Incentive Stock Option
Plan as set forth herein, and as amended from time to time.
(14) SECURITIES ACT means the Securities Act of 1933 and rules and
regulations promulgated pursuant thereto, as amended from time to time.
(15) SUBSIDIARY means a "subsidiary" of the Company within the meaning
of Code Section 424(f), which generally is defined as any corporation (other
than the Company) in an unbroken chain of corporations beginning with the
Company if, at the relevant time, each of the corporations other than the
last corporation in the unbroken chain owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the other
corporations in the chain.
3. EFFECTIVE DATE. This Plan was approved and adopted by the Board on
March 29, 1993. The effective date of the Plan shall be May 25, 1993, the date
of the annual meeting of stockholders of the Company, so long as the Plan is
approved by the stockholders of the Company on said date.
4. STOCK SUBJECT TO PLAN. The maximum aggregate number of shares of Common
Stock that may be made subject to Options granted hereunder is 150,000 shares,
which number shall be adjusted in accordance with Section 8 in the event of any
change in the Company's capital structure. Shares of Common Stock issued
pursuant to the Plan may consist, in whole or in part, of either authorized and
unissued shares or issued shares held in the Company's treasury. Any shares
subject to an Option that for any reason expires or is terminated unexercised as
to such shares may again be the subject of an Option under the Plan.
5. ADMINISTRATION. The Plan shall be administered by a Committee appointed
by the Board consisting of not fewer than two individuals who are Directors, who
are not Employees, and who are Disinterested Persons. The Board shall have the
discretion to remove and appoint members of the Committee from time to time. The
Committee shall have full power and discretion, subject to the express
provisions of the Plan, (i) to determine the key Employees to whom Options are
to be granted, the time or times at which Options are to be granted, the number
of shares of Common Stock to be made subject to each Option, whether each Option
is to be an Incentive Option or a Nonqualified Option, the exercise price per
share under each Option, and the maximum term of each Option; (ii) to interpret
and construe the Plan and to prescribe, amend and rescind rules and regulations
for its administration; (iii) to determine the terms and provisions of each
option agreement evidencing an Option; and (iv) to make all other determinations
the Committee deems necessary or advisable for administering the Plan. All
decisions of the Committee shall be made by a majority of its members, which
shall constitute a quorum, and shall be reflected in minutes of its meetings.
6. ELIGIBILITY. Options may be granted to such Employees who are key
employees as the Committee selects. A Director who is not an Employee is not
eligible to receive Options pursuant to this Plan.
7. TERMS AND CONDITIONS OF OPTIONS. Options granted pursuant to the Plan
shall be evidenced by stock option agreements in such form and containing such
terms and conditions as the Committee shall determine. If an Employee to whom an
Option is granted does not execute an option agreement evidencing that Option in
the form prescribed by the Committee within the later of (i) thirty days from
the date of grant of the Option or (ii) ten days after the Employee's receipt of
an option agreement from the Company, the Option shall be void and of no further
force or effect. Each option agreement evidencing an Option shall contain among
its terms and conditions the following:
(1) PRICE.Subject to the conditions on Incentive Options contained in
Section 8(2), if applicable, the purchase price per share of Common Stock
payable upon the exercise of each Option granted hereunder
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shall be as determined by the Committee in its discretion but shall not be
less than the fair market value of the Common Stock on the day the Option is
granted if an Incentive Option, and, if a Nonqualified Option, not less than
85% of the fair market value of the Common Stock on the day the Option is
granted or, if greater, the book value of the Common Stock on that date. The
fair market value of Common Stock shall be as determined by the Committee in
its discretion in accordance with any applicable laws or rules.
(2) NUMBER OF SHARES AND KIND OF OPTION.Each option agreement shall
specify the number of shares to which it pertains and shall specify whether
the Option is a Nonqualified Option or an Incentive Option.
(3) TERMS OF EXERCISE.Subject to the conditions on Incentive Options
contained in Section 8(2), if applicable, and to Section 10, each Option
shall be exercisable for the full amount or for any part thereof and at such
intervals or in such installments as the Committee may determine at the time
it grants such Option; provided, however, that (i) no Option shall be
exercised as to fewer than 25 shares of Common Stock or, if less, the total
number of shares of Common Stock remaining unexercised under the Option, and
(ii) no Option shall be exercisable with respect to any shares earlier than
six months from the date the Option is granted or later than ten years after
the date the Option is granted, except to the extent permitted in the event
of the death or disability of the holder of a Nonqualified Option under
Section 7(7).
(4) NOTICE OF EXERCISE AND PAYMENT.An Option shall be exercisable only
by delivery of a written notice to the Company's Treasurer, or any other
officer of the Company the Committee designates to receive such notices,
specifying the number of shares of Common Stock for which the Option is
being exercised. If the shares of Common Stock acquired upon exercise of an
Option are not at the time of exercise effectively registered under the
Securities Act, the optionee shall provide to the Company, as a condition to
the optionee's exercise of the Option, a letter, in form and substance
satisfactory to the Company, to the effect that the shares are being
purchased for the optionee's own account for investment and not with a view
to distribution or resale, and to such other effects as the Company deems
necessary or appropriate to comply with federal and applicable state
securities laws. Payment shall be made in full at the time the Option is
exercised. Payment shall be made by:
(i) cash;
(ii) delivery and assignment to the Company of shares of Common
Stock owned by the optionee;
(iii) a combination of (i) and (ii); or
(iv) delivery of a written exercise notice, including irrevocable
instructions to the Company to deliver the stock certificates issuable
upon exercise of the Option directly to a broker named in the notice that
has agreed to participate in a "cashless" exercise on behalf of the
optionee.
Upon the optionee's satisfaction of all conditions required for the exercise
of the Option and payment in full of the purchase price for the shares being
acquired, the Company shall, within a reasonable period of time following
such exercise, deliver a certificate representing the shares of Common Stock
so acquired; provided, that the Company may postpone issuance and delivery
of shares upon any exercise of an Option to the extent necessary or
advisable to comply with applicable exchange listing requirements, National
Association of Securities Dealers, Inc. ("NASD") requirements, or federal or
state securities laws.
(5) WITHHOLDING TAXES.The Company's obligation to deliver shares of
Common Stock upon exercise of an Option, in whole or in part, shall be
subject to the optionee's satisfaction of all applicable federal, state and
local tax withholding obligations.
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(6) NONTRANSFERABILITY OF OPTION.No Option shall be transferable by the
optionee otherwise than by will or the laws of descent and distribution and
shall be exercisable during the optionee's lifetime only by the optionee (or
the optionee's guardian or legal representative).
(7) TERMINATION OF OPTIONS.Each option agreement evidencing an Option
shall contain provisions for the termination of the Option if the optionee
ceases for any reason to be an Employee, which provisions shall be no more
favorable to the optionee than the following:
(i) TERMINATION WITH CONSENT.If the optionee ceases to be an
Employee and the Company or Subsidiary that is the Employee's primary
employer at the time of termination consents in writing to the optionee's
exercise of an Option following such termination, then the optionee may,
at any time within a period of 90 days following the date of such
termination, exercise such Option to the extent that the Option was
exercisable on the date the optionee ceased to be an Employee;
(ii) RETIREMENT.If the optionee ceases to be an Employee by reason of
retirement under one or more of the Company's (or Subsidiary's)
retirement plans including, without limitation, early retirement, then
the optionee may, at any time within a period of 90 days following the
date of such termination, exercise each Option held by the optionee on
such date to the full extent of the Option;
(iii) DEATH OR DISABILITY.In the event of the Optionee's death or
disability (within the meaning of Code Section 22(e)(3)) either (x) while
an Employee or (y) with respect only to Nonqualified Options, while
eligible to exercise a Nonqualified Option under Subsections 7(7)(i) or
(ii) above, then the optionee (or the optionee's legal representative,
executor, administrator, or person acquiring an Option by bequest or
inheritance) may, at any time within a period of one year following the
date of the optionee's death or commencement of disability, exercise each
Option held by the optionee on such date to the full extent of the
Option; and
(iv) OTHER TERMINATION.If the optionee ceases to be an Employee for
any reason other than those enumerated in Subsections 7(7)(i) through
(iii) above, each Option granted to the optionee to the extent
outstanding on the date of such termination of employment, shall
terminate immediately on such termination of employment and may not be
exercised thereafter;
provided, however, that no Option may be exercised to any extent by anyone
after the date of expiration of the Option's term, except that a
Nonqualified Option shall remain exercisable as provided in Subsection
7(7)(iii) regardless of the Option's term.
(8) LEGENDS.Any restriction on transfer of shares of Common Stock
provided in this Plan or in the option agreement evidencing any Option shall
be noted or referred to conspicuously on each certificate evidencing such
shares.
8. RESTRICTIONS ON INCENTIVE OPTIONS.Incentive Options (but not
Nonqualified Options) granted under this Plan shall be subject to the following
restrictions:
(1) LIMITATION ON NUMBER OF SHARES.The aggregate fair market value,
determined as of the date an Incentive Option is granted, of the shares with
respect to which Incentive Options are exercisable for the first time by an
Employee during any calendar year shall not exceed $100,000. If an Incentive
Option is granted pursuant to which the aggregate fair market value of
shares with respect to which it first becomes exercisable in any calendar
year by an Employee exceeds the aforementioned $100,000 limitation, the
portion of such Option which is in excess of the $100,000 limitation shall
be treated as a Nonqualified Option pursuant to Code Section 422(d)(1). In
the event that an Employee is eligible to participate in any other stock
option plan
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of the Company or a Subsidiary which is also intended to comply with the
provisions of Code Section 422, the $100,000 limitation shall apply to the
aggregate number of shares for which Incentive Options may be granted under
all such plans.
(2) 10% STOCKHOLDER.If an Employee to whom an Incentive Option is
granted pursuant to the provisions of the Plan is on the date of grant the
owner of stock (as determined under Code Section 424(d)) possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or a Subsidiary, then the following special provisions shall be
applicable to the Incentive Option granted to such individual:
(i) The Option price per share subject to such Incentive Option
shall not be less than 110% of the fair market value of one share on the
date of grant; and
(ii) The Incentive Option shall not have a term in excess of five (5)
years from its date of grant.
9. ADJUSTMENT FOR CHANGES IN CAPITALIZATION. Appropriate and equitable
adjustment shall be made in the maximum number of shares of Common Stock subject
to the Plan under Section 4 and, subject to Section 10, in the number, kind and
option price of shares of Common Stock subject to then outstanding Options to
give effect to any changes in the outstanding Common Stock by reason of any
stock dividend, stock split, stock combination, merger, consolidation,
reorganization, recapitalization or any other change in the capital structure of
the Company affecting the Common Stock after the effective date of the Plan.
10. CHANGE IN CONTROL; MERGER, ETC.
(1) CHANGE IN CONTROL. Upon the occurrence of any of the events listed
below, all outstanding Incentive Options and Nonqualified Options held by
all optionees pursuant to this Plan shall become immediately exercisable in
full. The events are as follows:
(i) The sale by the Company of all or substantially all of its
assets;
(ii) Any of the following events if, immediately following such
event, a majority of the Directors consists of persons who were not
Directors immediately prior to the date of such event:
(a) the sale of 50% or more of the outstanding shares of Common
Stock of the Company in a single transaction;
(b) the consummation of a tender offer (by a party other than the
Company) for more than 50% of the outstanding shares of Common Stock
of the Company; or
(c) subject to Section 10(2) below, the consummation of a merger
or consolidation involving the Company; or
(iii) An election of new Directors if immediately following such
election a majority of the Directors consists of persons who were not
nominated by management to stand for election as Directors in such
election.
(2) WHERE COMPANY DOES NOT SURVIVE. In the event of a merger or
consolidation to which the Company is a party but is not the surviving
company, the Committee in its discretion may vote to negate and give no
effect to the acceleration of Options pursuant to Section 10(1)(ii)(c), but
only if and to the extent that an executed agreement of merger or
consolidation provides that the optionee holding such an Option shall
receive the same merger consideration as the optionee would have received
as a stockholder of the Company had the exercisability of the Option been
accelerated in accordance with Section 10(1)(ii)(c) and had the
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optionee, immediately prior to the merger or consolidation, exercised the
Option for the full number of shares subject thereto, paid the exercise
price in full, and satisfied all other conditions for the exercise of the
Option.
(3) LIQUIDATION OR DISSOLUTION. The provisions of Section 9 and
Subsections 10(1) and (2) shall not cause any Option to terminate other than
in accordance with other applicable provisions of the Plan. However, in the
event of the liquidation or dissolution of the Company, each outstanding
Option shall terminate, except to the extent otherwise specifically provided
in the option agreement evidencing the Option.
11. RIGHTS OF OPTIONEES. No Employee shall have a right to be granted an
Option or, having received an Option, a right again to be granted an Option. An
optionee shall have no rights as a stockholder with respect to any shares of
Common Stock covered by his or her Option until the date the Option has been
exercised and the full purchase price for such shares has been received by the
Company. Nothing in this Plan or in any Option granted pursuant to the Plan
shall confer on any individual any right to continue in the employ of the
Company or any Subsidiary or interfere in any way with the right of the Company
or any Subsidiary to terminate or modify the terms or conditions of the
employment of the Option holder.
12. AMENDMENT AND TERMINATION OF THE PLAN. Unless sooner terminated by the
Board, the Plan shall terminate, so that no Options may be granted pursuant to
it thereafter, on March 28, 2003. The Board may at any time amend, suspend or
terminate the Plan in its discretion without further action on the part of the
stockholders of the Company, except that:
(1) no such amendment, suspension or termination of the Plan shall
adversely affect or impair any then outstanding Option without the consent
of the optionee holding the Option; and
(2) any such amendment, suspension or termination that requires
approval by the stockholders of the Company to comply with applicable
provisions of the Code, rules promulgated pursuant to Section 16 of the
Exchange Act, applicable state law or NASD or exchange listing requirements
shall be subject to approval by the stockholders of the Company within the
applicable time period prescribed thereunder, and shall be null and void if
such approval is not obtained.
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EXHIBIT 10(l)
VARLEN CORPORATION
1993 DIRECTORS INCENTIVE STOCK GRANT PLAN
1. PURPOSE. The purpose of this Plan is to advance the interests of Varlen
Corporation by granting shares of Common Stock to members of its Board of
Directors in order to attract, retain, motivate and reward individuals of
superior ability and experience to serve as members of the Board.
2. DEFINITIONS
(1) AWARD means a grant of shares of Common Stock to a Director pursuant
to Section 7.
(2) BOARD means the Board of Directors of the Company.
(3) CODE means the Internal Revenue Code of 1986 and regulations
thereunder, as amended from time to time.
(4) COMMON STOCK means the common stock of the Company, par value $.10
per share.
(5) COMPANY means Varlen Corporation, a Delaware corporation.
(6) DIRECTOR means each individual who is serving as a member of the
Board as of the time of reference.
(7) EXCHANGE ACT means the Securities Exchange Act of 1934 and the rules
and regulations promulgated pursuant thereto, as amended from time
to time.
(8) PLAN means this Varlen Corporation 1993 Directors Incentive Stock
Grant Plan as set forth herein, and as amended from time to time.
(9) SECURITIES ACT means the Securities Act of 1933 and rules and
regulations promulgated pursuant thereto, as amended from time to
time.
3. EFFECTIVE DATE. This Plan was approved and adopted by the Board on
March 29, 1993. The effective date of the Plan shall be May 25, 1993, the date
of the annual meeting of stockholders of the Company, so long as the Plan is
approved by the stockholders of the Company on said date.
4. STOCK SUBJECT TO PLAN. The maximum aggregate number of shares of Common
Stock that may be granted pursuant to Awards hereunder is 15,000 shares, which
number shall be adjusted in accordance with Section 8 in the event of any change
in the Company's capital structure. Shares of Common Stock issued pursuant to
the Plan may consist, in whole or in part, of either authorized and unissued
shares or issued shares held in the Company's treasury.
5. ADMINISTRATION. It is intended that all Awards pursuant to this Plan be
formula awards within the meaning of Rule 16b-3(c)(2)(ii) under Section 16 of
the Exchange Act, and the Plan shall be applied and operated to effect that
intent. To the extent that recordkeeping and other ministerial functions must be
performed to administer and operate the Plan properly, either the Board or a
committee appointed by the Board consisting of not fewer than two individuals
shall perform such administrative functions. The Board shall have the discretion
to remove and appoint members of the committee from time to time.
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6. ELIGIBILITY. Each individual who is a Director and who is not an
employee shall be granted Awards in accordance with Section 7.
7. GRANT OF AWARDS.
(1) TERMS OF AWARDS. Each individual who becomes an eligible Director
shall be granted an Award for 200 shares of Common Stock (i) on the
date of the annual meeting of stockholders of the Company on which the
Director is elected to office or, if later, the effective date of the Plan,
and (ii) on the date of each annual meeting of stockholders of the Company
thereafter so long as the Director continues to serve as an eligible
Director following the close of such annual meeting. If an individual
becomes an eligible Director on a date other than the date of an annual
meeting of stockholders of the Company, the eligible Director shall be
granted an Award on the date he takes office for (i) 200 shares if the date
he takes office is on or before the six month anniversary of the previous
annual meeting of stockholders of the Company, or (ii) 100 shares if the
date he takes office is after the six month anniversary of the previous
annual meeting of stockholders of the Company. Each Director's Award shall
be conditioned on the Director (or the legal representative of his estate in
the event of his death) accepting the Award by paying in cash the par value
per share of Common Stock granted within 10 business days following the date
the Award is granted.
(2) NONTRANSFERABILITY OF RIGHT TO ACQUIRE. No right to acquire shares
pursuant to an Award shall be transferable otherwise than by will or
the laws of descent and distribution and only the Director who receives an
Award shall be entitled to acquire shares pursuant to the Award during the
Director's lifetime.
(3) RESTRICTION ON TRANSFER OF SHARES. No shares of Common Stock
acquired pursuant to an Award (or shares of Common Stock received in
respect of such shares as a result of stock dividends, stock splits,
reorganizations, or other changes in the Company's capitalization) shall be
transferable by the Director at any time during the period commencing with
the date the Director is elected to office and ending 6 months after the
date the Director ceases to serve as such, except as follows:
(i) such shares shall be transferable by will or the laws of descent
and distribution; and
(ii) such shares shall be transferable in the event of a merger or
consolidation of the Company or sale of all or substantially all of the
Company's capital stock in any transaction or series of related
transactions, subject to any applicable federal or state securities laws.
(4) INVESTMENT REPRESENTATION. If the shares of Common Stock granted
to a Director pursuant to an Award are not at the time the Director
acquires the shares effectively registered under the Securities Act, the
Director shall provide to the Company, as a condition to the Director's
acceptance of the Award, a letter, in form and substance satisfactory to the
Company, to the effect that the shares are being purchased for the
Director's own account for investment and not with a view to distribution or
resale, and to such other effects as the Company deems necessary or
appropriate to comply with federal and applicable state securities laws.
(5) LEGENDS. The restrictions on transfer of shares of Common Stock
provided in this Plan shall be noted or referred to conspicuously on each
certificate evidencing such shares.
8. ADJUSTMENT FOR CHANGES IN CAPITALIZATION. Appropriate and equitable
adjustment shall be made in the maximum number of shares of Common Stock subject
to the Plan under Section 4 and in the number of shares of Common Stock to be
granted annually to each Director under Section 7 to give effect to any changes
in the outstanding Common Stock by reason of any stock dividend, stock split,
stock combination, merger, consolidation, reorganization, recapitalization or
any other change in the capital structure of the Company affecting the Common
Stock after the effective date of the Plan.
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9. AMENDMENT AND TERMINATION OF THE PLAN. The Board may at any time amend,
suspend or terminate the Plan in its discretion without further action on the
part of the stockholders of the Company, except that:
(1) no such amendment, suspension or termination of the Plan shall
adversely affect or impair any rights of any Director that have accrued
under the terms of the Plan prior thereto without the consent of the
Director;
(2) this Plan shall not be amended more than once in any 6 month
period, other than to comport with changes in the Code; and
(3) any such amendment, suspension or termination that requires
approval by the stockholders of the Company to comply with applicable
provisions of the Code, rules promulgated pursuant to Section 16 of the
Exchange Act, applicable state law or National Association of Securities
Dealers, Inc. or exchange listing requirements shall be subject to approval
by the stockholders of the Company within the applicable time period
prescribed thereunder, and shall be null and void if such approval is not
obtained.
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EXHIBIT 10(m)
VARLEN CORPORATION
1993 DEFERRED INCENTIVE STOCK PURCHASE PLAN
AS ADOPTED MARCH 29, 1993
1. PURPOSE. The purpose of this Plan is to advance the interests of Varlen
Corporation by providing an opportunity to selected officers and other key
employees of the Company and its Subsidiaries to purchase shares of Common Stock
through the commitment to purchase shares of Common Stock pursuant to this Plan.
By encouraging stock ownership, the Company seeks to establish as close an
identity as feasible between the interests of the Company and its Subsidiaries
and those of such officers and other key employees and also seeks to attract,
retain, motivate and reward employees of superior ability, training and
experience. The intent of the Board, on adoption of this Plan, is to offer only
one Purchase Right hereunder to each eligible individual selected as an offeree,
so that each offeree will have only a one-time opportunity to participate in the
Plan; however, this intent shall not operate to preclude the Committee's
ability, in exercising the discretion granted to it in Section 5, to grant
additional Purchase Rights to selected eligible individuals in appropriate
circumstances.
2. DEFINITIONS
(1) BOARD means the Board of Directors of the Company.
(2) CODE means the Internal Revenue Code of 1986 and regulations
thereunder, as amended from time to time.
(3) COMMITTEE means the committee appointed by the Board responsible for
administering the Plan in accordance with Section 5.
(4) COMMITMENT means an Employee's written commitment to purchase all or
any portion of the shares of Common Stock offered to the Employee
under a Purchase Right.
(5) COMMON STOCK means the common stock of the Company, par value $.10
per share.
(6) COMPANY means Varlen Corporation, a Delaware corporation.
(7) DIRECTOR means each individual who is serving as a member of the
Board as of the time of reference.
(8) DISINTERESTED PERSON means a person who qualifies as such under Rule
16b-3(c)(2)(i) under Section 16 of the Exchange Act, or any successor
definition adopted by the Securities and Exchange Commission, which
generally is defined as a Director who is not, during the one year
prior to service as a member of the Committee, or during such service,
granted or awarded equity securities pursuant to the Plan or any other plan
of the Company or its affiliates, except that participation in a formula
plan, participation in an ongoing securities acquisition plan, or an
election to receive an annual retainer fee in either cash or an equivalent
amount of securities, or partly in each, shall not disqualify a Director
from being a Disinterested Person.
(9) EMPLOYEE means an employee of the Company or any Subsidiary within
the meaning of Code Section 3401(c); "key employee" means an executive,
administrative or managerial Employee who is determined by the Committee
to be eligible to be granted Purchase Rights under the Plan.
(10) EXCHANGE ACT means the Securities Exchange Act of 1934 and the rules
and regulations promulgated pursuant thereto, as amended from time to time.
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(11) EXERCISE DATE means the fifth anniversary of the date a Purchase
Right is granted to an offeree, or such earlier date on which a Purchase
Right is exercised pursuant to Section 7(4), Section 7(7), or Section 9.
(12) PLAN means this Varlen Corporation 1993 Deferred Incentive Stock
Purchase Plan as set forth herein, and as amended from time to time.
(13) PURCHASE RIGHT means a right to purchase shares of Common Stock
granted to an eligible Employee pursuant to Section 7 of this Plan.
(14) SECURITIES ACT means the Securities Act of 1933 and rules and
regulations promulgated pursuant thereto, as amended from time to time.
(15) SUBSIDIARY means a "subsidiary" of the Company within the meaning of
Code Section 424(f), which generally is defined as any corporation (other
than the Company) in an unbroken chain of corporations beginning with
the Company if, at the relevant time, each of the corporations other than
the last corporation in the unbroken chain owns stock possessing 50% or more
of the total combined voting power of all classes of stock in one of the
other corporations in the chain.
3. EFFECTIVE DATE. This Plan was approved and adopted by the Board on
March 29, 1993. The effective date of the Plan shall be May 25, 1993, the date
of the annual meeting of stockholders of the Company, so long as the Plan is
approved by the stockholders of the Company on said date.
4. STOCK SUBJECT TO PLAN. The maximum aggregate number of shares of Common
Stock that may be made subject to Purchase Rights granted hereunder is 100,000
shares, which number shall be adjusted in accordance with Section 8 in the event
of any change in the Company's capital structure. Shares of Common Stock issued
pursuant to the Plan may consist, in whole or in part, of either authorized and
unissued shares or issued shares held in the Company's treasury. Any shares
subject to a Purchase Right that for any reason expires or is terminated
unexercised as to such shares may again be the subject of a Purchase Right under
the Plan.
5. ADMINISTRATION. The Plan shall be administered by a Committee appointed
by the Board consisting of not fewer than two individuals who are Directors, who
are not Employees, and who are Disinterested Persons. The Board shall have the
discretion to remove and appoint members of the Committee from time to time. The
Committee shall have full power and discretion, subject to the express
provisions of the Plan, (i) to determine each key Employee to whom a Purchase
Right is to be granted, the time (or times, in appropriate circumstances) at
which a Purchase Right is to be granted to each selected key Employee, the
exercise price per share under each Purchase Right, and the number of shares of
Common Stock to be made subject to each Purchase Right; (ii) to interpret and
construe the Plan and to prescribe, amend and rescind rules and regulations for
its administration; (iii) to determine the terms and provisions of each
agreement evidencing a Purchase Right; and (iv) to make all other determinations
the Committee deems necessary or advisable for administering the Plan. All
decisions of the Committee shall be made by a majority of its members, which
shall constitute a quorum, and shall be reflected in minutes of its meetings.
6. ELIGIBILITY. Purchase Rights may be granted to such Employees who are
officers or other key employees as the Committee selects. A Director who is not
an Employee is not eligible to receive Purchase Rights pursuant to this Plan.
7. TERMS AND CONDITIONS OF PURCHASE RIGHTS. Purchase Rights granted
pursuant to the Plan and an offeree's Commitment to purchase shares of Common
Stock pursuant thereto shall be evidenced by Purchase Right agreements in such
form and containing such terms and conditions as the Committee shall determine.
If an Employee to whom a Purchase Right is granted does not execute a Purchase
Right agreement evidencing his or her Commitment in the form prescribed by the
Committee within thirty (30) days after the Employee's receipt of a
D-2
<PAGE>
Purchase Right agreement from the Company, the Purchase Right shall be void and
of no further force or effect. Each Purchase Right agreement evidencing a
Purchase Right and Commitment shall contain among its terms and conditions the
following:
(1) PRICE. The purchase price per share of Common Stock payable under
the terms of each Purchase Right granted hereunder shall be as determined
by the Committee in its discretion but shall not be less than the book
value of the Common Stock on that date.
(2) NUMBER OF SHARES. Each Purchase Right agreement shall specify the
maximum and minimum, if any, number of shares the offeree may make a
Commitment to purchase.
(3) TERMS OF COMMITMENT. Each Purchase Right, to the extent the offeree
has made a Commitment to purchase shares pursuant thereto, shall be
exercised automatically on the Exercise Date, subject to Subsections 7(4)
and (7). Each offeree shall make deposits of the aggregate purchase price
for the shares of Common Stock he made a Commitment to purchase on the
Exercise Date in 20 substantially equal quarterly installments payable on
each of January 31, April 30, July 31 and October 31 (or, if not a business
day, the next business day following such date) beginning on the first such
date which follows the execution of the Purchase Right agreement, with the
last installment due on the Exercise Date. Such deposits shall be made in
cash; the offeree may agree to make such deposits through payroll deduction.
All deposits received or held by the Company pending payment of the purchase
price on an Exercise Date under a Purchase Right may be used by the Company
for any corporate purpose, and the Company shall not be obligated to
segregate such deposits. Each Purchase Right agreement shall provide that,
so long as the offeree continues to make such deposits and the Purchase
Right has not terminated, the offeree shall receive a payment of cash
compensation in an amount equal to the amount of any dividend that would
have been paid with respect to the number of shares of Common Stock equal to
the aggregate number of shares of Common Stock the offeree has made a
Commitment to purchase; such cash compensation shall be payable as soon as
practicable after the date any such dividend is paid to stockholders of the
Company. Once an offeree has made a Commitment, the offeree may not withdraw
from, modify or cancel the Commitment except in the event of (i) the
offeree's hardship, as determined by the Committee in its discretion or (ii)
such other circumstances as the Committee approves in its discretion. If an
offeree withdraws from, modifies or cancels the Commitment (i) in the case
of hardship or such other circumstances as the Committee approves, the
offeree shall be treated as though he has ceased to be an Employee pursuant
to Section 7(7)(i) except that the Exercise Date of the Purchase Right shall
be the fifth anniversary of the date the Purchase Right was granted to the
offeree, or (ii) other than in the case of hardship or such other
circumstances as the Committee approves, the offeree shall be treated as
though he has ceased to be an Employee pursuant to Section 7(7)(iii) on the
date of such withdrawal, modification or cancellation and the Exercise Date
or date for payment of cash, as the case may be, shall be as determined by
the Committee, but shall be no later than the fifth anniversary of the date
the Purchase Right was granted to the offeree.
(4) EXERCISE. Subject to Subsection 7(7), each Purchase Right shall be
exercised automatically on the Exercise Date to the extent of the
offeree's Commitment if the Purchase Right has not terminated prior to the
Exercise Date, all conditions required for the exercise of the Purchase
Right have been satisfied, and the offeree has paid the purchase price for
the shares being acquired in full. The Company shall, within a reasonable
period of time following such Exercise Date, deliver a certificate
representing the shares of Common Stock so acquired; provided, that the
Company may postpone issuance and delivery of shares upon any exercise of a
Purchase Right to the extent necessary or advisable to comply with
applicable exchange listing requirements, National Association of
Securities Dealers, Inc. ("NASD") requirements, or federal or state
securities laws. If the shares of Common Stock acquired on an Exercise
Date are not at that time effectively registered under the Securities
Act, the offeree shall provide to the Company, as a condition to the
D-3
<PAGE>
offeree's exercise of the Purchase Right, a letter, in form and
substance satisfactory to the Company, to the effect that the shares are
being purchased for the offeree's own account for investment and not with a
view to distribution or resale, and to such other effects as the Company
deems necessary or appropriate to comply with federal and applicable state
securities laws.
(5) WITHHOLDING TAXES. The Company's obligation to deliver shares of
Common Stock upon exercise of a Purchase Right, in whole or in part,
shall be subject to the offeree's satisfaction of all applicable federal,
state and local tax withholding obligations. For federal income tax
purposes, all amounts payable by an offeree pursuant to Section 7(3) shall
constitute deposits made toward the purchase on the Exercise Date of the
Common Stock subject to the Purchase Right.
(6) NONTRANSFERABILITY OF PURCHASE RIGHT. Prior to Commitment no
Purchase Right shall be transferable. After Commitment, no Purchase
Right shall be transferable by the offeree otherwise than by will or the
laws of descent and distribution and shall be exercisable during the
offeree's lifetime only by the offeree (or the offeree's guardian or legal
representative).
(7) TERMINATION OF PURCHASE RIGHTS. Each Purchase Right agreement
evidencing a Purchase Right shall contain provisions for the
termination of the Purchase Right if the offeree ceases for any reason to be
an Employee, which provisions shall be no more favorable to the offeree than
the following:
(i) TERMINATION WITH CONSENT. If the offeree ceases to be an
Employee and the Company or Subsidiary that is the Employee's primary
employer at the time of termination consents in writing to the exercise
of a Purchase Right following such termination, then the Exercise Date of
that Purchase Right shall be the date of such termination and the
Purchase Right shall terminate on the Exercise Date; the number of shares
of Common Stock for which that Purchase Right shall be exercised on such
Exercise Date is the number of whole shares of Common Stock equal to the
aggregate number of shares of Common Stock the offeree has made a
Commitment to purchase, multiplied by a fraction, the numerator of which
is the total amount the offeree has deposited in quarterly installments
pursuant to Section 7(3) through the date of such termination and the
denominator of which is the total purchase price under the Commitment.
Notwithstanding the preceding sentence, if the fair market value per
share of Common Stock on the date of such termination is less than the
purchase price per share of Common Stock under the Purchase Right, then
the Purchase Right shall terminate immediately on such termination of
employment and the aggregate amount of the purchase price under the
Purchase Right the offeree has deposited through such termination date
shall be paid to the offeree in cash as soon as practicable thereafter.
(ii) RETIREMENT, DEATH OR DISABILITY. If the offeree ceases to be an
Employee by reason of retirement under one or more of the Company's (or a
Subsidiary's) retirement plans including, without limitation, early
retirement, or in the event of the offeree's death or disability (within
the meaning of Code Section 22(e)(3)) while an Employee, then the
Exercise Date of that Purchase Right shall be the date 90 days after such
termination (or, if not a business day, on the next business day) and the
Purchase Right shall terminate on the Exercise Date; the number of shares
of Common Stock for which that Purchase Right shall be exercised on such
Exercise Date shall be, at the election of the offeree (or the offeree's
legal representative, executor, administrator, or person acquiring a
Purchase Right by bequest or inheritance) (i) the number of shares of
Common Stock equal to the aggregate number of shares of Common Stock the
offeree has made a Commitment to purchase, or (ii) the number of whole
shares of Common Stock equal to the aggregate number of shares of Common
Stock the offeree has made a Commitment to purchase, multiplied by a
fraction, the numerator of which is the total amount the offeree has
deposited in quarterly installments pursuant to Section 7(3) through the
date of such termination and the denominator of which is the total
purchase price under the Commitment.
D-4
<PAGE>
(iii) OTHER TERMINATION. If the offeree ceases to be an Employee for
any reason other than those enumerated in Subsections 7(7)(i) and (ii)
above, each Purchase Right shall terminate immediately on such
termination of employment and the aggregate amount of the purchase price
thereunder the offeree has deposited through such termination date shall
be paid to the offeree in cash as soon as practicable thereafter;
provided that, if the fair market value per share of Common Stock on the
date of such termination is less than the purchase price per share of
Common Stock under the Purchase Right, then the Purchase Right Exercise
Date will be the date of such termination, the Purchase Right shall
terminate on said Exercise Date, and the number of shares of Common Stock
for which the Purchase Right shall be exercised on such Exercise Date is
the number of whole shares of Common Stock equal to the aggregate number
of shares of Common Stock the offeree has made a Commitment to purchase,
multiplied by a fraction, the numerator of which is the total amount the
offeree has deposited in quarterly installments pursuant to Section 7(3)
through the termination date and the denominator of which is the total
purchase price under the Commitment.
8. ADJUSTMENT FOR CHANGES IN CAPITALIZATION. Appropriate and equitable
adjustment shall be made in the maximum number of shares of Common Stock subject
to the Plan under Section 4 and, subject to Section 9, in the number, kind and
purchase price of shares of Common Stock subject to then outstanding Purchase
Rights to give effect to any changes in the outstanding Common Stock by reason
of any stock dividend, stock split, stock combination, merger, consolidation,
reorganization, recapitalization or any other change in the capital structure of
the Company affecting the Common Stock after the effective date of the Plan.
9. CHANGE IN CONTROL; MERGER, ETC.
(1) CHANGE IN CONTROL. Upon the occurrence of any of the events listed
below, each outstanding Purchase Right held by each offeree pursuant
to this Plan shall become immediately exercisable for the full number of
shares of Common Stock the offeree committed to purchase thereunder; such
exercise may be made at any time beginning with the date of such event and
ending with the original Exercise Date stated in the Purchase Right, but
only upon payment of the full purchase price thereunder for the shares being
acquired (to the extent not already deposited) and satisfaction of any other
conditions to such exercise. An offeree shall have the opportunity to
exercise a Purchase Right upon or after the occurrence of any such event
only once, upon which exercise the Purchase Right shall terminate; the
offeree may not so exercise a Purchase Right for fewer than the number of
whole shares of Common Stock equal to the aggregate number of shares of
Common Stock the offeree has made a Commitment to purchase, multiplied by a
fraction, the numerator of which is the total amount the offeree has
deposited in quarterly installments pursuant to Section 7(3) through the
date of such termination and the denominator of which is the total purchase
price under the Commitment. The events are as follows:
(i) The sale by the Company of all or substantially all of its
assets;
(ii) Any of the following events if, immediately following such
event, a majority of the Directors consists of persons who were not
Directors immediately prior to the date of such event:
(a) the sale of 50% or more of the outstanding shares of Common
Stock of the Company in a single transaction;
(b) the consummation of a tender offer (by a party other than the
Company) for more than 50% of the outstanding shares of Common Stock
of the Company; or
(c) subject to Section 9(2) below, the consummation of a merger
or consolidation involving the Company; or
D-5
<PAGE>
(iii) An election of new Directors if immediately following such
election a majority of the Directors consists of persons who were not
nominated by management to stand for election as Directors in such
election.
(2) WHERE COMPANY DOES NOT SURVIVE. In the event of a merger or
consolidation to which the Company is a party but is not the surviving
company, the Committee in its discretion may vote to negate and give
no effect to the acceleration of Purchase Rights pursuant to Section
9(1)(ii)(c), but only if and to the extent that an executed agreement of
merger or consolidation provides that the offeree holding such a Purchase
Right shall receive the same merger consideration as the offeree would have
received as a stockholder of the Company had the exercisability of the
Purchase Right been accelerated in accordance with Section 9(1)(ii)(c) and
the offeree properly exercised the Purchase Right immediately prior to the
merger or consolidation and received the full number of shares the offeree
committed to purchase thereunder.
(3) LIQUIDATION OR DISSOLUTION. The provisions of Section 8 and
Subsections 9(1) and (2) shall not cause any Purchase Right to terminate
other than upon its exercise or in accordance with other applicable
provisions of the Plan. However, in the event of the liquidation or
dissolution of the Company, the Exercise Date of each outstanding
Purchase Right shall be the date of such liquidation or dissolution, the
Purchase Right shall be exercised on that date in accordance with Section
7(4), and the Purchase Right shall thereupon terminate, except to the extent
otherwise specifically provided in the Purchase Right agreement evidencing
the Purchase Right.
10. RIGHTS OF OFFEREES. No Employee shall have a right to be granted a
Purchase Right or, having received a Purchase Right, a right again to be granted
a Purchase Right. An offeree shall have no rights as a stockholder with respect
to any shares of Common Stock covered by his or her Purchase Right until and
only to the extent that shares are properly acquired on the Exercise Date of the
Purchase Right. Nothing in this Plan or in any Purchase Right granted pursuant
to the Plan shall confer on any individual any right to continue in the employ
of the Company or any Subsidiary or interfere in any way with the right of the
Company or any Subsidiary to terminate or modify the terms or conditions of the
employment of the Purchase Right holder.
11. AMENDMENT AND TERMINATION OF THE PLAN. The Board may at any time
amend, suspend or terminate the Plan in its discretion without further action on
the part of the stockholders of the Company, except that:
(1) no such amendment, suspension or termination of the Plan shall
adversely affect or impair any then outstanding Purchase Right without the
consent of the offeree holding the Purchase Right; and
(2) any such amendment, suspension or termination that requires
approval by the stockholders of the Company to comply with applicable
provisions of the Code, rules promulgated pursuant to
Section 16 of the Exchange Act, applicable state law or NASD or exchange
listing requirements shall be subject to approval by the stockholders of the
Company within the applicable time period prescribed thereunder, and shall
be null and void if such approval is not obtained.
D-6
<PAGE>
VARLEN CORPORATION AND SUBSIDIARIES Exhibit 11
COMPUTATION OF PER SHARE EARNINGS Page 1 of 2
(Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
For The Year Ended
----------------------------------------------------
Primary Earnings Per Share 1/31/94 1/31/93 1/31/92
- -------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Earnings before cumulative effect of change in
accounting principle $ 10,766 7,668 $ 3,244
Cumulative effect of change in accounting
principle, net of income taxes --- (1,351) ---
Proforma effect of applying accounting change
retroactively --- --- 200
------------ ------------ ------------
Net earnings $ 10,766 $ 6,317 $ 3,444
------------ ------------ ------------
------------ ------------ ------------
Computation of the Weighted Average Number of
Shares Outstanding as Used in the Primary
Earnings Per Share Computation:
Weighted average number of shares outstanding 4,815 6,748 6,736
------------ ------------- ------------
Shares assumed issued under the treasury
stock method 132 63 2
Purchase of treasury stock --- (133) ---
Weighted average number of shares outstanding, as adjusted 4,947 6,678 6,738
------------ ------------ ------------
------------ ------------ ------------
Primary Earnings Per Share:
Before accounting change $ 2.18 $ 1.15 $ 0.48
Accounting change --- (0.20) ---
Proforma effect of retroactive adoption of accounting principle --- --- 0.03
------------ ------------ ------------
Net earnings $ 2.18 $ 0.95 $ 0.51
------------ ------------ ------------
------------ ------------ ------------
Fully Diluted Earnings Per Share:
- --------------------------------
Reconciliation of net earnings per the financial statements
to the amount used for the fully diluted computation:
Earnings before cumulative effect of change in
accounting principle $ 10,766 $ 7,668 $ 3,244
Add interest on 6 1/2% convertible subordinated
debentures, net of income tax effects 1,874 --- ---
------------ ------------ ------------
Earnings before cumulative effect of change in
accounting principle, as adjusted 12,640 7,668 3,244
Cumulative effect of change in accounting
principle, net of income taxes --- (1,351) ---
Proforma effect of applying accounting change
retroactively --- --- 200
------------ ------------ ------------
Net earnings, as adjusted $ 12,640 $ 6,317 $ 3,444
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<PAGE>
VARLEN CORPORATION AND SUBSIDIARIES Exhibit 11
COMPUTATION OF PER SHARE EARNINGS Page 2 of 2
(Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
For The Year Ended
----------------------------------------------------
1/31/94 1/31/93 1/31/92
------------ ------------ ------------
<S> <C> <C> <C>
Computation of the Weighted Average Number of
Shares Outstanding as Used in the Fully
Diluted Earnings Per Share Computation:
Weighted average number of shares outstanding 4,815 6,748 6,736
Shares assumed issued under the treasury
stock method 154 63 2
Purchase of treasury stock --- (133) ---
Shares issuable from assumed exercise of
6 1/2% convertible subordinated debentures 1,694 --- ---
------------ ------------ ------------
Weighted average number of shares outstanding, as adjusted 6,663 6,678 6,738
------------ ------------ ------------
------------ ------------ ------------
Fully Diluted Earnings Per Share:
Before accounting change $ 1.90 $ 1.15 $ 0.48
Accounting change --- (0.20) ---
Proforma effect of retroactive adoption of accounting principle --- --- 0.03
------------ ------------ ------------
Net earnings $ 1.90 $ 0.95 $ 0.51
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
<PAGE>
VARLEN CORPORATION
______
ANNUAL
REPORT
1993
MANUFACTURER
OF ENGINEERED
PRODUCTS
<PAGE>
VARLEN AT A GLANCE
TRANSPORTATION PRODUCTS
[Graphic]
RAILROAD SHOCK ABSORPTION PRODUCTS including hydraulic cushioning, draft gears
and elastomeric pads; hopper car outlet gates.
PRIMARY MARKETS:
Locomotive and railcar manufacturers, lessors, railroads, railcar maintenance
facilities; mine, mill, off-highway vehicle manufacturers. Domestic and
international markets.
[Graphic]
RAILROAD TRACK FASTENING SYSTEMS
PRIMARY MARKETS:
Railroads and track contractors. Domestic and international markets.
[Graphic]
TRUCK AND TRAILER HUBS. Aluminum permanent mold and die castings, fuel water
separators and structural foam plastic parts.
PRIMARY MARKETS:
Class 8 trucks, over the road trailers and office equipment manufacturers.
[Graphic]
PRECISION HIGH VOLUME STAMPED METAL COMPONENTS and automatic transmission
reaction plates.
PRIMARY MARKETS:
Original equipment automotive manufacturers and tier 1 suppliers to the
automotive industry. After-market transmission rebuilders. Parts are found on
cars, trucks and vans.
<PAGE>
LABORATORY AND OTHER PRODUCTS
[Graphic]
CONSTANT TEMPERATURE APPLIANCES including waterbaths, incubators, ovens,
autoclaves.
PRIMARY MARKETS:
Industrial, governmental, educational and clinical research and development
laboratories. Markets worldwide.
[Graphic]
LABORATORY INSTRUMENTS for physical property analysis of petroleum products.
PRIMARY MARKETS:
Quality control analysis for oil refineries, petro-chemical plants, petroleum
transporters and end users. Markets worldwide.
[Graphic]
PROCESS INSTRUMENTS For physical property analysis of petroleum products.
PRIMARY MARKETS:
Quality control and process analysis for oil refineries, petro-chemical plants,
petroleum transporters and end users. Markets worldwide.
[Graphic]
FABRICATED TUBULAR STEEL PRODUCTS.
PRIMARY MARKETS:
Household, institutional and juvenile furniture manufacturers, lawn and garden
and toy manufacturers.
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
VARLEN CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1993(a) 1992(a) 1991(a)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEAR
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $291,908 $266,054 $230,517
Earnings Before Cumulative Effect of Change in
Accounting Principle . . . . . . . . . . . . . . . . . . . . . . . . 10,766 7,668 3,444
Cumulative Effect of Change in Accounting Principle . . . . . . . . . -- (1,351) --
Net Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,766 6,317 3,444
Earnings Before Cumulative Effect of Change in
Accounting Principle as a Percent of Sales . . . . . . . . . . . . . 3.7% 2.9% 1.5%
Return on Average Stockholders' Equity . . . . . . . . . . . . . . . . 18.0% 8.5% 4.8%
Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . 11,240 9,567 7,949
Depreciation and Amortization . . . . . . . . . . . . . . . . . . . . 12,901 11,940 11,244
- -------------------------------------------------------------------------------------------------------------------------
AT YEAR END
Working Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . $49,046 $39,570 $38,632
Net Property, Plant and Equipment . . . . . . . . . . . . . . . . . . 52,867 54,779 58,436
Total Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,820 74,679 63,261
Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . 63,644 53,788 73,031
Senior Debt as a Percent of Total Capitalization . . . . . . . . . . . 2.8% 58.1% 46.4%
Total Debt as a Percent of Total Capitalization . . . . . . . . . . . 53.4% 58.1% 46.4%
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Primary:
Earnings from Operations Before Cumulative
Effect of Change in Accounting Principle. . . . . . . . . . . . . $2.18 $1.15 $0.51
Net Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.18 0.95 0.51
Fully Diluted:
Earnings from Operations Before Cumulative
Effect of Change in Accounting Principle . . . . . . . . . . . . . 1.90 1.15 0.51
Net Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.90 0.95 0.51
Dividends Declared . . . . . . . . . . . . . . . . . . . . . . . . . . 0.40 0.40 0.40
Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . 13.13 11.33 10.84
- -------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Throughout this report the years ended January 31, 1994, 1993 and 1992 are
referred to as 1993, 1992, and 1991, respectively. The per share data in
1991 and 1992 reflect restatement for a 3 for 2 stock split effected in the
form of a stock dividend in 1993.
</TABLE>
1993 SEGMENT RESULTS
1993 NET SALES
by Segment
Laboratory and
Other Products
24.8%
Transportation
Products
75.2%
[Graphic]
1993 OPERATING PROFIT
by Segment
Laboratory and
Other Products
6.6%
Transportation
Products
93.4%
[Graphic]
<PAGE>
NET SALES
[Graphic]
FULLY DILUTED E.P.S. FROM CONTINUING OPERATIONS BEFORE ACCOUNTING CHANGE
[Graphic]
LETTER TO OUR SHAREOWNERS AND ASSOCIATES
Varlen had an active and very successful year in fiscal 1993. We enjoyed record
sales and earnings, significantly strengthened our balance sheet and provided
for financial and operating flexibility that will allow for continued growth.
One of our key goals - increasing investor value - was achieved as Varlen
generated an 18 percent return on stockholders' equity and an 11 percent return
on invested capital. Varlen's stock price reached record levels during the
year, ending 34 percent higher than on January 31, 1993.
RECORD RESULTS
Net income for fiscal 1993 increased 40 percent on a 10 percent increase in
sales, demonstrating Varlen's excellent operating leverage. Record sales of
$292,000,000 generated record net income of $10,766,000, or $1.90 per share on a
fully diluted basis. This compares very favorably to prior year results when
Varlen had sales of $266,000,000, earnings before the cumulative effect of a
change in accounting principle of $7,668,000, and earnings per share of $1.15.
For the fourth quarter, sales increased 4 percent to $68,632,000. Net
income grew by 31 percent to $2,100,000, or $.37 per share (fully diluted).
RESULTS OF OPERATIONS
Led by the large truck/trailer and automotive markets, Varlen's transportation
segment increased operating earnings 47 percent on a 20 percent increase in
sales. Strong market recovery, increased penetration and new products all
contributed to the success of this group. The benefits of continuous
improvement programs and increased volume had a dramatic impact on operating
margins, in spite of unrelenting pressure on selling prices.
Sales in Varlen's laboratory products segment contracted 13 percent in 1993
and operating income fell 60 percent. The decrease in earnings resulted from
the following charges and costs taken at our research laboratory appliance
business. In the first quarter, costs and losses of $633,000 before income
taxes, were incurred relating to the sale of a facility. In the third quarter,
a special pre-tax charge of $2,000,000 was taken as a result of actions,
including resizing, which were designed to return this operation to
profitability.
On a more positive note, improved operating results from Varlen's petroleum
instrument business and tubular products company demonstrated the ability of
these businesses to perform well in weak markets.
STRENGTHENED BALANCE SHEET
During the year, the following financial transactions occurred:
- - Sold $69,000,000 of convertible subordinated debentures with a coupon rate of
6.5 percent, convertible into Varlen common stock at $27.33 per share.
- - Secured an $80,000,000 revolving credit agreement that is more flexible than
the one it replaced.
- - Generated $21,100,000 in cash from operations that was used to pay down
$11,100,000 in high fixed interest rate debt, to acquire a small petroleum
instrument company for $5,400,000 and to fund capital investment.
- - A record level of capital expenditures of $11,200,000 (depreciation
$10,300,000) was used principally for cost reductions, quality programs and
capacity increases. For 1994,
[Photograph]
ERNEST H. LORCH AND RICHARD L. WELLEK.
<PAGE>
capital expenditures are budgeted at approximately $13,100,000 (depreciation
$11,400,000).
Varlen ended the year with $5,200,000 in cash and short-term investments,
and no debt outstanding under the revolving credit agreement. Our strengthened
balance sheet will allow us to continue our strategic objective - growing our
core businesses through internal expansion and by complimentary acquisitions.
STRATEGY FOR GROWTH
Varlen has grown over the years by both internal expansion and acquisition.
Whenever possible, we foster internal growth in all our core businesses by a
heavy commitment to product development, global market share gains and
continuous improvement programs aimed at lowering costs and improving quality.
We will also continue to support strategic growth by acquiring businesses that
enhance or expand our capabilities in core markets.
The reverse side of our plan for focused growth is the shedding of
under-performing assets. Operations that do not compliment our core markets or
do not meet minimum financial targets will be divested or liquidated.
OUTLOOK
A year ago we commented that Varlen was well-positioned and prepared for the
economic recovery that is now underway. Some of our markets were stronger than
we anticipated in 1993, while others were weaker. As we begin 1994, we remain
very optimistic about the future, but are not relaxing because of last year's
excellent results. As we look ahead, we see many opportunities both
domestically and internationally. But even with the economic climate improving,
operating a business will not become easier. Global competition, rising raw
material prices and customers' increased demands for better quality at lower
prices will mean that Varlen will have to quicken its already lively pace of
product development and continuous improvement programs.
We anticipate further growth of our transportation segment as the large
truck/trailer, light vehicle and railroad markets remain strong. Sales of
passenger vehicles are expected to grow five to seven percent in 1994. While
the sales of large trucks may soften slightly from their high levels during
1993, we are planning for higher demand for our large-truck products because of
increased penetration of that market. The railroad industry is coming off of a
record level of revenue ton miles in 1993 and, if industrial production
continues to expand, another record could be set in 1994.
Our outlook for the laboratory products segment is cautiously optimistic.
Varlen's petroleum instrument businesses are positioned to improve on last
year's good performance because of new products and increased market
penetration, in spite of stagnant demand due to low oil prices. Research and
development funds at pharmaceutical companies and life science research
institutions will remain weak in 1994. As a result of the actions taken in
1993, the research laboratory appliance business should be able to operate at
least at break- even levels, even if market demand does not increase. New
customers, new products and the benefit of last year's cost reduction programs
should allow our tubular products business to improve in 1994.
All-in-all, your company is strong and well positioned for another year of
growth. On behalf of our management team and the Company's board of directors,
we extend our sincere appreciation for the support of our shareowners, the
dedication and hard work of our employees, and the loyalty of our customers and
suppliers.
Ernest H. Lorch
Chairman of the Board
Richard L. Wellek
President and Chief Executive Officer
March 7, 1994
NET EARNINGS
[Graphic]
RETURN ON AVERAGE STOCKHOLDERS' EQUITY
[Graphic]
TOTAL DEBT TO CAPITALIZATION
[Graphic]
BOOK VALUE PER SHARE
[Graphic]
<PAGE>
THE VARLEN MISSION
Varlen's primary objective is to increase the long-term value of its
shareowners' investment. This will be achieved by building upon our employees'
creativity and their commitment to serving customers better and more efficiently
than our competitors do in the markets where Varlen chooses to compete.
Varlen will invest resources in selected industrial markets where it has,
or can obtain, a leadership position; we will redeploy resources from markets
where we cannot. We will continue to enhance our global presence. Varlen's
engineered products for the niche markets in which it participates are
characterized by differentiable process technology employed in their manufacture
and/or superior performance attributes. Our dedication to continuous
improvement will be unrelenting.
REVIEW OF OPERATIONS
TRANSPORTATION PRODUCTS
With a recovering economy and significant new programs, the Transportation
segment posted record revenues and earnings in 1993, and outperformed its
markets.
The North American heavy-duty truck and trailer markets substantially
outpaced the economic recovery in 1993, and ended the year with manufacturer
backlogs strong enough to maintain high production schedules through the first
half of 1994. With strong demand from Freightliner and Paccar - Class 8 truck
market leaders and our largest customers in this industry - Varlen's sales to
this market increased approximately 30 percent. The ability to actively support
our customers' development engineering initiatives led to breakthrough programs
to fuel growth and more than offset lower selling prices. We also significantly
increased the penetration of our proprietary aluminum hubs in the
[Photograph]
Left to right: George W. Hoffman, Group Vice President, Raymond A. Jean,
Executive Vice President and Chief Operating Officer.
<PAGE>
[Photograph]
trailer market. As truckers continuously push to increase their payload
capacity and reduce operating expenses, demand increases for our lightweight
aluminum and plastic components. Although these markets may pull back slightly
in the second half as pent-up replacement demand is satisfied, further
penetration gains should allow us to keep growing during 1994.
North American light vehicle production rebounded sharply in 1993 to 13.6
million vehicles, up approximately 13 percent over 1992. With light trucks and
sport utility vehicles, a strong portion of the market for us, capturing a
larger share of industry sales - Varlen sales increased approximately 17
percent. The industry entered 1994 with considerable momentum, and most
analysts are forecasting growth of about 7 percent. Based upon this industry
growth and the start-up of new programs with which we are associated, we expect
to again outperform the market in 1994. In the face of selling price erosion,
accelerating the pace of process improvement and other manufacturing engineering
productivity initiatives remains a business imperative.
TRANSPORTATION PRODUCTS
NET SALES
TRANSPORTATION PRODUCTS
[Graphic]
OPERATING PROFIT
TRANSPORTATION PRODUCTS
[Graphic]
<PAGE>
[Photograph]
VARLEN IS THE LEADING MANUFACTURER OF ALUMINUM AXLE HUBS FOR HEAVY DUTY TRUCKS
AND TRAILERS.
THE LATEST ENGINEERING TECHNIQUES ARE USED TO SPEED NEW PRODUCT DEVELOPMENT.
Railroads have become a far more productive industry by hauling more
freight with fewer employees, trains and miles of track, and their resurgence
bodes well for Varlen's sales growth in this market. Revenue ton-miles increased
3.1 percent in 1993, while Varlen's sales to this industry increased
approximately 10 percent. Additional growth is anticipated in 1994 with new car
builds and aftermarket demand for shock control devices projected to increase.
Our nation's railroads are placing a stronger focus on their customers' needs,
and to do so requires improved and more reliable rolling stock and track beds.
Varlen's technology leadership across its product lines enables it to provide
customers with the products they require for continued growth. Also, we will
continue an aggressive program of strengthening our international reach by
introducing five new products for the European market.
LABORATORY AND OTHER PRODUCTS
In 1993, a weak market for constant temperature appliances used by R&D
laboratories and slightly reduced sales of tubular components coupled with flat
sales to the petroleum industry caused a decline in sales in this segment.
<PAGE>
[Photograph]
LABORATORY AND OTHER PRODUCTS
NET SALES
LABORATORY AND OTHER PRODUCTS
[Graphic]
OPERATING PROFIT
LABORATORY AND OTHER PRODUCTS
[Graphic]
For 1994, continued low crude oil prices could have a dampening effect on
the petroleum industry. However, if demand from Asia, the former Soviet Union
and Eastern Europe remains strong, the U.S. economy strengthens, and with the
full year impact of our latest acquisition in this market - Alcor - results
should improve further. In addition, eight new or enhanced analyzers will be
introduced for the petroleum industry in 1994. These products, for both
in-process measurement and laboratory verification of the physical properties of
petroleum products, are designed to increase our customers' productivity and
improve quality control. We also plan to intensify our efforts toward
strengthening our global distribution channel to this industry.
The uncertainty surrounding health care, weak international markets, and
the downsizing of the defense sector will continue to dampen demand for research
laboratory equipment. Last year, we divested a facility and resized another to
substantially lower its break-even point. With its lower cost position, an
improved product offering, and new marketing programs, this unit is positioned
to return to profitability.
<PAGE>
[Photograph]
VARLEN'S HYDRAVLIC CUSHIONING PRODUCTS PROTECT FREIGHT CARS AND THEIR CARGO FROM
HIGH IMPACT FORCES.
INSTRUMENTS TO TEST JET FUEL ARE MANUFACTURED BY ALCOR, VARLEN'S LATEST
AQUISITION.
Revenues at our tubular components business were down slightly in 1993 as
demand in two market segments shifted away from metal tubing. However, by
consolidating production into one facility, operating profits improved. During
1994, new products will be introduced, new customers added, and with the broad
based improvement in the consumer markets we serve in this business, we
anticipate substantially improved results.
OPERATING COMMITMENT
Achieving continuous productivity gains through new/redesigned products,
new processes, and involved people will be our key to sustained profitable
growth in the 1990's. Varlen may serve mature markets, but with a customer
driven, innovative attitude, we see many opportunities for Varlen to grow, both
domestically and internationally.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
(YEAR ENDED JANUARY 31, 1994 (1993) AS COMPARED TO THE YEAR ENDED JANUARY 31,
1993 (1992)
OVERVIEW
The Company designs, manufactures and markets a diverse range of products
in its transportation products and laboratory and other products business
segments. These products are marketed to the railroad, heavy duty truck and
trailer and automotive industries, as well as to the life sciences research,
petroleum and consumer products industries. The demand for the Company's
products is affected by economic conditions in the United States and
internationally. The Company's manufacturing operations have a significant
fixed cost component. Accordingly, during periods of changing product demand
the profitability of many of the Company's operations will change
proportionately more than revenues of such operations.
OPERATIONS
The Company's sales for fiscal 1993 were $291.9 million, up $25.8 million
or 9.7% from sales of $266.1 million in 1992. Sales increased in the
transportation segment where all businesses exceeded prior year, but declined in
the laboratory and other products segment.
Net earnings were $10.8 million or $2.18 per share on a primary basis and
$1.90 on a fully diluted basis. This represented a 40.4% increase over the $7.7
million or $1.15 per share on a primary and fully diluted basis before the
cumulative effect of a change in accounting principle in 1992. Net earnings in
1992 were $6.3 million or $.95 per share on both a primary and fully diluted
basis after reflecting an after tax charge of $1.4 million to adopt Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Post-Retirement Benefits Other Than Pensions".
Third quarter 1993 results included a special pre-tax charge of $2.0
million ($1.1 million after tax) taken against the Company's research laboratory
appliance products operation. The impact of this charge on net earnings per
share was $.22 on a primary basis and $.15 on a fully diluted basis. The charge
reflects costs incurred in connection with a work force reduction, installation
of a new management team, valuation of certain inventory and other realignments
designed to resize this unit and return it to profitability.
Per share amounts in 1993 were positively affected by the repurchase of
approximately 30% of the Company's outstanding common stock from its founding
stockholder in January, 1993.
TRANSPORTATION PRODUCTS
Transportation products revenues increased 20% to $219.5 million, as
compared to $182.9 million in 1992. All operating units in this segment had
higher sales than during the prior year's period, as a result of increased
customer demand and new products. Operating profit was $27.9 million (12.7% of
segment sales) a 47% increase over the $19.0 million (10.4% of segment sales)
during 1992. Cost reduction programs and higher product sales resulted in
improved plant utilization and increased profitability.
Heavy duty truck and trailer industry sales were substantially higher in
the 1993 period than in the prior year, and the Company benefitted from this
improvement. In addition, the Company benefitted as its largest heavy duty
truck customer maintained its number one market share position during 1993.
Automotive industry sales, particularly light truck sales, increased during 1993
over the year earlier period, as did sales at the Company's automotive parts
operation. The Company also benefitted from a full year of production of a
popular new platform of automobiles by its second largest automotive customer.
Demand for the Company's railroad products increased as railroad revenue ton
miles and new freight car builds increased over 1992. Despite volume increases,
the transportation products segment continued to experience sales price
reductions.
LABORATORY AND OTHER PRODUCTS
Sales in the laboratory and other products segment for 1993 declined to
$72.4 million compared to $83.2 million in 1992. The decline in revenues in
this segment occurred in the laboratory appliance business which provides
products to life science research and development laboratories. The combination
of the European recession, delays in releasing government funding and
uncertainty about health care legislation depressed demand for
<PAGE>
[Photograph]
RICHARD A. NUNEMAKER
VICE PRESIDENT, FINANCE AND CFO
equipment used in life science research. Additionally, a small laboratory
appliance facility that had sales of approximately $9.5 million in 1992 was sold
at the beginning of the second quarter of 1993. Sales elsewhere in the segment
were similar year to year.
Operating profit for the laboratory and other products segment decreased to
$2.0 million (2.7% of segment sales) compared to $4.9 million (5.9% of segment
sales) in the prior year's period. Operating profit in 1993 was affected by the
previously discussed $2.0 million charge taken against the research laboratory
products operation. Additionally, in the first quarter of 1993, operating
profits included $.6 million of pre-tax costs and losses related to the
operation and disposition of the small laboratory products facility discussed
above. Improved profits at the tubular metal goods and petroleum analysis
instrument business in 1993 were more than offset by operating losses at the
laboratory appliance operation. During 1993, foreign currency fluctuations had a
$1.1 million negative impact on segment sales and a $.2 million negative impact
on operating profit compared to 1992.
COST OF SALES
Consolidated gross margin increased to 24.0% in 1993 from 23.8% in 1992.
The transportation products segment gross margin increased. This increase
resulted from increased sales and lower operating costs due to ongoing cost
reduction programs partially offset by selling price reductions particularly in
the railroad products business which had a declining gross margin as a
percentage of sales. The gross margin of the laboratory and other products
segment declined to 27.4% during 1993 compared to 27.6% in the prior year. The
laboratory appliance business had a lower gross margin in 1993 due to the $2.0
million charge previously discussed. However, at the petroleum analysis
instrument operations, gross margin as a percent of sales increased. During
1993, raw material costs in both segments were relatively unchanged except for a
decrease in aluminum prices and increases in most steel products, particularly
in the latter part of the year.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses of $45.1 million in 1993 as a
percentage of sales were 15.5%, down from the 1992 level of 16.6% of sales. In
the transportation products segment, selling, general and administrative
expenses as a percent of sales declined versus 1992 due to increased sales while
the dollar amount of these expenses increased approximately 4.7%. In the
laboratory and other products segment, selling, general and administrative
expenses as a percent of sales increased during 1993 compared to 1992
principally as a result of the $2.0 million charge at the laboratory appliance
business.
INTEREST EXPENSE AND INCOME TAXES
Gross interest expense for 1993 was $6.3 million compared to $4.9 million
for the prior year's period. Interest expense reflected lower interest rates on
higher average borrowings. During the fourth quarter of 1992, the Company
increased its borrowings to finance a repurchase of approximately 30% of its
common stock from its founding stockholder.
Income taxes were provided at an effective rate of 42.5% in 1993 and 46.7%
in 1992. The higher than statutory federal rate reflects non-deductible
goodwill amortization, higher taxes on foreign operations and state income
taxes. The effective tax rate declined in 1993 principally as a result of
higher consolidated pre-tax earnings and a reduction in the statutory tax rates
in Germany offset partially by United States statutory tax rate increases.
FOURTH QUARTER
Sales for the fourth quarter of 1993 were $68.6 million, up 3.8% from the
$66.1 million reported in 1992. Sales in the transportation products segment
increased as strong customer demand in the heavy duty truck and automotive
industries continued, while sales in the laboratory and other products segment
were down principally as the result of the sale of the previously discussed
facility in 1993.
Net earnings were $2.1 million or $.41 per share primary ($.37 fully
diluted) in 1993's fourth quarter compared to $1.6 million or $.25 per share in
the year ago period. In 1993, the laboratory and other products segment's
profitability increased principally due to lower operating losses at the
laboratory appliance and tubular metal goods
<PAGE>
operations. In the transportation products segment, operating profit was flat
as the heavy duty truck and automotive operating profit increases were offset by
lower earnings at the railroad businesses. Interest expense increased due to
higher average borrowings resulting in earnings before income taxes being flat
year to year. The effective income tax rate in the fourth quarter of 1993 was
significantly lower than in the 1992 period.
CAPITAL RESOURCES AND LIQUIDITY
During the three year period ended January 31, 1994, the Company generated
$55.8 million of cash from operating activities. As of January 31, 1994, the
Company's working capital was $49.0 million, its total assets were $186.3
million, its total debt, excluding current portion, was $72.7 million and its
stockholders' equity was $63.6 million.
Investing activities during the three year period ended January 31, 1994
included capital expenditures of $28.8 million. These expenditures were
primarily for machinery and equipment to support new products and to improve
operating efficiency. At January 31, 1994 the Company did not have any material
commitments for capital expenditures. During the second quarter of 1993, a small
facility was sold for cash plus an interest bearing note.
On May 27, 1993, the Company publicly issued $60 million of its 6.5%
Convertible Subordinated Debentures Due 2003, the proceeds of which were used to
reduce indebtedness under the revolving credit facility. On June 18, 1993, an
additional $9 million of the same debentures were issued pursuant to an
over-allotment option granted to the underwriter of the debentures. To support
its investing activities, the Company entered into a new $80 million revolving
credit agreement in the fourth quarter of 1993 which expires on December 6,
1997. This credit facility will be used by the Company as the principal source
of acquisition funding. At January 31, 1994, the Company had no debt
outstanding under this credit facility. The percentage of debt to total
capitalization at January 31, 1994 was 53.4%, down from 58.1% at January 31,
1993. The Company believes that internally generated funds will be sufficient to
satisfy its anticipated working capital needs, capital expenditures and
scheduled debt repayments.
RESULTS OF OPERATIONS
(YEAR ENDED JANUARY 31, 1993 (1992) AS COMPARED TO THE YEAR ENDED JANUARY 31,
1992 (1991)
Sales for 1992 were $266.1 million, up $35.6 million or 15.4% from 1991
sales of $230.5 million. Sales increased in both business segments with the
transportation products segment accounting for most of the revenue increase.
Sales in all transportation products businesses and certain laboratory and other
products businesses exceeded the prior year.
Earnings before the cumulative effect of a change in accounting principle
were $7.7 million or $1.15 per share for 1992, a 123% increase over the prior
year's results of $3.4 million or $.51 per share. Following the trend in
revenues, the transportation products segment had a significant improvement in
operating profit while the profit increase in the laboratory and other products
segment was marginal. Net earnings in 1992 were $6.3 million or $.95 per share
after reflecting an after tax charge of $1.4 million to adopt Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions". The impact of this Statement is
further discussed in note 11 to the consolidated financial statements.
Transportation products revenues were $182.9 million, a 22.8% increase over
the prior year's revenues of $148.9 million. All operating units in this
segment had higher sales than during the prior year's period, primarily as a
result of increased customer demand. Additionally, all units introduced new
products during the year. Operating profit for 1992 increased 51.8% to $19.0
million (10.4% of segment sales) compared to $12.5 million (8.4% of segment
sales) in the 1991 period, as higher product sales resulted in improved plant
utilization and increased profitability.
Railroad revenue ton miles and car loadings increased during 1992, which
spurred demand for the Company's railroad products. Sales of products for new
rail cars and aftermarket sales for refurbishing existing rail cars increased
compared to the prior year. Heavy duty truck and trailer industry sales were
also higher than in the prior year and the Company benefitted from this
improvement. In addition, the Company benefitted as its largest
<PAGE>
heavy duty truck customer continued to gain market share during this period.
Automotive sales, particularly light truck sales, increased during this period
over the year earlier period, as did sales at the Company's automotive parts
operations. Despite volume increases, the transportation products segment was
not able to increase selling prices, and in some cases experienced price
reductions.
Sales in the laboratory and other products segment were $83.2 million, a
1.9% increase over 1991. A revenue decline in the Company's tubular steel
components operation was offset by increased laboratory products sales.
Comparing 1992 to 1991, currency fluctuations resulted in an increase in sales
and operating profit within this segment of approximately $1.0 million and
$175,000, respectively.
Operating profit for the laboratory and other products segment in 1992
increased 1.5% to $4.9 million (5.9% of segment sales) compared to $4.8 million
(5.9% of segment sales) in the prior year. The Company's laboratory appliance
operations benefitted from the Company's program to rationalize the
manufacturing processes of these operations, resulting in better plant
utilization despite lower customer demand in the last half of the year. In
1991, the Company combined production from a plant acquired in 1990 with its
existing laboratory appliance operations and vacated the acquired facility,
which was sold in March 1992. The Company's petroleum analysis instrument
operations had lower operating profit compared to the prior year because of
increased product development and engineering costs, partially offset by foreign
currency translation gains. Operating profit at the tubular steel components
operation declined, yet remained profitable.
Consolidated gross margin increased to 23.8% in 1992 from 21.9% in 1991.
This increase was broad based across most businesses in both business segments;
however, the transportation products segment provided the majority of this
increase. In 1992, the Company's consolidated gross margin was positively
affected by increased sales and lower operating costs which resulted from the
Company's ongoing cost reduction programs. In the laboratory and other products
business segment, the improved plant utilization and rationalization of
manufacturing processes discussed above positively affected full year gross
margins, although in the fourth quarter laboratory apparatus margins declined
due to lower plant throughput. Hourly labor rates in 1992 were not
significantly higher than those in 1991. Raw material costs were relatively
unchanged from the prior year's period, with the exception of aluminum prices
which decreased approximately 8%. However, near the end of 1992, lead times
from vendors for certain raw materials increased, which often is followed by
price increases.
Selling, general and administrative expenses in 1992 as a percentage of
sales were 16.6% compared to 16.3% in the prior year. During the fourth quarter
the Company expensed costs incurred with an unsuccessful 1992 primary and
secondary public offering of common stock. Despite a 22.8% revenue increase,
selling, general and administrative expenses of the transportation products
segment as a percent of sales were essentially unchanged and did not decline due
to several factors. The railroad products businesses incurred increased
expenses in support of product and market development, particularly related to
developing products for international markets. The Company's automotive parts
operation incurred costs during this period as it replaced its independent sales
representatives with a direct sales force. Within the laboratory and other
products segment, selling, general and administrative expenses as a percent of
sales were up as a result of increased expenditures for product development and
engineering in the Company's petroleum analysis instrument operations and costs
to be incurred in the closure of a small manufacturing facility producing steel
tubing.
Gross interest expense for 1992 was $4.9 million compared to $5.8 million
in the prior year. Interest expense declined due to lower borrowings, reduced
domestic interest rates and less dependence on higher rate
deutschemark-denominated debt.
Income taxes were provided at an effective rate of 46.7% for 1992 compared
to 53.0% in 1991. The higher than statutory federal rate reflects
non-deductible goodwill amortization, higher taxes on foreign operations and
state income taxes.
<PAGE>
BOARD OF DIRECTORS
ERNEST H. LORCH, AGE 61 -
*Of Counsel to Whitman Breed Abbott &
Morgan, Attorneys
Director of EnviroSource, Inc.
Director of Tyler Corporation
RUDOLPH GRUA, AGE 65 +
*President, Chief Executive Officer and Director of General Binding Corporation
L. WILLIAM MILES, AGE 60 -
*Vice President for Administration, Fairfield University, Connecticut
GREG A. ROSENBAUM, AGE 41 - +
*President, Palisades Associates, Inc.
Director of Richey Electronics, Inc.
THEODORE A. RUPPERT, AGE 63 +
*General Partner, Village Development Chairman of Pioneer Bank and Trust and
Director of Glaize Development
RICHARD L. WELLEK, AGE 55
*President and Chief Executive Officer
* Principal Occupation
+ Member Audit Committee
- - Member Compensation Committee
OFFICERS
ERNEST H. LORCH, AGE 61
Chairman (1985); B.A. Middlebury College; J.D. University of Virginia
RICHARD L. WELLEK, AGE 55
President and Chief Executive Officer (1983); Formerly Group Executive -- Metals
(1983); National Metalwares, Inc. subsidiary (1968-1983); President (1980-1983);
Executive Vice President, Chief Operating Officer (1977-1980); Vice President
(1972-1977); B.S. Industrial Management University of Illinois
RAYMOND A. JEAN, AGE 51
Executive Vice President and Chief Operating Officer (1993); Group Vice
President (1988-1992); Formerly Pneumo/Abex Corp., Vice President -- Fluid Power
Group (1987-1988); President Railroad Products Division (1987); Vice President
and General Manager Trackwork Division (1983-1987); B.S. Engineering Physics
University of Maine; MBA University of Chicago
GEORGE W. HOFFMAN, AGE 53
Group Vice President (1990); President Keystone Railway Equipment Company
subsidiary (1984); Formerly Executive Vice President, Vice President Operations
(1979-1984); Director of Manufacturing NL Industries, Titanium Pigment Division
(1976-1979); B.S. Chemical Engineering University of Pittsburgh
RICHARD A. NUNEMAKER, AGE 45
Vice President, Finance and Chief Financial Officer (1991); Vice President,
Controller (1987); Corporate Controller (1986); Formerly Diversifoods, Inc. Vice
President and Controller (1984-1986); Esmark, Inc. Assistant Controller
(1980-1984); B.S. Accountancy; M.A.S. University of Illinois, C.P.A.
STEPHEN A. MAGIDA, AGE 50
Secretary (1984);
Partner in the Law Firm of Dechert Price & Rhoads (1991); Partner in the Law
Firm of Olwine, Connelly, Chase, O'Donnell & Weyher (1980-1991); B.S. Economics
Wharton School; LL.B. Columbia Law School
GENERAL INFORMATION
GENERAL COUNSEL
Dechert Price & Rhoads
477 Madison Avenue
New York, New York 10022
TRANSFER AGENT
Harris Trust & Savings Bank
111 West Monroe Street
Chicago, Illinois 60690
INDEPENDENT AUDITORS
Deloitte & Touche
Two Prudential Plaza
180 North Stetson Avenue
Chicago, Illinois 60601
SHARES LISTED
Varlen Corporation common stock is traded on the NASDAQ National Market under
the symbol VRLN and its 6 1/2 percent convertible subordinated debentures are
traded on the NASDAQ SmallCap Market under the symbol VRLNG.
INFORMATION CONTACT:
Richard A. Nunemaker
Vice President, Finance and Chief Financial Officer
55 Shuman Boulevard
P.O. Box 3089
Naperville, Illinois 60566-7089
(708) 420-0400
ANNUAL MEETING
The Annual Meeting of Stockholders will be held at 10 a.m. (local time) Tuesday,
May 24, 1994 at the Hyatt Lisle
1400 Corporetum Drive
Lisle, Illinois 60532
FORM 10-K:
Stockholders may obtain a copy of Form 10-K for the year ended January 31, 1994
as filed by the Company with the SEC without charge by addressing a written
request to Richard A. Nunemaker, Vice President, Finance and Chief Financial
Officer, Varlen Corporation at the corporate office.
<PAGE>
OPERATING DIVISIONS AND SUBSIDIARIES
[Logo]
ALCOR PETROLEUM INSTRUMENTS, INC.
San Antonio, Texas
[Logo]
CONSOLIDATED METCO, INC.
Portland, Oregon
Cashiers, North Carolina
Clackamas, Oregon
Monroe, North Carolina
[Logo]
WALTER HERZOG GMBH
Lauda, Germany (2)
[Logo]
KEYSTONE RAILWAY
EQUIPMENT COMPANY
Camp Hill, Pennsylvania
McPherson, Kansas
[Logo]
MEANS INDUSTRIES, INC.
Saginaw, Michigan
Melvindale, Michigan
Vassar, Michigan
[Logo]
NATIONAL METALWARES, INC.
Aurora, Illinois
[Logo]
PRECISION SCIENTIFIC
PETROLEUM INSTRUMENTS
COMPANY
Bellwood, Illinois
[Logo]
PRECISION SCIENTIFIC, INC.
Chicago, Illinois
[Logo]
UNIT RAIL ANCHOR COMPANY
Atchison, Kansas
[Logo]
VARLEN CORPORATION
55 Shuman Blvd.
P.O. Box 3089
Naperville, Illinois 60566-7089
(708) 420-0400
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SUMMARY OF OPERATIONS
VARLEN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1993 1992* 1991* 1990* 1989*
- -------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS:
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . $291,908 $266,054 $230,517 $242,786 $226,741
-------- -------- -------- -------- --------
Earnings from continuing operations
before income taxes . . . . . . . . . . . . . . . . . . . 18,723 14,374 7,334 10,213 17,847
Income tax expense . . . . . . . . . . . . . . . . . . . . . 7,957 6,706 3,890 4,528 7,552
-------- -------- -------- -------- --------
Earnings from continuing operations before
cumulative effect of change in accounting principle . . . 10,766 7,668 3,444 5,685 10,295
Discontinued operations less applicable income taxes . . . . -- -- -- -- 288
Cumulative effect of change in accounting principle . . . . -- (1,351) -- -- (1,813)
-------- -------- -------- -------- --------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . $ 10,766 $ 6,317 $ 3,444 $ 5,685 $ 8,770
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
- -------------------------------------------------------------------------------------------------------------------------------
Gross profit as a percent of sales . . . . . . . . . . . . . 24.0% 23.8% 21.9% 22.0% 22.5%
Earnings from continuing operations before cumulative effect
of change in accounting principle as a percent of sales. . 3.7% 2.9% 1.5% 2.3% 4.5%
- -------------------------------------------------------------------------------------------------------------------------------
Effective tax rate for continuing operations before
cumulative effect of change in accounting principle. . . . 42.5% 46.7% 53.0% 44.3% 42.3%
- -------------------------------------------------------------------------------------------------------------------------------
Per share data--primary:
Earnings from continuing operations before cumulative
effect of change in accounting principle . . . . . . . . $ 2.18 $ 1.15 $ 0.51 $ 0.84 $ 1.53
Net earnings . . . . . . . . . . . . . . . . . . . . . . . 2.18 0.95 0.51 0.84 1.30
Per share data--fully diluted:
Earnings from continuing operations before cumulative
effect of change in accounting principle . . . . . . . . 1.90 1.15 0.51 0.84 1.53
Net earnings . . . . . . . . . . . . . . . . . . . . . . . 1.90 0.95 0.51 0.84 1.30
Dividends declared . . . . . . . . . . . . . . . . . . . . . 0.40 0.40 0.40 0.40 0.40
- -------------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares-primary . . . . . . . . . 4,947 6,678 6,738 6,734 6,728
Weighted average number of shares-fully diluted. . . . . . . 6,663 6,678 6,738 6,734 6,728
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SUMMARY OF FINANCIAL CONDITION
VARLEN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1993 1992* 1991* 1990* 1989*
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets . . . . . . . . . . . . . . . . . . . . . . . . $186,264 $180,666 $182,279 $185,081 $156,351
- -------------------------------------------------------------------------------------------------------------------------------
Working capital . . . . . . . . . . . . . . . . . . . . . . $ 49,046 $ 39,570 $ 38,632 $ 38,120 $ 36,615
Ratios:
Current assets to current liabilities . . . . . . . . . 2.4/1 1.9/1 2.0/1 2.0/1 2.2/1
Average inventory turnover . . . . . . . . . . . . . . . 6.1 5.7 5.0 5.1 5.6
Average accounts receivable turnover . . . . . . . . . . 8.1 7.5 7.3 8.0 8.5
- -------------------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment . . . . . . . . . . . . . $ 52,867 $ 54,779 $ 58,436 $ 59,576 $ 50,360
Capital expenditures . . . . . . . . . . . . . . . . . . . . 11,240 9,567 7,949 8,177 8,928
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . 10,295 9,488 8,794 7,766 5,812
- -------------------------------------------------------------------------------------------------------------------------------
Debt:
Senior debt . . . . . . . . . . . . . . . . . . . . . . . $ 3,820 $ 74,679 $ 63,261 $ 68,543 $ 47,194
Senior debt as a percent of total capitalization . . . . . 2.8% 58.1% 46.4% 48.7% 40.6%
Total debt . . . . . . . . . . . . . . . . . . . . . . . . $ 72,820 $ 74,679 $ 63,261 $ 68,543 $ 47,194
Total debt as a percent of total capitalization . . . . . 53.4% 58.1% 46.4% 48.7% 40.6%
- -------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity . . . . . . . . . . . . . . . . . . . . $ 63,644 $ 53,788 $ 73,031 $ 72,075 $ 68,971
Stockholders' equity per share . . . . . . . . . . . . . . . 13.13 11.33 10.84 10.71 10.25
Return on average stockholders' equity . . . . . . . . . . . 18.0% 8.5% 4.8% 8.1% 13.8%
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
* The per share data and weighted average number of shares outstanding were
restated for a 3 for 2 stock split effected in the form of a stock dividend in
1993.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
VARLEN CORPORATION AND SUBSIDIARIES YEAR ENDED JANUARY 31
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $291,908 $266,054 $230,517
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221,988 202,829 180,000
-------- -------- --------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,920 63,225 50,517
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . 45,087 44,021 37,557
-------- -------- --------
Earnings before interest and income taxes . . . . . . . . . . . . . . . . . . . . . 24,833 19,204 12,960
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,332) (4,867) (5,805)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222 37 179
-------- -------- --------
Earnings before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,723 14,374 7,334
Income tax expense (note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,957 6,706 3,890
-------- -------- --------
Earnings before cumulative effect of change in accounting principle . . . . . . . . 10,766 7,668 3,444
Cumulative effect of change in accounting principle,
net of income taxes of $808 (note 11). . . . . . . . . . . . . . . . . . . . . . . -- (1,351) --
-------- -------- --------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,766 $ 6,317 $ 3,444
-------- -------- --------
-------- -------- --------
Weighted average number of shares--primary . . . . . . . . . . . . . . . . . . . . . 4,947 6,678 6,738
-------- -------- --------
-------- -------- --------
Weighted average number of shares--fully diluted . . . . . . . . . . . . . . . . . . 6,663 6,678 6,738
-------- -------- --------
-------- -------- --------
Primary earnings per share:
Earnings before change in accounting principle . . . . . . . . . . . . . . . . . . $ 2.18 $ 1.15 $ 0.51
Change in accounting principle . . . . . . . . . . . . . . . . . . . . . . . . . . -- (0.20) --
-------- -------- --------
Net earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.18 $ 0.95 $ 0.51
-------- -------- --------
-------- -------- --------
Fully diluted earnings per share:
Earnings before change in accounting principle . . . . . . . . . . . . . . . . . . $ 1.90 $ 1.15 $ 0.51
Change in accounting principle . . . . . . . . . . . . . . . . . . . . . . . . . . -- (0.20) --
-------- -------- --------
Net earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.90 $ 0.95 $ 0.51
-------- -------- --------
-------- -------- --------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Deferred Total
Additional stock stock-
Common paid-in Retained compen- Treasury holders'
(IN THOUSANDS, EXCEPT PER SHARE DATA) stock capital earnings sation stock equity
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at February 1, 1991 . . . . . . . . $449 $12,139 $59,487 $ -- $ -- $72,075
Issuance of common stock under options . . . -- 127 -- -- -- 127
Net earnings . . . . . . . . . . . . . . . . -- -- 3,444 -- -- 3,444
Cash dividends ($.40 per share) . . . . . . -- -- (2,695) -- -- (2,695)
Currency translation adjustments--unrealized -- -- 80 -- -- 80
-------- -------- -------- -------- -------- --------
Balance at January 31, 1992 . . . . . . . . 449 12,266 60,316 -- -- 73,031
Issuance of common stock under options . . . 3 491 -- -- -- 494
Net earnings . . . . . . . . . . . . . . . . -- -- 6,317 -- -- 6,317
Cash dividends ($.40 per share) . . . . . . -- -- (2,499) -- -- (2,499)
Purchase of 2,033 shares of
common stock (note 14) . . . . . . . . . . -- -- -- -- (23,155) (23,155)
Currency translation adjustments--unrealized -- -- (400) -- -- (400)
-------- -------- -------- -------- -------- --------
Balance at January 31, 1993 . . . . . . . . 452 12,757 63,734 -- (23,155) 53,788
Issuance of common stock under options . . . 1 309 (71) -- 892 1,131
Deferred incentive stock purchase plan . . . -- 2,577 (1,550) (1,027) -- --
Amortization of deferred stock compensation -- -- -- 103 -- 103
Cash received on stock subscriptions . . . . -- -- 222 -- -- 222
3 for 2 stock split (note 14) . . . . . . . 30 -- (22,293) -- 22,263 --
Issuance of common stock for the purchase
of business (note 2) . . . . . . . . . . . 2 497 -- -- -- 499
Net earnings . . . . . . . . . . . . . . . . -- -- 10,766 -- -- 10,766
Cash dividends ($.40 per share) . . . . . . -- -- (1,927) -- -- (1,927)
Additional minimum pension liability . . . . -- -- (194) -- -- (194)
Currency translation adjustments--unrealized -- -- (744) -- -- (744)
-------- -------- -------- -------- -------- --------
Balance at January 31, 1994 . . . . . . . . $485 $16,140 $47,943 $ (924) $ -- $63,644
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
VARLEN CORPORATION AND SUBSIDIARIES JANUARY 31
- --------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1994 1993
- --------------------------------------------------------------------------------------------------
Assets:
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,168 $ 1,292
Accounts receivable, less allowance for doubtful
accounts of $1,207 and $1,826 . . . . . . . . . . . . . . . . . . . 35,455 38,141
Inventories (note 1):
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,594 12,416
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . 13,228 13,440
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . 11,245 9,389
-------- --------
37,067 35,245
-------- --------
Deferred and refundable income taxes . . . . . . . . . . . . . . . . 4,095 4,138
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . 2,621 2,458
Net current assets of discontinued operations (note 3) . . . . . . . 169 246
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 84,575 81,520
-------- --------
Property, plant and equipment (note 6):
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,008 3,624
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,465 23,575
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . 81,227 72,446
-------- --------
106,700 99,645
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . 53,833 44,866
-------- --------
52,867 54,779
-------- --------
Goodwill and other intangible assets, less accumulated
amortization of $12,491 and $10,123 . . . . . . . . . . . . . . . . 45,829 42,009
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,461 1,500
Net non-current assets of discontinued operations (note 3) . . . . . . 532 858
-------- --------
$186,264 $180,666
-------- --------
-------- --------
- --------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
- --------------------------------------------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt . . . . . . . . . . . . . . . . $ 122 $ 3,731
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 16,784 17,531
Accrued expenses (note 7) . . . . . . . . . . . . . . . . . . . . . 18,230 17,971
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . 393 2,717
------- -------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . 35,529 41,950
------- -------
Long-term debt:
Convertible subordinated debentures . . . . . . . . . . . . . . . . 69,000 --
Other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 3,698 70,948
------- -------
Total long-term debt (notes 6 and 14) . . . . . . . . . . . . . . . . 72,698 70,948
------- -------
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . 5,217 6,094
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 9,176 7,886
Stockholders' equity (notes 6, 12 and 14):
Preferred stock, par value $1.00 per share; authorized
500 shares, issuable in series; none issued . . . . . . . . . . . . -- --
Common stock, par value $.10 per share; authorized
20,000 shares; issued: 4,846 (1/31/94) and 6,780 (1/31/93) 485 452
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 16,140 12,757
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . 47,943 63,734
Deferred stock compensation . . . . . . . . . . . . . . . . . . . . (924) -
Common treasury stock at cost; 2,033 shares . . . . . . . . . . . . - (23,155)
------- -------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . 63,644 53,788
------- -------
$186,264 $180,666
------- -------
------- -------
- --------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
VARLEN CORPORATION AND SUBSIDIARIES YEAR ENDED JANUARY 31
- -----------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,766 $ 6,317 $ 3,444
Adjustments to reconcile net earnings to net cash provided
by continuing operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . 10,295 9,488 8,794
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . 2,606 2,452 2,450
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . (570) (726) 508
Cumulative effect of change in accounting principle . . . . . . . -- 1,351 --
Change in assets and liabilities net of effects from
purchased and discontinued businesses:
Accounts receivable, net . . . . . . . . . . . . . . . . . . . 2,198 (5,080) (2,999)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . (3,054) (1,797) 2,989
Refundable income taxes . . . . . . . . . . . . . . . . . . . . 124 2,595 (2,689)
Other current assets . . . . . . . . . . . . . . . . . . . . . (319) (852) 142
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . (76) 1,263 (10)
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 1,678 2,427 (722)
Income taxes payable . . . . . . . . . . . . . . . . . . . . . (2,275) 2,846 153
Other noncurrent assets . . . . . . . . . . . . . . . . . . . . (1,906) (283) 756
Other noncurrent liabilities . . . . . . . . . . . . . . . . . 1,290 959 (158)
-------- ------- -------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . 9,991 14,643 9,214
-------- ------- -------
Net cash provided by continuing operating activities . . . . 20,757 20,960 12,658
-------- ------- -------
Net cash provided by discontinued operations . . . . . . . . . . . 316 563 520
-------- ------- -------
Net cash provided by operating activities . . . . . . . . . . . . 21,073 21,523 13,178
-------- ------- -------
Cash flows from investing activities:
Fixed asset expenditures . . . . . . . . . . . . . . . . . . . . . (11,240) (9,567) (7,949)
Cost of purchased business . . . . . . . . . . . . . . . . . . . . (5,437) -- --
Sale of business . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 -- --
Disposals and other changes in property, plant and equipment . . . 298 3,514 244
-------- ------- -------
Net cash used in investing activities . . . . . . . . . . . . . . (14,379) (6,053) (7,705)
-------- ------- -------
Cash flows from financing activities:
Proceeds from debt . . . . . . . . . . . . . . . . . . . . . . . . 69,013 21,533 1,767
Payments of debt . . . . . . . . . . . . . . . . . . . . . . . . . (70,659) (11,532) (4,711)
Issuance of common stock under option plans . . . . . . . . . . . . 802 392 39
Cash received on stock subscriptions . . . . . . . . . . . . . . . 222 -- --
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . -- (23,155) --
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . (1,927) (2,499) (2,695)
-------- ------- -------
Net cash used in financing activities . . . . . . . . . . . . . . (2,549) (15,261) (5,600)
-------- ------- -------
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . (269) 416 (237)
-------- ------- -------
Net increase (decrease) in cash . . . . . . . . . . . . . . . . . . . 3,876 625 (364)
Cash at beginning of year . . . . . . . . . . . . . . . . . . . . . . 1,292 667 1,031
-------- ------- -------
Cash at end of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,168 $ 1,292 $ 667
-------- ------- -------
-------- ------- -------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of Varlen Corporation and all subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated.
(b) INVENTORIES: Inventories are stated at the lower of cost or market. Cost of
inventories is determined using the last-in, first-out (Lifo) method for 79% of
inventories. The first-in, first-out (Fifo) method is used for all remaining
inventories. If the Fifo method of determining inventory costs had been used for
all inventories, inventories would have increased approximately $897,000 and
$1,013,000 at January 31, 1994 and 1993, respectively.
(c) PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are recorded at
cost. Depreciation is provided on the straight line method over the estimated
useful lives of the assets, which range from 3 to 45 years.
(d) INTANGIBLES: Goodwill is amortized on a straight-line basis over 40 years.
The carrying amount of goodwill is evaluated annually to determine if adjustment
to the amortization period or unamortized balance are warranted. Other
intangible assets are amortized on a straight-line basis over their remaining
useful lives.
(e) EARNINGS PER SHARE: Primary earnings per share is computed on the basis of
the weighted average number of common shares outstanding during the period plus
common equivalent shares arising from stock incentive plans using the treasury
stock method. For 1993, the computation of fully diluted earnings per share
includes the weighted average number of shares that would have been issued upon
conversion of the convertible debentures and the effect on net earnings for the
reduction in the after-tax interest expense on the converted debentures.
2. ACQUISITIONS
On November 23, 1993, the Company acquired the petroleum analysis equipment and
testing services division of San Antonio-based Alcor, Inc., a privately held
company. The acquisition was made for $5.4 million in cash and $499,000 (19,550
shares) of Company common stock. The acquired business, which has annual
revenues of approximately $4 million, designs, develops, manufactures and sells
petroleum analysis equipment. It is also engaged in the testing of petroleum
products in its laboratory and the sale of petroleum product reference samples.
The acquired business will market its products and services under the name of
Alcor Petroleum Instruments, Inc. The acquisition has been accounted for by the
purchase method of accounting with the preliminary allocation of the excess of
the purchase price over the fair value of the net assets acquired amortized over
40 years. The operating results of the business acquired has been included in
the accompanying consolidated results of operations from the date of
acquisition. This transaction was financed with cash on hand.
3. DISCONTINUED OPERATIONS AND DISPOSITIONS
The Company's Chrome Crankshaft Co. and Chrome Crankshaft Company of Illinois
subsidiaries are held for sale. These businesses are treated as discontinued
operations in the consolidated financial statements. Sale negotiations are
currently in progress with a potential purchaser. No net gain or loss is
anticipated upon disposition.
Revenues from discontinued operations were $5,215,000, $5,625,000, $5,511,000
and $7,827,000 in 1993, 1992, 1991 and 1990, respectively.
Earnings of the discontinued operations (credited to the reserve for
discontinued operations) from the date of discontinuance to January 31, 1994
were $1,957,000 net of income taxes of $1,224,000 and include an interest
expense allocation of $321,000.
In May 1993, the Company disposed of the assets and certain liabilities of
Hotpack Corporation, its small laboratory products facility located in
Philadelphia, Pennsylvania for $2,000,000 cash plus an interest bearing note.
Sales of this facility were approximately $9,500,000 in 1992.
4. SUPPLEMENTARY CASH FLOW INFORMATION
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1993 1992 1991
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . $ 5,809 $4,834 $5,826
------- ------ ------
------- ------ ------
Income taxes (net) . . . . . . . . . . . . . . $10,343 $1,860 $3,529
------- ------ ------
------- ------ ------
Purchase of business (note 2):
Fair value of assets acquired . . . . . . . . $ 6,240 $ -- $ --
Cash paid . . . . . . . . . . . . . . . . . . (5,437) -- --
Common stock issued for purchase . . . . . . (499) -- --
------- ------ ------
Liabilities assumed . . . . . . . . . . . . . $ 304 $ -- $ --
------- ------ ------
------- ------ ------
</TABLE>
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair value of the Company's financial instruments at
January 31, 1994 are as follows:
<TABLE>
<CAPTION>
Carrying Fair
(IN THOUSANDS) Amount Value
-------- -----
<S> <C> <C>
Current maturities of
long-term debt . . . . . . . . . . . . $ 122 $ 122
------- -------
------- -------
Convertible subordinated
debentures . . . . . . . . . . . . . . $69,000 $80,751
Industrial revenue bonds
and other debt . . . . . . . . . . . . 3,698 4,391
------- -------
Total long-term debt . . . . . . . . $72,698 $85,142
------- -------
------- -------
</TABLE>
The carrying amounts for cash, accounts receivable, accounts payable and current
maturities of long-term debt are reasonable estimates of their fair value. The
fair value of the convertible subordinated debentures is its quoted market
value. The fair value of industrial revenue bonds and other debt are estimated
using discounted cash flow analysis and market rates for similar financial
instruments.
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt at year end is comprised of the following
(in thousands):
- ------------------------------------------------------------------------
1993 1992
- ------------------------------------------------------------------------
<S> <C> <C>
6.5% Convertible Subordinated
Debentures, Due 2003 . . . . . . . . . . . $69,000 $ --
9.00% Series "B" Senior Notes. . . . . . . . -- 10,000
8.66% Series "C" Senior Notes. . . . . . . . -- 1,111
Revolving credit agreement
deutschemark-denominated . . . . . . . . . -- 8,876
Revolving credit agreement
U.S. dollar-denominated. . . . . . . . . . -- 50,700
Industrial revenue bonds and other debt . . 3,820 3,992
-------- --------
72,820 74,679
Less current maturities. . . . . . . . . . . (122) (3,731)
-------- --------
Long-term debt . . . . . . . . . . . . . . . $72,698 $70,948
-------- --------
-------- --------
</TABLE>
During the second quarter of 1993, the Company issued $69,000,000 aggregate
principal amount of 6.5% Convertible Subordinated Debentures Due 2003. These
unsecured
<PAGE>
debentures are convertible into Common Stock of the Company at $27.33 per share
and are callable in whole or in part after June 3, 1996 at the option of the
Company at specified redemption prices plus accrued interest. The proceeds from
the issuance were used to reduce all outstanding debt under the Company's
revolving credit agreement.
At January 31, 1994, the Company had an unused $80,000,000 revolving line of
credit (the "Agreement"). The Agreement allows for borrowings in a variety of
currencies and provides for interest at one of three market interest rates
selected by the Company plus an applicable margin which is dependent upon the
market interest rate chosen and the relationship of interest expense to cash
flow. The highest interest rate available under the Agreement at January 31,
1994 was the prime rate with maximum commitment fees of 3/10 of 1% on the unused
portion of the line of credit. The Agreement terminates on December 6, 1997 with
two optional one year extensions.
The Agreement contains provisions which require the Company to maintain a
specified level of net worth and comply with various financial ratios and
include, among other provisions, restrictions on leases, investments, dividend
payments and the incurrence of additional indebtedness. At January 31, 1994,
$13,005,000 was available for dividend distributions.
The weighted average interest rate for all borrowings under the Company's
revolving credit agreements in effect during 1993 and 1992 were 5.7% and 5.8%,
respectively. At January 31, 1993, approximately $11,909,000 of the revolving
line of credit was used for outstanding standby letters of credit related to the
senior notes. The terms of the senior notes provided for interest at the
respective rates of the notes while covered by the letters of credit.
Industrial revenue bonds, due in 2004, and other notes payable are secured by
the property, plant and equipment purchased with the proceeds of such debt.
Interest on the bonds is paid at rates ranging from 6.8% to 7.0%.
Scheduled repayments of long-term debt in each of the next three years are
$122,000, $56,000 and $52,000. No payments are due subsequently until 2004.
7. LEASES AND ACCRUED EXPENSES
The Company and its subsidiaries occupy various manufacturing and office
facilities and use certain equipment under operating lease arrangements. Total
rent expense under such agreements amounted to approximately $1,021,000 in 1993,
$1,023,000 in 1992 and $1,114,000 in 1991. At January 31, 1994, the aggregate
minimum future rental commitments under the non-cancelable leases with terms in
excess of one year were approximately $2,004,000. Amounts due annually in each
of the next five years are $703,000, $569,000, $411,000, $246,000 and $75,000.
Accrued expenses at January 31, 1994 and 1993 include $7,596,000 and $7,570,000
for certain accrued employee benefits and $3,211,000 and $3,737,000 for various
insurance accruals, respectively.
8. RESEARCH AND DEVELOPMENT
Research and development costs charged to earnings were $4,342,000 in 1993,
$3,609,000 in 1992 and $2,810,000 in 1991.
9. INCOME TAXES
<TABLE>
<CAPTION>
Earnings before income taxes were derived from the following sources (in thousands):
- --------------------------------------------------------------------------------------
1993 1992 1991
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic . . . . . . . . . . . . . . . $16,688 $12,630 $5,676
Foreign. . . . . . . . . . . . . . . . 2,035 1,744 1,658
-------- -------- -------
Total. . . . . . . . . . . . . . . $18,723 $14,374 $7,334
-------- -------- -------
-------- -------- -------
</TABLE>
<TABLE>
<CAPTION>
Income tax expense consists of the following (in thousands):
- ---------------------------------------------------------------------------------------
1993 1992 1991
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current taxes:
Federal. . . . . . . . . . . . . . . $6,220 $5,206 $2,484
State. . . . . . . . . . . . . . . . 1,754 1,799 1,079
Foreign. . . . . . . . . . . . . . . 701 396 (126)
------ ------ ------
Total. . . . . . . . . . . . . . . 8,675 7,401 3,437
------ ------ ------
Deferred taxes:
Federal. . . . . . . . . . . . . . . (667) (935) (710)
State. . . . . . . . . . . . . . . . (96) (240) 1
Foreign. . . . . . . . . . . . . . . 45 480 1,162
------ ------ ------
Total. . . . . . . . . . . . . . . (718) (695) 453
------ ------ ------
Income tax provision . . . . . . . . . $7,957 $6,706 $3,890
------ ------ ------
------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
Deferred tax assets and liabilities are comprised of the following (in thousands):
January 31, 1994 January 31, 1993
--------------------- ------------------
Asset Liability Asset Liability
----- --------- ----- ---------
<S> <C> <C> <C> <C>
Accounts receivable. . . . . . . . . . $ 502 $ -- $ 778 $ --
Inventories. . . . . . . . . . . . . . 920 1,242 1,238 1,690
Operating losses . . . . . . . . . . . 2,063 -- 1,995 --
State income taxes . . . . . . . . . . -- 653 -- 604
Fixed assets . . . . . . . . . . . . . -- 6,586 -- 7,639
Vacation pay . . . . . . . . . . . . . 819 -- 723 --
Workers' compensation. . . . . . . . . 1,991 -- 1,623 --
Warranty . . . . . . . . . . . . . . . 570 -- 617 --
Deferred compensation. . . . . . . . . 693 -- 821 --
Employee health and welfare. . . . . . 353 -- 387 --
Discontinued operations
and plant closings . .. . . . . . . 223 -- 563 --
Amortization . . . . . . . . . . . . . - 1,417 -- 1,153
Retiree health and welfare . . . . . . 1,172 -- 1,018 --
Interest . . . . . . . . . . . . . . . 278 -- -- --
Other. . . . . . . . . . . . . . . . . 969 439 723 196
------- ------- ------- -------
Subtotal . . . . . . . . . . . . . . . 10,553 10,337 10,486 11,282
Valuation allowance. . . . . . . . . . (1,465) -- (1,423) --
------- ------- ------- -------
Total. . . . . . . . . . . . . . . . . $ 9,088 $10,337 $ 9,063 $11,282
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The valuation allowance relates principally to built-in losses (the excess of
tax basis over fair market value of the net assets) in a 1990 acquisition. The
use of such losses in reducing future tax liabilities is subject to substantial
limitations. Any such use in the future will reduce goodwill associated with
that acquisition.
<PAGE>
Income tax expense differs from the amount of income tax determined by applying
the statutory federal rate to pre-tax income because of the following (in
thousands):
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- ------
<S> <C> <C> <C>
Income tax provision at statutory
federal tax rate . . . . . . . . . . . $6,553 $4,887 $2,494
Tax rate changes . . . . . . . . . . . (178) -- --
State income taxes
(net of federal benefit) . . . . . . . 1,052 1,029 623
Foreign operations . . . . . . . . . . 403 464 472
Goodwill amortization. . . . . . . . . 277 269 265
Other. . . . . . . . . . . . . . . . . (150) 57 36
------ ------ ------
Income tax provision . . . . . . . . . $7,957 $6,706 $3,890
------ ------ ------
------ ------ ------
- -----------------------------------------------------------------------------------
</TABLE>
At January 31, 1994, the Company had remaining net operating loss carryforwards
of $5,873,000, expiring between 1995 and 2006, including loss carryforwards
subject to the valuation allowance discussed above. These arose principally as a
result of certain acquisitions and will reduce income taxes payable to the
extent of future taxable income from those operations.
10. RETIREMENT PLANS
The Company maintains a variety of retirement plans, including pension plans,
covering substantially all employees and supplemental retirement plans, covering
executives. Defined benefit plans cover the majority of union employees and are
based on an amount per year of service formula. Substantially all salaried
employees are covered by a defined contribution plan. The Company makes
contributions to the plans in accordance with ERISA and IRS regulations and
amortizes past service cost over the average remaining service life of active
employees. In 1992, one defined benefit plan was terminated which did not have a
material impact on the financial statements.
Under the Varlen Corporation Profit Sharing and Retirement Savings Plan,
employee deferrals of compensation may be made and the Company will match up to
25% of the first 6% deferred by each employee. Additionally, discretionary
amounts of not less than 2% of eligible salaries and wages are contributed by
the Company.
The following table sets forth the funded status of the Company's defined
benefit and supplemental pension plans and amounts recognized in the Company's
consolidated balance sheets at January 31, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Overfunded Underfunded
Plan Plans
- ------------------------------------------------------------------------------------------------------
January 31, January 31,
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested . . . . . . . . . . . . . . $349 $274 $ 6,041 $ 5,631
Non-vested . . . . . . . . . . . . 32 28 854 591
----- ----- ------- -------
Total accumulated benefit
obligations. . . . . . . . . . . . . 381 302 6,895 6,222
Additional amounts related to
projected salary increases . . . . . -- -- 846 424
----- ----- ------- -------
Projected benefit obligation . . . . . 381 302 7,741 6,646
Fair value of plan assets
(primarily short-term and
fixed income investments). . . . . . 472 436 4,633 3,903
----- ----- ------- -------
Excess (deficiency) of plan
assets over benefit obligation . . . 91 134 (3,108) (2,743)
Unrecognized net gain. . . . . . . . . (45) (79) (179) (1,352)
Unrecognized prior
service cost . . . . . . . . . . . . 11 12 796 856
Unrecognized (net asset)/
obligation existing at the
date of initial application
of SFAS 87 . . . . . . . . . . . . . (51) (57) 844 946
Adjustment required to
recognize additional liability . . . -- -- (1,359) (1,167)
----- ----- ------- -------
Prepaid (accrued)
pension cost . . . . . . . . . . . . $ 6 $ 10 $(3,006) $(3,460)
----- ----- ------- -------
----- ----- ------- -------
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Net retirement plan expense for 1993, 1992 and 1991 consists of the following (in thousands):
- ------------------------------------------------------------------------------------------------
1993 1992 1991
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Service cost-benefits earned
during the period. . . . . . . . . . . . . . . $ 418 $ 423 $ 421
Net deferral and amortization. . . . . . . . . . 133 545 606
Interest on projected benefit obligation . . . . 512 481 478
Actual return on plan assets . . . . . . . . . . (456) (716) (777)
------ ------ ------
Net defined benefit pension expense. . . . . . . 607 733 728
Net defined contribution plan expense. . . . . . 2,219 1,865 1,209
------ ------ ------
$2,826 $2,598 $1,937
------ ------ ------
------ ------ ------
- -----------------------------------------------------------------------------------------------
</TABLE>
In 1993, the Company recognized a settlement gain of $241,000 related to a lump
sum distribution for a retired employee.
The weighted average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation were 7.5% and 5%, respectively, in 1993 and 8% and 6%, respectively,
in both 1992 and 1991. The expected long-term rate of return on plan assets was
9% in 1993, 1992 and 1991.
11. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company adopted Statement of Financial Accounting Standards No. 106,
"Employer's Accounting for Postretirement Benefits Other Than Pensions," in the
fourth quarter of 1992, retroactive to the first quarter of 1992. In applying
this standard, the Company incurred a one time pre-tax charge of approximately
$2.2 million ($1.4 million or $.20 per share on an after-tax basis) to recognize
the accumulated postretirement benefit obligation. In addition, the Company
began recognizing an actuarially determined expense for such postretirement
benefits in 1992. The proforma effects of adopting the new Standard did not have
a material effect on the Company's 1991 consolidated financial statements.
<PAGE>
Certain of the Company's subsidiaries maintain benefit plans which provide their
employees postretirement medical and life insurance benefits. Eligibility for
the plans range from employees retiring at age 55 with a minimum of 5 years of
service to employees retiring at age 65 with a minimum of 15 years of service.
The Company continues to fund benefit costs primarily on a pay-as-you-go basis
and made benefit payments totaling approximately $30,000 and $50,000 during 1993
and 1992, respectively.
The following table sets forth the plan's funded status, reconciled with amounts
recognized in the Company's consolidated balance sheets at January 31, 1994 and
1993 (in thousands):
<TABLE>
<CAPTION>
January 31,
- ----------------------------------------------------------------------------------------
1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees . . . . . . . . . . . . . . . . . . . . . $ (950) $ (881)
Fully eligible active plan participants. . . . . . (592) (376)
Other active plan participants . . . . . . . . . . (2,108) (1,428)
------- ------
(3,650) (2,685)
Plan assets at fair value. . . . . . . . . . . . . 288 294
------- ------
Accumulated postretirement benefit obligation
in excess of plan assets. . . . . . . . . . . . . . (3,362) (2,391)
Unrecognized net gain (loss) from past experience
different from that assumed and from
changes in assumptions . . . . . . . . . . . . . . 606 (25)
------- ------
Accrued postretirement benefit cost. . . . . . . . . $(2,756) $(2,416)
------- ------
------- ------
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Net postretirement benefit costs for 1993 and 1992 consist of the following
(in thousands):
- -----------------------------------------------------------------------------------
1993 1992
- -----------------------------------------------------------------------------------
<S> <C> <C>
Service cost-benefits attributed
to service during the year . . . . . . . . . . . . $151 $122
Interest on accumulated postretirement
benefit obligation . . . . . . . . . . . . . . . . 243 207
Actual return on plan assets . . . . . . . . . . . . (16) (17)
----- -----
Net postretirement benefit cost. . . . . . . . . . . $378 $312
----- -----
----- -----
- -----------------------------------------------------------------------------------
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation for pre-age 65 employees is 13% in 1994,
declining 1% per year to 6% in 2001, and for post-age 65 employees is 10% in
1994 declining 1% per year to 6% in 1998. In 1993 and 1992, the weighted average
discount rate used in determining the accumulated postretirement benefit
obligation was 7.75 % and 8.5%, respectively, salary increases are assumed to be
5% per year to retirement age in both years and the expected long-term rate of
return on plan assets was 9% in both years.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefit obligation as of January 31, 1994 would be
increased by 19%. The effect of this change on the sum of the service cost and
interest cost would be an increase of 22%.
The Financial Accounting Standards Board has issued State-
ment of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits". This Statement, which must be adopted by the Company
no later than its 1994 year, requires the accrual of certain postemployment
benefits over an employee's service period. The impact of this Statement is not
material to the Company's consolidated financial statements.
12. STOCK INCENTIVE PLANS
The Company had three stock option plans in effect during 1993. One of the stock
option plans expired on March 31, 1990 as to future grants. The most recent plan
was adopted in May, 1993 pursuant to which an aggregate of 225,000 shares of the
Company's common stock are available for grant, and none of which were issued as
of January 31, 1994. The remaining plan was adopted in May, 1989 pursuant to
which an aggregate of 300,000 shares of the Company's common stock were
available for grant. Under the three plans, either Incentive Stock Options or
Non-qualified Stock Options could be granted, as determined by the Compensation
Committee of the Company's Board of Directors (the "Committee"). Non-qualified
Stock Options can be granted for terms of up to 10 years and with an option
price that is less than the market value of the Company's common stock on the
date of grant, but if less than market value, then not less than book value;
such option price may not be less than 50% of market value under the 1989 plan
and not less than 85% of market value under the 1993 plan. Incentive Stock
Options can be granted for terms of up to 10 years and with an option price that
is not less than the market value of the Company's common stock on the date of
grant. Of the 229,100 options outstanding as of January 31, 1994, 65,400 are
currently exercisable, with the remaining options exercisable over the next
4 1/2 years. A summary of the changes in outstanding stock options,
including options granted under prior plans, follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Shares 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at
beginning of year. . . . . . . . . . . . . . . . . . 260,695 236,363 189,368
Granted. . . . . . . . . . . . . . . . . . . . . . . 58,625 73,875 74,250
Exercised. . . . . . . . . . . . . . . . . . . . . . (76,795) (40,880) (4,882)
Expired or
terminated . . . . . . . . . . . . . . . . . . . . . (13,425) (8,663) (22,373)
----------- ----------- -----------
Outstanding at
end of year. . . . . . . . . . . . . . . . . . . . . 229,100 260,695 236,363
----------- ----------- -----------
----------- ----------- -----------
Available for grant
at end of year . . . . . . . . . . . . . . . . . . . 302,500 123,600 195,375
----------- ----------- -----------
----------- ----------- -----------
Price range
of options:
Outstanding. . . . . . . . . . . . . . . . . . . . . $8.67-21.83 $7.75-14.00 $7.75-14.00
------------ ------------ ------------
------------ ------------ ------------
Exercised. . . . . . . . . . . . . . . . . . . . . . $7.78-14.00 $7.75-14.00 $7.93 - 8.18
------------ ------------ ------------
------------ ------------ ------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
The Company also had two stock purchase plans in effect during 1993, both of
which were adopted in May, 1993. The Directors Incentive Stock Grant Plan
provides for the auto-matic annual award of 300 shares of Common Stock at par
value to each director who is not an employee of the Company. An aggregate of
22,500 shares of common stock are available for grant under this plan of which
1,500 were granted during 1993. The Deferred Incentive Stock Purchase Plan
provides for an offer to selected officers and other key employees, as
determined by the Committee, of rights to purchase Common Stock of the Company
at a price determined by the Committee which cannot be less than book value at
the grant date. Quarterly deposits are made by the participant over a five-year
period toward the purchase price of the shares, which are issued to the
participant upon receipt of the final payment under the plan. An aggregate of
150,000 rights are available for grant under this plan, of which 116,250 were
granted during 1993 at $13.33 per right.
<PAGE>
- -------------------------------------------------------------------------------
13. INDUSTRY SEGMENTS
Information relating to the Company's segments is as follows (in thousands):
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Operating Identifiable Capital Depreciation &
Net Sales Profit Assets Expenditures Amortization
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
1993
Transportation products . . . . . . . . . $219,543 $27,876 $117,278 $10,039 $9,947
Laboratory and other products . . . . . . 72,365 1,958 55,852 1,163 2,735
----------------------------------------------------------------------
291,908 29,834 173,130 11,202 12,682
Corporate* . . . . . . . . . . . . . . . . -- (4,779) 13,134 38 219
Interest expense . . . . . . . . . . . . . -- (6,332) -- -- --
----------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . $291,908 $18,723 $186,264 $11,240 $12,901
----------------------------------------------------------------------
----------------------------------------------------------------------
1992
Transportation products . . . . . . . . . $182,880 $19,005 $112,530 $7,155 $9,085
Laboratory and other products . . . . . . 83,174 4,866 60,298 2,397 2,779
----------------------------------------------------------------------
266,054 23,871 172,828 9,552 11,864
Corporate* . . . . . . . . . . . . . . . . -- (4,630) 7,838 15 76
Interest expense . . . . . . . . . . . . . -- (4,867) -- -- --
----------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . $266,054 $14,374 $180,666 $9,567 $11,940
----------------------------------------------------------------------
----------------------------------------------------------------------
1991
Transportation products . . . . . . . . . $148,867 $12,520 $106,403 $5,702 $8,677
Laboratory and other products . . . . . . 81,650 4,794 68,601 2,229 2,507
----------------------------------------------------------------------
230,517 17,314 175,004 7,931 11,184
Corporate* . . . . . . . . . . . . . . . . -- (4,175) 7,275 18 60
Interest expense . . . . . . . . . . . . . -- (5,805) -- -- --
----------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . $230,517 $7,334 $182,279 $ 7,949 $11,244
----------------------------------------------------------------------
----------------------------------------------------------------------
<FN>
*Identifiable assets include assets related to discontinued operations.
</TABLE>
<TABLE>
<CAPTION>
Information relating to the Company's segments by geographic
area is as follows (in thousands):
- ---------------------------------------------------------------------------------------------
Net Identifiable
Net Sales Earnings Assets
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1993
Domestic Operations* . . . . . . . . . . . $275,523 $15,925 $166,196
European Operations . . . . . . . . . . . 16,385 1,866 20,068
---------------------------------------
291,908 17,791 186,264
Corporate and net interest expense . . . . -- (7,025) --
---------------------------------------
Total. . . . . . . . . . . . . . . . . . . $291,908 $10,766 $186,264
---------------------------------------
---------------------------------------
1992
Domestic Operations* . . . . . . . . . . . $248,310 $10,702 $159,077
European Operations. . . . . . . . . . . 17,744 1,602 21,589
---------------------------------------
266,054 12,304 180,666
Corporate and net interest expense . . . . -- (5,987) --
---------------------------------------
Total . . . . . . . . . . . . . . . . . . $266,054 $6,317 $180,666
---------------------------------------
---------------------------------------
1991
Domestic Operations* . . . . . . . . . . . $215,523 $6,449 $157,926
European Operations . . . . . . . . . . . 14,994 1,527 24,353
---------------------------------------
230,517 7,976 182,279
Corporate and net interest expense . . . . -- (4,532) --
Total . . . . . . . . . . . . . . . . . . $230,517 $3,444 $182,279
---------------------------------------
---------------------------------------
- -------------------------------------------------------------------------------------------
<FN>
*Identifiable assets include assets related to corporate and discontinued operations.
</TABLE>
Sales to certain individual customers by companies in the transportation
products segment aggregated 14% and 11% of consolidated net sales in 1993, 12%
and 11% in 1992 and 11% and 11% in 1991.
<PAGE>
14. STOCKHOLDERS' EQUITY
On January 8, 1993, the Company purchased 2,031,750 shares of its outstanding
Common Stock from The Dyson-Kissner-Moran Corporation ("DKM") for approximately
$23.0 million. Such shares, constituting approximately 30% of the Company's then
outstanding Common Stock, represented all of the shares held by DKM. The Company
financed this transaction through its revolving line of credit. The stock
purchased in this transaction was recorded as treasury stock at cost. Cost of
the transaction was $11.33 per share paid to DKM plus certain other costs
related to the purchase.
On August 23, 1993, the Company's Board of Directors authorized a three-for-two
stock split in the form of a stock dividend payable on October 14, 1993, to
stockholders of record on September 30, 1993. The split resulted in the
reissuance of approximately 1,303,000 shares of Common Stock held in treasury
and the issuance of approximately 306,000 new shares of Common Stock. In
addition, the quarterly cash dividend of $.15 per share was adjusted to $.10 per
share to maintain the net amount of the dividend payment at its previous level.
All share and per share amounts have been restated to retroactively reflect the
stock split.
Retained earnings at January 31, 1994 includes $1,328,000 for stock
subscriptions receivable, $1,047,000 for unrealized currency translation
adjustments and $194,000 for an additional minimum pension liability. Retained
earnings at January 31, 1993 includes $303,000 for unrealized currency
translation adjustments.
15. INTERIM FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
The following information is presented in thousands of dollars, except per share amounts:
- ---------------------------------------------------------------------------------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . 1993 $78,607 $71,824 $72,845 $68,632
1992 71,111 62,328 66,502 66,113
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . 1993 19,880 17,199 16,309 16,532
1992 17,645 14,702 15,091 15,787
Earnings before cumulative effect of change in
accounting principle . . . . . . . . . . . . . . . . . . . . 1993 3,541 3,025 2,127 2,073
1992 2,528 1,731 1,827 1,582
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . 1993 3,541 3,025 2,127 2,073
1992 1,177 1,731 1,827 1,582
Primary earnings per share:
Earnings per share before change in accounting principle. 1993 0.73 0.61 0.43 0.41
1992 0.38 0.25 0.27 0.25
Net earnings per share. . . . . . . . . . . . . . . . . . 1993 0.73 0.61 0.43 0.41
1992 0.18 0.25 0.27 0.25
Fully diluted earnings per share:
Earnings per share before change in accounting principle. 1993* 0.73 0.52 0.37 0.37
1992 0.38 0.25 0.27 0.25
Net earnings per share. . . . . . . . . . . . . . . . . . 1993* 0.73 0.52 0.37 0.37
1992 0.18 0.25 0.27 0.25
- ---------------------------------------------------------------------------------------------------------------------
<FN>
* Earnings per share is computed independently for each quarter presented.
Therefore, the sum of the quarterly earnings per share does not equal the
total for the year.
</TABLE>
<PAGE>
REPORT BY MANAGEMENT
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF VARLEN CORPORATION:
Management is responsible for the consolidated financial statements
presented in this report which have been prepared by the Company in accordance
with generally accepted accounting principles applied on a consistent basis. The
financial statements necessarily include amounts based on judgments and
estimates by management as required by the accounting process. Management also
prepared the other financial information in the annual report.
The Company's system of internal accounting control, which is applied by
operating and financial managers, has been designed to provide reasonable
assurance that assets are safeguarded, that transactions are executed and
recorded in accordance with management's established policies and procedures,
and that accounting records are adequate for preparation of financial statements
and other financial information. The design, monitoring and revision of internal
accounting control systems involve, among other things, management's judgment
with respect to the relative cost and expected benefits of specific control
measures.
Varlen's internal audit function reviews the accounting records, financial
controls and practices on a planned, rotational basis to determine compliance
with corporate policies. The consolidated financial statements have been audited
by Deloitte & Touche, independent auditors appointed by the Board of Directors.
Their responsibility is to audit the Company's consolidated financial statements
in accordance with generally accepted auditing standards and to express their
opinion with respect to the statements being presented fairly in conformity with
generally accepted accounting principles.
The Audit Committee, which is composed solely of outside directors, meets
with and reviews the activities of corporate financial management and the
independent auditors to ascertain that each is properly discharging its
responsibility. The independent auditors and management have unrestricted access
to the Audit Committee, which meets periodically to review accounting, auditing,
internal control and financial reporting matters.
RICHARD L. WELLEK RICHARD A. NUNEMAKER
President and Vice President, Finance and
Chief Executive Officer Chief Financial Officer
March 7, 1994
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
VARLEN CORPORATION
NAPERVILLE, ILLINOIS
We have audited the accompanying consolidated balance sheets of Varlen
Corporation and subsidiaries as of January 31, 1994 and 1993, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended January 31, 1994. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Varlen Corporation and
subsidiaries as of January 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 11 to the consolidated financial statements, in 1992
the Company changed its method of accounting for postretirement benefits other
than pensions.
Deloitte & Touche
Chicago, Illinois
March 7, 1994
QUARTERLY MARKET AND DIVIDEND INFORMATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1993 1992
- ------------------------------------------------------------------------------------------------------
Fiscal Quarter High Low High Low
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First. . . . . . . . . . . . . . . . . . . . 23 1/2 17 53/64 13 21/64 10 43/64
Second . . . . . . . . . . . . . . . . . . . 23 53/64 20 11/64 15 3/4 12 21/64
Third. . . . . . . . . . . . . . . . . . . . 27 21/64 20 1/4 16 12
Fourth . . . . . . . . . . . . . . . . . . . 27 3/4 21 3/4 20 11/64 12 21/64
</TABLE>
The Company paid a $.10 quarterly dividend throughout both 1993 and 1992. The
number of record holders of common stock, $.10 par value, is approximately 450
as of January 14, 1994. The number of stockholders of record excludes an
estimated 1,200 stockholders whose shares are held in "nominee" or "street"
name.
<PAGE>
The following picture captions are discussed left to tight, top to bottom on the
page.
Front cover: Varlen insignia, globe of the earth, petroleum distillation
analyzer, railroad freightcar shock cushioning device and an
aluminum truck hub.
Insight front
cover: A picture of a railroad freightcar draftgear.
A picture of two rail anchors connected to a piece of
railroad track.
A picture of three aluminum truck/trailer hubs.
A picture of three automatic transmission reaction plates.
Page #1: A picture of a CO2 incubator.
A picture of a petroleum viscometer.
A picture of a petroleum freeze point monitor.
A picture of a stack of tubular metal chair frames.
Page #2: A pie chart of "1993 Net Sales" for the Laboratory and Other
Products segment and the Transportation Products segment.
A pie chart of "1993 Operating Profits" for the Laboratory
and Other Products segment and the Transportation Products
segment.
Page #3: A linear graph of "Net Sales" for Varlen Corporation for the
five year periods from 1989 through 1993.
A linear graph of "Fully Diluted E.P.S from Continuing
Operations Before Accounting Change" for Varlen Corporation
for the five year periods from 1989 through 1993.
A picture of Earnest H. Lorch, Chairman and Richard L.
Wellek, President and Chief Executive Officer of Varlen
Corporation.
Page #4: A linear graph of "Net Earnings" for Varlen Corporation for
the five year periods from 1989 through 1993.
A linear graph of "Return on Average Stockholders' Equity"
for Varlen Corporation for the five year periods from 1989
through 1993.
A linear graph of "Total Debt to Capitalization" for Varlen
Corporation for the five year periods from 1989 through
1993.
A linear graph of "Book Value Per Share" for Varlen
Corporation for the five year periods from 1989 through
1993.
Page #5: A picture of George W. Hoffman, Group Vice President and
Raymond A. Jean, Executive Vice President and Chief
Operating Officer of Varlen Corporation.
Page #6: A picture of a heavy duty truck which depicts the location
of an aluminum axle hub with an inset of an engineering
drawing of an aluminum axle hub. This picture also covers a
portion of Page #7.
A linear graph of "Net Sales" for the Transportation
Products segment for the three year periods from 1991
through 1993.
A linear graph of "Operating Profit" for the Transportation
Products segment for the three year periods from 1991
through 1993.
A drawing of a personal computer depicting a Computer
Assisted Drawing of an aluminum wheel hub.
Page #8: A picture of a railroad freight car which depicts the
location of a railroad freightcar hydraulic cushioning
device with an inset of an engineering drawing of a
hydraulic cushioning device. This picture also covers a
portion of Page #9.
A linear graph of "Net Sales" for the Laboratory and Other
Products segment for the three year periods from 1991
through 1993.
A linear graph of "Operating Profit" for the Laboratory and
Other Products segment for the three year periods from 1991
through 1993.
A picture of a Varlen Corporation instrument used to test
jet fuel.
Page #12: A picture of Richard A. Nunemaker, Vice President, Finance
and Chief Financial Officer of Varlen Corporation.
<PAGE>
Exhibit (21)
LIST OF SUBSIDIARIES
--------------------
The following table sets forth certain information with respect to the
significant subsidiaries of the Registrant. All of the voting securities of
each subsidiary are owned by the Registrant and its financial statements are
included in the consolidated financial statements of the Registrant.
<TABLE>
<CAPTION>
JURISDICTION OF
NAME INCORPORATION
---- ---------------
<S> <C>
Chrome Crankshaft Co. Delaware
Chrome Crankshaft Company of Illinois Illinois
Consolidated Metco, Inc. Delaware
Keystone Industries, Inc. Delaware
Means Industries, Inc. Michigan
National Metalwares, Inc. Illinois
Precision Scientific, Inc. Delaware
Walter Herzog GmbH Germany
</TABLE>
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements
of Varlen Corporation and subsidiaries on Form S-8, File No. 33-35085,
Form S-8, File No. 33-55132 and Form S-3, File No. 33-72218 and Form S-3,
File No. 33-58356 and Form S-3, File No. 33-61826 and Form S-8/S-3,
File No. 33-72480 of our reports dated March 7, 1994, appearing in and
incorporated by reference in the Annual Report on Form 10-K of Varlen
Corporation and subsidiaries for the year ended January 31, 1994.
/s/ Deloitte & Touche
DELOITTE & TOUCHE
Chicago, Illinois
April 21, 1994
<PAGE>
EXHIBIT 24
VARLEN CORPORATION
Power of Attorney
-----------------
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors
of Varlen Corporation (the "Company") does hereby irrevocably constitute and
appoint Richard A. Nunemaker, his attorney-in-fact and agent to sign and execute
in his name and on his behalf, in any and all capacities in which he may be
required to sign, an Annual Report of the Company on Form 10-K under the
Securities and Exchange Act of 1934 for the fiscal year ended January 31, 1994,
to be filed with the Securities and Exchange Commission, and any amendments,
revisions or supplements thereto, including any exhibits, schedules and
documents in connection therewith and any other instruments necessary or
incidental thereto, all as fully and to the same effect as he might or could do
in person if present and acting, and does hereby ratify and confirm all that his
attorney-in-fact shall do or cause to be done incident to or in connection with
the foregoing or by virtue of the foregoing.
IN WITNESS WHEREOF, each of the undersigned has duly executed this
Power of Attorney this 11th day of April, 1994.
/s/ Ernest H. Lorch /s/ Greg A. Rosenbaum
- -------------------------- ------------------------
Ernest H. Lorch, Greg A. Rosenbaum,
Chairman of the Board Director
and Director
/s/ Rudolph Grua /s/ L. William Miles
- ------------------------- ------------------------
Rudolph Grua, L. William Miles,
Director Director
/s/ Theodore A. Ruppert
- -------------------------
Theodore A. Ruppert,
Director
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
Exhibit 27
VARLEN CORPORATION AND SUBSIDIARIES
FINANCIAL DATA SCHEDULE
(IN THOUSANDS)
<CAPTION>
FOR THE
YEAR ENDED
ITEM NUMBER ITEM DESCRIPTION 1/31/94
- ----------- ---------------- ----------
<S> <C> <C>
5-02(1) Cash and cash items $5,168
5-02(2) Marketable securities ---
5-02(3)(a)(1) Notes and accounts receivable-trade 35,455
5-02(4) Allowances for doubtful accounts 1,207
5-02(6) Inventory 37,067
5-02(9) Total current assets 84,575
5-02(13) Property, plant,and equipment 106,700
5-02(14) Accumulated depreciation 53,833
5-02(18) Total assets 186,264
5-02(21) Total current liabilities 35,529
5-02(22) bonds, mortgages and similar debt 72,698
5-02(28) Preferred stock-mandatory redemption ---
5-02(29) Preferred stock-no mandatory redemption ---
5-02(30) Common stock 485
5-02(31) Other stockholders' equity 63,159
5-02(32) Total liabilities and stockholders' equity 186,264
5-03(b)1(a) Net sales of tangible products 291,908
5-03(b)1 Total revenues 291,908
5-03(b)2(a) Cost of tangible goods sold 221,988
5-03(b)2 Total cost and expenses applicable to sale and
revenues 221,988
5-03(b)3 Other costs and expenses ---
5-03(b)5 Provision for doubtful accounts and notes ---
5-03(b)(8) Interest and amortization of debt discount 6,332
5-03(b)(10) Income before taxes and other items 18,723
5-03(b)(11) Income tax expenses 7,957
5-03(b)(14) Income/loss continuing operations 10,766
5-03(b)(15) Discontinued operations ---
5-03(b)(17) Extraordinary items ---
5-03(b)(18) Cumulative effect-changes in accounting principles ---
5-03(b)(19) Net income or loss $10,766
5-03(b)(20) Earnings per share - primary $2.18
5-03(b)(20) Earnings per share - fully diluted $1.90
</TABLE>