<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
<TABLE>
<S> <C>
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
- ------- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
- ------- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-5530
</TABLE>
ALLIED PRODUCTS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 38-0292230
--------- -----------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
-------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (312) 454-1020
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of Each Class Name of Each Exchange on Which Registered
--------------------- ------------------------------------------
COMMON STOCK--$.01 PAR VALUE NEW YORK AND PACIFIC
</TABLE>
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_
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 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 ___
As of February 28, 1997, 8,145,272 shares of common stock were outstanding, and
the aggregate market value of the shares of common stock (based upon the closing
price on the New York Stock Exchange) held by nonaffiliates of the Company was
approximately $201,589,000. Determination of common stock ownership by
affiliates was made solely for the purpose of responding to this requirement,
and the Registrant is not bound by this determination for any other purpose.
The Company's definitive Proxy Statement (which will be filed at a later date)
for the Annual Meeting of Stockholders scheduled to be held May 28, 1997 and
Annual Report to security holders for the year ended December 31, 1996 are
incorporated by reference in Part III and Part IV herein.
The Exhibit Index is located on page 40.
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<PAGE>
PART I
ITEM 1. BUSINESS
Allied Products Corporation (Company) was organized under Delaware law in
1967 as the successor to a Michigan corporation which was formed in 1928. Its
principal executive offices are at 10 South Riverside Plaza, Chicago, Illinois
60606 and its telephone number is (312) 454-1020.
The Company's operations involve a single industry segment, the
manufacturing and sale of agricultural and industrial machinery and other
products.
The operations of the Company were realigned into one business segment in
1993 reflecting the sale or closure of several operating divisions. This
restructuring of the Company, which began in 1991, was completed in 1994 with
the sale of the Cooper division. Reference is made to Note 3 of Notes to
Consolidated Financial Statements for a more complete description of these
closures and dispositions.
Approximately 16%, 11% and 2% of the Company's net sales from continuing
operations in 1996, 1995 and 1994, respectively, were exported principally to
Canada and Mexico.
PRODUCT LINES
IMPLEMENTS AND MACHINERY
PRODUCTS. The Bush Hog division offers a comprehensive line of implements
and machinery used by farmers, ranchers, large estate owners, commercial turf
mowing and landscape contractors, golf courses and municipalities. Implements
and machinery sold by Bush Hog include rotary cutters, tractor mounted loaders,
hay mowers, tillers, cultivators, back hoes, Zero Turn mowers, landscape tools,
and turf and golf course mowing equipment.
Bush Hog-Registered Trademark- rotary cutters are used to shred stalks after
the crop has been harvested, to mow pasture, for land maintenance and for
governmental right-of-way mowing. The use season for rotary cutters extends from
early spring to late fall, and even longer in warmer climates. Bush Hog has a
major market share (approximately 38%) of rotary cutters sold in North America.
Front end loaders are used by farmers and ranchers for material handling,
and cultivators are used for weed control after crops have been planted.
Implements tend to have a shorter life than tractors and other
self-propelled machines, and purchases of implements are less likely to be
deferred in times of economic uncertainty, somewhat dampening cyclical swings in
demand. Sales of replacement parts accounted for almost one sixth of Bush Hog's
total revenue in 1996.
In order to maintain and expand its market position, Bush Hog continually
updates and improves its product offerings. This is done through a combination
of internal development and external acquisition of technology.
MARKETING. Bush Hog markets its products, except for commercial turf and
golf course mowing equipment, through 58 commissioned manufacturer's
representatives operating as independent contractors within defined territories.
The manufacturer's representatives call on dealers located within their
territories which have been approved to carry the Bush Hog-Registered Trademark-
line. In all, there are approximately 2,650 Bush Hog-Registered Trademark-
dealers. In general, the dealers are independent, local businessmen who have an
established local clientele developed over the years and represent more than 35%
of the total farm equipment dealerships in the United States and Canada. Bush
Hog is in the process of contracting with independent distributors to market
commercial turf and golf course mowing equipment within defined territories. The
Bush Hog-Registered Trademark- brand name is particularly strong in the
southeastern and southwestern states.
To even out the seasonal variations in its production cycles, Bush Hog
provides incentives for off-season purchases, including extended payment terms
to dealers in the form of floor plan financing. Bush Hog retains a security
interest in this floor plan equipment. Under certain state and provincial
statutes, a dealer may return floor plan equipment to a manufacturer upon
termination of the dealership.
Bush Hog services its network of dealers through two manufacturing
facilities and eight service parts distribution centers strategically located in
the United States and Canada.
COMPETITION. Competition for the type of equipment sold by Bush Hog
includes the major line manufacturers of tractors and landscape equipment, along
with several hundred companies producing one or more models of shortline farm or
landscape implements and machinery. Price, quality, service and availability are
all factors in brand selection. Bush Hog's objective is to be a low cost
producer of high quality products. To do this it continues to modernize its
facilities to improve efficiency.
2
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INDUSTRY. The agricultural equipment industry in North America is a mature
industry engaged in producing replacement equipment for a declining number of
farmers. It is dominated by a small number of major line manufacturers, which
market a full range of farm machinery, including tractors, grain combines and
various implements through their own dealer organizations and account for
approximately 60% of the dollar volume of industry shipments. The remaining 40%
of the market is shared by approximately 700 companies that generally
concentrate their production on shortline implements such as plows, harrows,
cultivators, livestock equipment, grain handling equipment or hay equipment.
During the 1980's, the farm economy was in decline and this led to a
deterioration in farmers' financial condition. Capital expenditures by farmers
reached a low in 1986. Since then, commodity exports have improved due to
changes in governmental programs and foreign exchange rates. Individual farmers
have reduced their debt load and are much less leveraged after several years of
good earnings.
Economic conditions in the U.S. farm sector improved substantially in 1996.
Net farm income rose to a new record of $51.7 billion due to near record crop
yields in the Midwest, stronger exports, higher commodity prices, and large
"transitional" payments under the 1996 Farm Bill.
While the overall farm sector situation has improved, the cattle sector has
suffered. In the cattle sector, severe drought in the plains area, compounded by
high cattle inventories and record feed prices have forced the cattle sector to
enter a major liquidation phase, depressing prices during 1996. Feed lot
operators should return to profitability in 1997 and the industry should see
improving conditions for the cow/calf operator as well.
The U.S. grain and commodity situation continues to be favorable with
pricing levels substantially higher than in recent years. This trend is expected
to continue through 2001 with normal adjustments resulting from weather and
other factors.
It is anticipated that corn, soybean, and wheat prices for the next five
years will average significantly higher than average prices for the previous ten
years. Average cotton prices in the next five years should also average above
the previous ten years, although not as significantly.
On balance, it appears that the long term prospects for strong economic and
financial conditions in U.S. agriculture are encouraging, especially once the
livestock market recovers from the current liquidation mode.
Demand for certain Bush Hog-Registered Trademark- rotary cutters parallels
the cyclical cattle segment of the agricultural equipment market. To offset this
demand cycle, Bush Hog has in recent years sought to develop and market products
for the landscape, commercial turf and golf course mowing equipment markets.
Products for these markets fit especially well into the Bush
Hog-Registered Trademark- line because of similarities to other Bush
Hog-Registered Trademark- products. Also, certain of the new products can be
sold through established Bush Hog-Registered Trademark- dealers.
In 1995, Bush Hog introduced a line of Zero Turn mowers for landscape and
commercial turf mowing contractors and large estate owners. The success of this
effort has resulted in the development of additional products for the commercial
turf, landscape and golf course mowing equipment markets. Bush Hog's newest
product is a revolutionary new mulching mower designed specifically for golf
course rough maintenance. Bush Hog introduced this new mower to the golf course
industry at the annual Golf Course Superintendent Association Show in February
1997. Bush Hog will commerce shipment of the new mower this spring.
METAL FORMING PRESSES
PRODUCTS. The Verson division manufactures a broad line of both medium and
large technologically advanced mechanical and hydraulic metal forming presses.
These products are used in the manufacture of components for the automotive,
appliance, office equipment, farm equipment, ordnance, aerospace and general
metal working industries. A transfer press is a specialized mechanical press
that combines a series of operations by transferring a work piece from one
station to another inside of a single press. Each station in the press has a
separate die that is individually adjustable. This process allows all
operations, from blank to finished product, to take place in one press,
resulting in increased output and reduced labor expense. Prices vary by type and
size. Size categories for transfer presses range from "A" (largest) to "D"
(smallest). An "A" transfer press is generally 13 to 15 feet wide, 80 to 90 feet
long and stands four stories tall. By comparison, a "B" transfer press is
approximately 10 feet wide, 60 feet long and four stories tall. The difference
between these machines is the component part size they can stamp. An "A"
transfer press may sell for in excess of $25 million.
Approximately 11% of Verson's revenue is generated by customer special
services. Items included in the special services area are: repair parts,
complete remanufacturing capability for used presses, and contract machining and
manufacturing. In addition to the
3
<PAGE>
fabrication and machining of components, Verson provides complete tooling and
engineering services necessary for turnkey systems. Verson also designs and
supplies tools for metal forming, including metal stamping and cold extrusion.
MARKETING. Verson's Marketing Group is headed by a Director of Marketing
and Sales, with responsibility for all Verson products and services. Verson
sells and promotes its products by using a direct sales force that concentrates
in strategically significant markets and contract representatives which focus on
lower volume potential markets.
Verson's major customers are the U.S. automobile manufacturers (both U.S.
and foreign owned) and first and second tier automotive parts producing
companies, which, on average, account for the largest part of Verson's annual
revenue. Verson's other major market served is the appliance industry and
customers include all major brand names.
Verson is the technology leader, having designed the world's first transfer
press in 1939, the world's first electronic feed in 1981, a cross bar feed in
1992 which significantly improves production, and most recently, a Dynamic
Orientation-TM- system which further improves production and saves space.
COMPETITION. There are only a few companies world-wide that supply large
transfer press systems similar to those provided by Verson. Verson is now the
only American owned company competing in this upper end segment. Principal
competition comes from German and Japanese manufacturers. Press manufacturers
compete on the basis of technology, capability, reliability and price. The
barriers to entry for new competitors are high due to the large capital
expenditures required.
INDUSTRY. Domestic automobile manufacturers are seeking to become more
cost-effective by requiring quality parts, implementing Just-In-Time concepts,
obtaining price reductions from suppliers, as well as redesigning cost out of
automobiles, and restructuring and automating their manufacturing processes.
Demand from the appliance industry remains strong as the major manufacturers
seek to increase capacity, reduce costs and gear up to produce water conserving
clothes washers.
The Verson division is in a strong position to capitalize on major retooling
and modernization programs as they come on stream. The second wave of this
demand is being felt now with major suppliers to the automakers converting to
new technology. In response to these market factors and an unprecedented
incoming order rate in 1994, the Verson division completed a 40,000 square foot
expansion of its assembly facilities in 1995. This addition has significantly
expanded the division's capacity for manufacturing large transfer presses.
THERMOPLASTIC RESINS
PRODUCTS AND SERVICES. The Coz division provides a complete line of
thermoplastic resins and related services to the plastic molding and extrusion
industry. Coz offers a full line of materials supply, including specialty
thermoplastic compounds and compounding services, color and additive
concentrates, the reprocessing of scrap thermoplastic resins, and the brokering
of prime and secondary materials.
Coz purchases thermoplastic resins from major resin suppliers and compounds
these resins with various additives to achieve certain desired properties such
as color, heat resistance, fire retardancy, etc.
Coz's brokerage operation provides its customers with prime and wide
specification materials at competitive prices in large or small quantities, as
required. On-site inventories facilitate short delivery cycles. As an additional
service to its customers, Coz also reprocesses scrap generated in molding or
extrusion activities, thereby economically turning scrap into useful materials.
MARKETING. Coz's marketing group is headed by a Vice President of Marketing
and Sales. This group is strongly supported by technical personnel, both in
product development and in customer start-ups, applications, or training.
Customer plant visits and technical conferences are commonplace. The vast
majority of Coz's sales activity is in the northeastern United States.
COMPETITION. Coz's competition comes from several different levels in the
plastics industry, including basic resin producers, plastic distributors,
brokers, concentrate suppliers and independent thermoplastic compounders.
Coz differentiates itself from its competition by covering all aspects of
plastics material supply, including compounding, color and additives,
concentrates, toll processing customers' materials, reprocessing scrap
materials, and brokering both prime and off-spec materials.
Over its 36-year history, Coz has developed significant technical
capabilities supported by excellent laboratory and production equipment. As a
result, Coz is positioned as a high-end co-developer for special customer
applications.
INDUSTRY. The thermoplastic compounding industry sales approximate $5
billion and are experiencing
4
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real growth at a rate of about 4 percent annually. Independent compounders such
as Coz are numerous and generally focus on a relatively small geographic area.
Industry consolidation is occurring as some larger companies have been attracted
to the growth opportunities in thermoplastic compounding.
SALES BACKLOG
Sales backlog as of December 31, 1996 was $142,304,000 compared to
$173,361,000 at December 31, 1995. Over 90% of the backlog orders will be filled
prior to the end of 1997.
EMPLOYEES
Allied Products currently employs approximately 1,500 individuals.
Approximately 31% of Allied Products' employees are represented by unions.
RAW MATERIALS AND SOURCES OF SUPPLY
The principal raw material used by the implement and metal forming press
operations include steel and other metals and purchased components. The
thermoplastic division uses thermoplastics resins and other chemicals. During
1996, the materials needed by Allied Products generally were available from a
variety of sources in adequate quantities and at prevailing market prices. No
one supplier is responsible for supplying more than 10% of the principal raw
materials used by Allied Products.
PATENTS, TRADEMARKS AND LICENSES
Allied Products owns the federally registered trademarks "Bush Hog" used on
its agricultural, landscape, and turf and golf course mowing equipment products
and "Verson" on its metal forming presses, each of which it considers material
to its business. While Allied Products believes that the other trademarks used
by each of its operations are important, none of the patents, licenses,
franchises or such other trademarks are considered material to the operation of
its business.
MAJOR CUSTOMERS
Net sales from continuing operations to the three major U.S. automobile
manufacturers accounted for approximately 39% of total consolidated sales from
continuing operations in 1996. Approximately 29% and 14% of Allied Products'
consolidated net sales from continuing operations in 1995 and 1994,
respectively, were derived from sales to the major U.S. automobile
manufacturers. With the exception of the three major automobile manufacturers,
no material part of Allied Products' business is dependent upon a single
customer.
SEASONALITY
Retail sales of and cash collected for farm equipment tend to occur during
or just preceding the use seasons previously described. Sales and cash receipts
for the other divisions are not affected by seasonality.
ENVIRONMENTAL FACTORS
Reference is made to Note 10 of Notes to Consolidated Financial Statements
regarding environmental factors and matters.
5
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names and ages of the Company's Executive
Officers, together with all positions and offices held with the Company by such
officers as of February 28, 1997.
<TABLE>
<CAPTION>
NAME POSITION WITH ALLIED PRODUCTS AGE
- --------------------------------------------- ----------------------------------------------------------------- ---
<S> <C> <C>
Richard A. Drexler........................... Chairman, President and Chief Executive Officer 49
Kenneth B. Light............................. Executive Vice President, Chief Financial and
Administrative Officer 64
Martin A. German............................. Senior Vice President 60
Bobby M. Middlebrooks........................ Senior Vice President 61
David B. Corwine............................. Vice President, General Counsel and Secretary 59
Robert J. Fleck.............................. Vice President-Accounting and Chief Accounting Officer 49
Patrick J. Riley............................. Vice President and Treasurer 61
</TABLE>
No family relationships exist among the executive officers.
Each executive officer has been employed by Allied Products for over 10
years. Pursuant to Allied Products' By-laws, each officer is elected annually by
the Board of Directors.
Mr. Drexler, who became Chairman in 1993, has been President and a Director
of Allied Products since 1982 and has been Chief Executive Officer since 1986.
Mr. Drexler served as Acting Chief Financial Officer from 1991 to 1992, Chief
Financial Officer from 1989 to 1990 and Chief Operating Officer from 1981 to
1986. He was also Chief Financial Officer from 1977 to 1987. Prior to becoming
President, Mr. Drexler served as Executive Vice President, Senior Vice President
of Administration, Vice President of Administration, Staff Vice
President-Development, and Director of Planning.
Mr. Light, who became Chief Financial Officer in 1995, has been Executive
Vice President and Chief Administrative Officer since 1982 and has also served
as Secretary from 1972 to 1995. From 1980 to 1982, he was Senior Vice
President-Administration, from 1976 to 1980 he was Vice President-General
Counsel and prior to that he was General Counsel and Director of the Corporate
Law Department. He became a Director of Allied Products in 1993.
Mr. German was elected Senior Vice President in 1991 and was Vice President
from 1989 to 1991. Since joining Allied Products in 1986 through 1996, he had
served as President of the Verson Allsteel Press division. Prior to joining
Allied Products, he was Vice President and General Manager of the Turning
Division of Warner & Swasey Company.
Mr. Middlebrooks has been Senior Vice President since 1985 and was Vice
President of Allied Products from 1984 to 1985 in charge of the former
Agricultural Equipment Group. Prior to that, he was President-Bush Hog
Implements Division. He joined Bush Hog in 1955.
Mr. Corwine was elected Vice President, General Counsel and Secretary in
1995. From 1980 to 1995, he was General Counsel and Assistant Secretary, and
prior to that he was Director of the Corporate Law Department and Assistant
Secretary. Prior to joining Allied Products in 1979, he was General Attorney for
Santa Fe Industries, Inc.
Mr. Fleck has been Vice President-Accounting since 1985 and Chief Accounting
Officer since 1986. From 1983 to 1985 he was Staff Vice President-Accounting and
prior to that he served as Corporate Controller and in various other accounting
positions for Allied Products. Prior to joining Allied Products in 1974, he was
an internal auditor with Marquette Cement Company, a national cement
manufacturing company.
Mr. Riley has been Vice President & Treasurer since 1993. Prior to that he
has been Treasurer of Allied Products since 1976. Prior to that he was Assistant
Treasurer and Director of Cash Management of Allied Products since 1969.
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ITEM 2. PROPERTIES
Allied Products owns or leases four manufacturing facilities in three states
for the production of its various products and maintains warehouse facilities in
various locations throughout the United States and Canada.
Management is of the opinion that all facilities are of sound construction,
in good operating condition and are adequately equipped for carrying on the
business of the Company.
Operations at the Bush Hog division are conducted in Selma, Alabama in two
owned facilities containing approximately 700,000 square feet in total. The
division also maintains several leased facilities in various states and Canada
which are used as warehouses and parts depots. Operations at the Verson division
are conducted in Chicago, Illinois in an owned facility containing approximately
400,000 square feet. Operations at the Coz division are conducted in
Northbridge, Massachusetts in a leased facility containing approximately 263,000
square feet. The lease expires December 31, 2000.
ITEM 3. LEGAL PROCEEDINGS
Reference is made to Note 10 of Notes to Consolidated Financial Statements
with respect to the Company's involvement in legal proceedings as a defending
party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET PRICE OF THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's common stock is listed on the New York and Pacific Stock
Exchanges. The price range of the common stock on the New York Stock Exchange is
as follows:
<TABLE>
<CAPTION>
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BEGINNING END OF
1996 OF YEAR YEAR 1996 QTR HIGH LOW DIVIDEND
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<S> <C> <C> <C> <C> <C> <C>
Common $24 $29 3/4 1 $24 1/4 $20 5/8 $.05
- -----------------------------------------------------------------------------------------------------
2 31 1/8 22 3/16 .05
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3 28 3/8 24 1/4 .05
- -----------------------------------------------------------------------------------------------------
4 30 3/8 23 3/4 .05
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<CAPTION>
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BEGINNING END OF
1995 OF YEAR YEAR 1995 QTR HIGH LOW DIVIDEND
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common $14 3/8 $24 1 $17 1/8 $13 3/8 $--
- -----------------------------------------------------------------------------------------------------
2 19 7/8 16 3/4 .025
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3 23 1/4 18 3/4 .025
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4 24 1/8 20 1/8 .025
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</TABLE>
As of February 28, 1997, the approximate number of holders of record of the
Company's common stock ($.01 par value) was 2,200.
The Company paid no dividends from 1982 until 1995. Restrictions from paying
dividends were removed in 1995. Subsequent to the end of 1995, the Company
increased its quarterly dividend from $.025 per share to $.05 per share.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Net sales from continuing operations (A).......... $274,414,000 $260,861,000 $215,529,000 $217,988,000 $195,341,000
Income from continuing operations (A)............. $ 19,004,000 $ 33,989,000 $ 19,687,000 $ 5,951,000 $ 1,774,000(B)
Earnings (loss) per common share from continuing
operations (A).................................. $2.11 $3.48 $1.96 $.43 $(.08)(B)
Total assets...................................... $171,949,000 $166,743,000 $150,555,000 $192,040,000 $284,612,000
Long-term debt (including capitalized leases and
redeemable preferred stock)..................... $ 489,000 $ 315,000 $ 12,130,000 $ 23,522,000 $117,833,000
Cash dividend declared per common share........... $.20 $.075 $-- $-- $--
</TABLE>
- ------------------------
(A) Restated prior to 1993 to reflect the effects of discontinued operations.
(B) Excludes a charge of $1,739,000 ($.21 per common share) relating to the
transition effect of adopting SFAS No. 106 -- Employers' Accounting for
Postretirement Benefits Other Than Pensions on an immediate recognition
basis.
The accompanying Notes to Consolidated Financial Statements
are an integral part of this summary.
8
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ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
OPERATING RESULTS
Reference is made to Note 3 of Notes to Consolidated Financial Statements
regarding the sale/shutdown and restructuring of operations prior to the end of
1994.
1996 COMPARED TO 1995
Net sales in 1996 were $274,414,000 compared to net sales of $260,861,000
for 1995. Income before taxes in 1996 was $29,708,000 compared to income before
taxes of $18,330,000 for the prior year. Net income in 1996 was $19,004,000
compared to net income of $33,989,000 reported in 1995. During 1995, the Company
evaluated its net operating loss carryforwards and other deferred tax assets in
relation to its earnings history over the prior few years and the projected
future earnings over the next few years. As a result of this review, the Company
recorded a deferred tax asset ($27,361,000) which represents a reversal of the
valuation allowance associated with the net deferred tax asset. The credit to
income taxes was reduced by $10,713,000 representing the elimination of goodwill
associated with certain acquisitions which included net operating loss
carryforwards. The net effect of these two items resulted in a credit to income
taxes of $16,648,000 in 1995.
Net sales at the Bush Hog division decreased by less than 2% in 1996
compared to 1995. On an overall basis, no single product line was responsible
for any significant increase or decrease in sales comparing 1996 to 1995.
Decreases were primarily related to disc mowers and loaders. These products, as
well as certain models of rotary cutters, were adversely impacted by the
continued effects of the widespread liquidation of cattle herds resulting in
lower cattle prices. Cattle ranchers use the cutters and loaders for grazing
pasture and feed lot maintenance, respectively. Peanut combine sales also
decreased in 1996. Subsequent to the end of 1996, the division announced that it
would no longer manufacture peanut combines. These decreases were partially
offset by the effect of increased overall rotary cutter sales and the full year
impact of new products introduced in the last half of 1995. New products are
primarily related to the turf and landscaping market for utilization by
commercial turf (sod) growers and for golf course maintenance. Gross profits and
gross profit margins improved in 1996 compared to 1995. The majority of these
increases were related to improved direct labor efficiencies and management of
overhead costs. A program was initiated in the last half of 1995 and completed
at the end of the first half of 1996 to help recognize areas and means of
improvement in the manufacturing process. Management believes that further
implementation of these changes should result in additional savings in the
future.
At the Verson division, net sales increased by over 12% in 1996 compared to
the prior year. The entire increase was related to press production. Revenue and
profits are recognized on a percentage of completion basis for press production
at this division. During the last half of 1995, production began on an order for
three "A" size transfer presses from Chrysler. During 1996, production (and
shipment) was completed on two of these presses with significant production
completed on the third. Shipment of the last press is expected to occur in the
first half of 1997. During 1995, the press assembly area was expanded to
accommodate the continuing increase in press orders and production. Product
sales other than presses decreased slightly in 1996. Gross profits increased in
1996 compared to 1995. The increase was principally associated with increased
sales (production) volume as noted above. Gross profit margins decreased
slightly in 1996 due to the effects of increased employment levels (direct and
indirect) in order to meet production and delivery schedules. Absorption of
engineering costs decreased in 1996. Absorption in 1995 was related primarily to
the order for the three "A" presses discussed above. Two of these presses were
shipped in 1996 with the third in production. Engineering activities are
expected to increase in 1997 as the division has received an order to design and
build two large transfer presses for Ford.
At the Coz division, net sales in 1996 decreased by 2% over net sales of the
prior year. Sales by product line indicated no significant changes between the
two years. Gross profits and gross profit margins decreased in 1996. The
decrease reflects the effects of increased material costs which were not being
passed on to customers in order to remain competitive with other manufacturers.
The division has also been selling older inventory stock, which was no longer in
demand, at prices that generated less than normal margins. The majority of this
inventory has now been sold.
Selling and administrative expenses were $33,400,000 (12.2% of net sales) in
1996 compared to $34,452,000 (13.2% of net sales) in 1995. The majority of the
increase in selling expenses was associated with the Bush Hog division.
Commissions (which are based on cash collections) increased in 1996 due to
strong retail activity in the last quarter of the year. Additional costs were
also incurred at this division related to the introduction of new products at
turf and lawn shows during
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<PAGE>
1996. Administrative expenses decreased in 1996 compared to 1995. The majority
of the decrease was associated with costs of $1,543,000 incurred in 1995 for the
termination/retirement of certain individuals.
The increase in interest expense ($1,557,000 in 1996 compared to $1,052,000
in 1995) was directly associated with increased average borrowing levels
($17,201,000 in 1996 compared to $7,998,000 in 1995) under credit agreements in
effect. The effect of increased borrowing levels was partially offset by lower
average borrowing rates in 1996 (7.16%) compared to 1995 (8.88%). The majority
of the increased borrowings was associated with the Company's common stock
purchase program described below. Reference is made to Note 5 of Notes to
Consolidated Financial Statements for a description of borrowing arrangements in
effect during 1996 and 1995.
Other expense was $631,000 in 1996 compared to $7,483,000 in 1995. Reference
is made to Note 12 of Notes to Consolidated Financial Statements for an analysis
of other (income) expense in 1996 and 1995.
Reference is made to Note 4 of Notes to Consolidated Financial Statements
for an analysis and explanation of the current and deferred provision (credit)
for income taxes in 1996 and 1995.
1995 COMPARED TO 1994
Net sales from continuing operations in 1995 increased 21% to $260,861,000
compared to net sales from continuing operations of $215,529,000 in 1994. Income
before taxes from continuing operations was $18,330,000 in 1995 compared to
$20,564,000 in 1994. Excluding the effects of a $7,699,000 reserve for a long-
term receivable in 1995 (see Note 10 of Notes to Consolidated Financial
Statements), income before taxes from continuing operations would have been
$26,029,000, an increase of over 26% from the prior year. Net income in 1995 was
$33,989,000 compared to net income of $14,333,000 reported in 1994.
Net sales at the Bush Hog division decreased by approximately 2% in 1995
compared to 1994. The majority of the decrease was associated with the disc
mower and peanut combine product lines. During 1995, portions of the Midwest
were affected by spring floods, resulting in lower crop plantings. In the
southern portion of the country, extreme drought and insect infestation affected
the cotton, corn and peanut crops. Cattle prices dropped during 1995 affecting
the sales of larger cutters at the Bush Hog division. Cattle ranchers use these
large cutters for grazing pasture maintenance. Decreases in sales noted above
were partially offset by the effects of new products introduced in the current
year. Gross profits and gross profit margins decreased in 1995 compared to 1994.
The decreases were primarily related to the effects of decreased labor
efficiencies and the mix of products sold. New product sales in the current year
were generally not manufactured by the Bush Hog division but were purchased from
outside sources under OEM (original equipment manufacturing) agreements,
resulting in lower gross profit margins. Lower sales volume noted above also
resulted in lower gross profits.
At the Verson division, net sales increased by almost 60% in 1995 compared
to the net sales level of 1994. During 1995, production began on an order for
three "A" size transfer presses. The total value of the order was in excess of
$85,000,000. Production and shipment of these presses will be completed in 1997.
Revenues and profits are recognized on a percentage of completion basis for
press production at the Verson division. Production on other press orders as
well as parts sales also increased in 1995. Although profit margins decreased in
1995, gross profits increased, principally the result of increased production
(sales) volume noted above. Gross profit margins decreased slightly in relation
to press sales due to a mix of presses manufactured in 1995 compared to 1994.
Margins on parts sales also decreased in 1995. Some parts business was
subcontracted out in 1995 due to manufacturing requirements associated with the
"A" presses. Warranty provisions increased in 1995 due to the increase in sales
volume. Provisions for warranty in 1994 included the reversal of excess
provisions in the prior year.
Net sales at the Coz division increased 11% in 1995 compared to net sales of
the prior year. The majority of the increase was associated with increased sale
prices in the current year. During 1994 and the first half of 1995, the price of
basic raw materials increased significantly. Sales prices were adjusted to
partially offset the effect of these cost increases. In the last half of 1995,
raw material prices decreased. Gross profits increased slightly in 1995 compared
to 1994, principally from the effects of increased sales as noted above. Gross
profit margins decreased slightly in the current year due to the mix of products
sold and the difficulty in passing on material cost increases to customers.
Manufacturing costs increased in 1995 due to a slight increase in employment
levels and normal cost increases in labor, rent and supplies.
Selling and administrative expenses were $34,452,000 (13.2% of net sales
from continuing operations) in 1995 compared to $31,072,000 (14.4% of net sales
from continuing operations) in 1994. In terms of actual dollars, selling
expenses increased slightly in 1995. Increased costs at the Verson division
associated with increased sales efforts were partially offset by decreased costs
at the Bush Hog division related to
10
<PAGE>
changes within the commission structure at this operation. The increases in
administrative expenses relate primarily to provisions ($932,000) for the new
Target Benefit pension plan (effective January 1, 1995) and expenses totaling
approximately $1,500,000 related to the termination/retirement of certain
individuals. Normal cost increases (salaries, rent, utilities, insurance, etc.)
also impacted both selling and administrative costs in 1995.
The decrease in interest expense ($1,052,000 in 1995 compared to $1,859,000
in 1994) was directly related to reduced borrowing levels in the current year.
In March 1994, the Company terminated certain financing arrangements and
replaced them with a Revolving Credit Agreement. This agreement was amended in
the first quarter of 1995 providing for reduced interest rates. Borrowing levels
have been reduced due to the improved internal cash flow of the Company from its
continuing operations.
Other expense was $7,483,000 in 1995 compared to other expense of $1,198,000
in 1994. Reference is made to Note 12 of Notes to Consolidated Financial
Statements for an analysis of other (income) expense in 1995 and 1994.
Reference is made to Note 4 of Notes to Consolidated Financial Statements
for an explanation of the current and deferred provision (credit) for income
taxes in 1995 and 1994.
FINANCIAL CONDITION
1996
Working capital at December 31, 1996 was $50,800,000 and the current ratio
was 1.68 to 1.0. Net accounts receivables increased by $8,621,000 in 1996. The
entire increase was associated with the Verson division, of which $6,000,000 was
in transit at the end of 1996. The remaining portion of the increase was related
to two "A" presses which were shipped to Chrysler facilities for installation.
Under the terms of the agreement with Chrysler, a portion of the amounts due are
held back until installation and die tryout of each press is complete.
Receivables at the Bush Hog division decreased in 1996. Strong retail activity
and cash collections occurred in the last quarter of 1996 resulting in this
decrease in receivables. Additional decreases were associated with the
collection of amounts due on the sale of an idle facility at the end of 1995.
Inventory levels increased by $4,384,000 at the end of 1996 compared to the end
of the prior year. This increase was also related to the Verson division. While
the level of accumulated costs of presses in process has decreased at the end of
1996 (primarily due to the shipment of two "A" presses noted above), the level
of customer deposits and progress payments has decreased by a greater amount at
the end of 1996, resulting in a net increase in the work in process inventory
level. Inventory levels at the Bush Hog division decreased due primarily to
improved inventory management in 1996. Coz division inventory levels also
decreased in 1996. The division successfully increased its efforts to eliminate
excess raw material levels and better manage production quantities.
Fixed asset additions were primarily associated with equipment necessary to
improve productivity and quality at all manufacturing divisions. Funds to
finance these additions include current operating cash flow and borrowings under
loan agreements in effect. There were no major fixed asset dispositions in 1996.
The changes in the deferred tax assets (classified as both current and other
assets) were associated with changes in timing differences between book and tax
income and the utilization of net operating loss carryforwards recognized in
1995. The continued earnings history of the Company and prospects for future
earnings makes it more likely than not that the Company will utilize the
benefits arising from the deferred tax assets noted above. See Note 4 of Notes
to Consolidated Financial Statements.
During the first quarter of 1996, the Company increased the quarterly
dividend from $.025 per share to $.05 per share effective with the first quarter
dividend of 1996 paid at the end of that quarter. Quarterly dividend rates have
remained at this level for the remainder of 1996.
During 1996, the Company issued 211,500 new common shares to certain
officers of the Company upon exercise of stock options. The Company repurchased
these shares from the officers for treasury stock purposes. The Company's Board
of Directors authorized the purchase of up to 1,500,000 shares of the Company's
common stock from time to time on the open market, subject to prevailing market
conditions. Of this amount, approximately 800,000 shares have been purchased
through the end of 1996. Funds to finance these treasury share purchases include
current operating cash flow and borrowings under loan agreements in effect. Some
treasury shares purchased have been reissued upon the exercise of stock options.
1995
Working capital at December 31, 1995 was $54,947,000 and the current ratio
was 1.84 to 1.0. Net accounts receivable decreased by approximately $2,000,000
in 1995. The majority of the decrease was related to the Verson division.
Receivables at this division are a function of shipments (revenues recognized
11
<PAGE>
on a percentage of completion basis are accumulated in inventory). Press
shipments in the last few months of 1995 decreased compared to the end of the
prior year. This decrease was partially offset by the effects of increased
receivables at the Bush Hog division. The increase reflects decreased retail
sales of large cutters and peanut combines due to market conditions described
earlier. On a consolidated basis, inventory levels increased by approximately
$4,000,000 in 1995. The entire increase was related to the Verson division where
production continues on an order for three "A" size transfer presses discussed
earlier. A portion of the increase in accumulated costs of presses in progress
has been offset by increased customer deposits and progress payments related to
the contracts in process. Inventories at the Bush Hog and Coz divisions
decreased in 1995.
Major fixed asset additions in 1995 include building additions at the Verson
division (primarily to expand the press assembly area) and a new paint system at
the Bush Hog division. Other fixed asset additions at all divisions were for
equipment to improve productivity and quality in the products manufactured.
Funds to finance these additions include current operating cash flow and
borrowings (subsequently repaid) under the Revolving Credit Agreement. During
1995, the Company sold for cash certain idle facilities and other operating and
nonoperating assets which resulted in gains of approximately $2,000,000.
The decrease in notes receivable due after one year was related to a reserve
of $7,699,000 established in 1995 for the remaining unreserved amount due the
Company from the sale of an operation in 1991. See Note 10 of Notes to
Consolidated Financial Statements.
The deferred tax asset results from the reversal of the valuation allowance
associated with certain net operating loss carryforwards, tax credits and timing
differences in 1995. The recent earnings history of the Company and prospects
for the future makes it more likely than not that the Company will utilize the
benefits arising from the items noted above. See Note 4 of Notes to Consolidated
Financial Statements.
Borrowings under the Revolving Credit Agreement at the end of 1995 were
primarily related to the "A" size transfer presses in production at the Verson
division and the normal seasonal needs at the Bush Hog division associated with
inventory build schedules prior to the spring selling season.
During 1995, the Company retired all outstanding Series B and C preferred
shares through the use of internally generated funds.
LIQUIDITY AND CAPITAL RESOURCES
At the end of 1996, the Company's sales backlog was in excess of
$142,000,000. The majority of this amount is related to the Verson division and
is represented by orders for new presses. Accumulated production costs are not
invoiced until shipment of the related press. In order to fund the cost of
production, the Verson division receives deposits from customers at the time the
press order is accepted and also frequently requires periodic progress payments
from the customer during the production process, which minimizes the Company's
cash requirements during the manufacturing cycle.
At the Bush Hog division, cash collections associated with machine sales
generally are dependent upon the retail sale of the product by the dealer.
Extended payment terms are offered in the form of floor plan financing which is
customary within the agricultural equipment industry. Net farm cash income
increased significantly in 1996 due primarily to increased crop prices. It is
projected that farm income will decrease slightly in 1997 as crop prices are
expected to decrease. Weak cattle prices continued in 1996 resulting in
widespread liquidation of cattle herds. It is anticipated that this condition
will ease in 1997.
During 1995, the Company reversed its previous valuation allowance
associated with certain net operating loss carryforwards, tax credits and timing
differences. In 1996 and future years, the Company has and will be recording a
tax provision based principally upon the Federal statutory rate in effect and
anticipates no reductions in future tax provisions from additional tax credits
at this time. However, the Company projects that future Federal income tax
payments will be based upon the Alternative Minimum Tax rate as the Company
continues to utilize its substantial tax loss carryforwards for tax reporting
purposes.
Reference is made to Note 10 of Notes to Consolidated Financial Statements
for a current discussion on outstanding environmental and legal issues and other
contingent liabilities.
During the last half of 1996, the Company entered into an Amended and
Restated Credit Agreement with the same lenders as under the Revolving Credit
Agreement. Reference is made to Note 5 of Notes to Consolidated Financial
Statements for a description of the major terms of this new agreement which
replaces the Revolving Credit Agreement.
As of December 31, 1996, the Company had cash and cash equivalents of
$833,000 and additional funds of $67,056,000 available under its Amended and
Restated Credit agreement of which $42,056,000 is available for general
corporate and operating purposes (including
12
<PAGE>
costs incurred by the Verson division in connection with new press orders from
the major U. S. automotive manufacturers) and an additional $25,000,000 which is
available for new Verson business as noted above. The Company believes that its
expected operating cash flow and funds available under the Amended and Restated
Credit Agreement are adequate to finance its operations and capital expenditures
in the near future. During 1996, the Company has been in compliance with all
provisions of loan agreements in effect.
Subsequent to the end of 1996, the Company purchased 417,601 additional
shares of its common stock for treasury purposes.
IMPACT FROM NOT YET EFFECTIVE RULES
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 96-1--Environmental Remediation Liabilities.
This SOP provides that liabilities for environmental remediation should be
accrued when the criteria for the recognition of liabilities are met under
generally accepted accounting principles and provides guidance to aid in the
determination of when environmental remediation liabilities should be
recognized. The SOP also includes guidance as to costs that should be included
in the accrual, basis for measurement of these costs, and display and disclosure
of environmental remediation liabilities. Adoption of this SOP is required for
fiscal years beginning after December 15, 1996. The Company anticipates that any
adjustment from the application of this SOP in 1997 will not have a material
effect on its financial position or results of operations.
13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of Allied Products Corporation
We have audited the consolidated balance sheets of Allied Products
Corporation and consolidated subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, shareholders' investment and cash
flows for each of the three years in the period ended December 31, 1996. We have
also audited the financial statement schedule listed in Part IV of Form 10-K,
Item 14(a)2 for each of the three years in the period ended December 31, 1996.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Allied Products
Corporation and consolidated subsidiaries as of December 31, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND L. L. P.
Chicago, Illinois
February 6, 1997
14
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net sales from continuing operations........................ $ 274,414,000 $ 260,861,000 $ 215,529,000
Cost of products sold....................................... 209,118,000 199,544,000 160,836,000
---------------- ---------------- ----------------
Gross profit.............................................. $ 65,296,000 $ 61,317,000 $ 54,693,000
---------------- ---------------- ----------------
Other costs and expenses:
Selling and administrative expenses....................... $ 33,400,000 $ 34,452,000 $ 31,072,000
Interest expense.......................................... 1,557,000 1,052,000 1,859,000
Other (income) expense, net............................... 631,000 7,483,000 1,198,000
---------------- ---------------- ----------------
$ 35,588,000 $ 42,987,000 $ 34,129,000
---------------- ---------------- ----------------
Income before taxes from continuing operations.............. $ 29,708,000 $ 18,330,000 $ 20,564,000
Provision (credit) for income taxes:
Current................................................... 921,000 989,000 877,000
Deferred.................................................. 9,783,000 (16,648,000) --
---------------- ---------------- ----------------
Income from continuing operations........................... $ 19,004,000 $ 33,989,000 $ 19,687,000
Discontinued operations--loss on disposition of discontinued
operations and other costs, net of tax..................... -- -- (5,354,000)
---------------- ---------------- ----------------
Net income.................................................. $ 19,004,000 $ 33,989,000 $ 14,333,000
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Net income applicable to common stock....................... $ 19,004,000 $ 32,789,000 $ 12,440,000
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Earnings (loss) per common share:
Primary--
Continuing operations..................................... $2.11 $3.48 $1.96
Discontinued operations................................... -- -- (0.59)
----- ----- -----
Income per common share................................... $2.11 $3.48 $1.37
----- ----- -----
----- ----- -----
Fully diluted--
Continuing operations..................................... $2.11 $3.45 $1.96
Discontinued operations................................... -- -- (0.59)
----- ----- -----
Income per common share................................... $2.11 $3.45 $1.37
----- ----- -----
----- ----- -----
Weighted average shares outstanding:
Primary................................................... 9,014,000 9,414,000 9,102,000
--------- --------- ---------
--------- --------- ---------
Full diluted.............................................. 9,014,000 9,494,000 9,102,000
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
15
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1996 1995
---------------- ----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................................ $ 833,000 $ 744,000
---------------- ----------------
Notes and accounts receivable, less allowances of $629,000 and $948,000,
respectively............................................................ $ 52,914,000 $ 44,293,000
---------------- ----------------
Inventories:
Raw materials.......................................................... $ 9,524,000 $ 12,037,000
Work in process........................................................ 28,269,000 20,438,000
Finished goods......................................................... 18,997,000 19,931,000
---------------- ----------------
$ 56,790,000 $ 52,406,000
---------------- ----------------
Deferred tax asset....................................................... $ 14,532,000 $ 22,538,000
---------------- ----------------
Prepaid expenses......................................................... $ 191,000 $ 323,000
---------------- ----------------
Total current assets................................................. $ 125,260,000 $ 120,304,000
---------------- ----------------
Plant and Equipment, at cost:
Land..................................................................... $ 2,155,000 $ 2,172,000
Buildings and improvements............................................... 37,196,000 36,269,000
Machinery and equipment.................................................. 50,083,000 47,078,000
---------------- ----------------
$ 89,434,000 $ 85,519,000
Less--Accumulated depreciation and amortization.......................... 51,048,000 47,083,000
---------------- ----------------
$ 38,386,000 $ 38,436,000
---------------- ----------------
Other Assets:
Notes receivable, due after one year, less allowances of $7,165,000 and
$7,699,000, respectively................................................ $ -- $ 40,000
Deferred tax asset....................................................... 5,282,000 4,823,000
Deferred charges (goodwill), net of amortization......................... 1,668,000 1,845,000
Other.................................................................... 1,353,000 1,295,000
---------------- ----------------
$ 8,303,000 $ 8,003,000
---------------- ----------------
$ 171,949,000 $ 166,743,000
---------------- ----------------
---------------- ----------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
16
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1996 1995
---------------- ----------------
<S> <C> <C>
Current Liabilities:
Revolving credit agreement............................................... $ 27,000,000 $ 11,200,000
Current portion of long-term debt........................................ 193,000 621,000
Accounts payable......................................................... 16,692,000 21,152,000
Accrued expenses......................................................... 30,575,000 32,384,000
---------------- ----------------
Total current liabilities............................................ $ 74,460,000 $ 65,357,000
---------------- ----------------
Long-term debt, less current portion shown above........................... $ 489,000 $ 315,000
---------------- ----------------
Other long-term liabilities................................................ $ 3,547,000 $ 2,806,000
---------------- ----------------
Commitments and Contingencies
Shareholders' Investment:
Preferred stock:
Undesignated--authorized 1,500,000 shares at December 31, 1996 and
1995; none issued..................................................... $ -- $ --
Common stock, par value $.01 per share; authorized 25,000,000 shares;
issued 9,364,844 and 9,138,344 shares at December 31, 1996 and 1995,
respectively............................................................ 94,000 91,000
Additional paid-in capital............................................... 94,671,000 93,143,000
Retained earnings........................................................ 22,227,000 5,031,000
---------------- ----------------
$ 116,992,000 $ 98,265,000
Less: Treasury stock, at cost: 905,071 shares at
December 31, 1996....................................................... (23,539,000) --
---------------- ----------------
Total shareholder's equity........................................... $ 93,453,000 $ 98,265,000
---------------- ----------------
$ 171,949,000 $ 166,743,000
---------------- ----------------
---------------- ----------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
17
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income............................................................ $ 19,004,000 $ 33,989,000 $ 14,333,000
Adjustments to reconcile net income to net cash provided from
operating activities:
Depreciation and amortization....................................... 5,075,000 5,033,000 5,159,000
Amortization of deferred charges.................................... 177,000 2,068,000 2,067,000
Deferred income tax provision (benefit)............................. 9,534,000 (16,648,000) --
Provision for collectability of long-term receivable................ -- 7,699,000 --
Changes in noncash assets and liabilities, net of effects of
assets/businesses sold and noncash transactions:
(Increase) decrease in accounts receivable........................ (8,835,000) 99,000 (100,000)
(Increase) in inventories......................................... (4,384,000) (3,951,000) (5,596,000)
Decrease in prepaid expenses...................................... 132,000 133,000 1,459,000
Decrease in notes receivable, due after one year.................. 40,000 423,000 807,000
Increase (decrease) in accounts payable and accrued expenses...... (6,621,000) 1,349,000 (8,490,000)
Other, net.......................................................... 332,000 (1,198,000) (695,000)
---------------- ---------------- ----------------
Net cash provided from operating activities........................... $ 14,454,000 $ 28,996,000 $ 8,944,000
---------------- ---------------- ----------------
Cash Flows from Investing Activities:
Additions to plant and equipment...................................... $ (4,684,000) $ (14,378,000) $ (6,957,000)
Proceeds from sales of plant and equipment............................ 207,000 3,611,000 2,452,000
Proceeds from sales of assets/businesses.............................. -- -- 343,000
---------------- ---------------- ----------------
Net cash used for investing activities................................ $ (4,477,000) $ (10,767,000) $ (4,162,000)
---------------- ---------------- ----------------
Cash Flows from Financing Activities:
Borrowings under revolving loan and credit agreements................. $ 119,650,000 $ 110,300,000 $ 81,346,000
Payments under revolving loan and credit agreements................... (103,850,000) (109,400,000) (90,308,000)
Payments of short and long-term debt.................................. (696,000) (827,000) (33,881,000)
Redemptions of preferred stock........................................ -- (17,997,000) (3,100,000)
Common stock issued................................................... 1,501,000 -- --
Purchases of treasury stock........................................... (25,993,000) -- --
Dividends paid........................................................ (1,808,000) (1,883,000) (1,893,000)
Stock option transactions............................................. 1,308,000 668,000 292,000
---------------- ---------------- ----------------
Net cash used for financing activities................................ $ (9,888,000) $ (19,139,000) $ (47,544,000)
---------------- ---------------- ----------------
Net increase (decrease) in cash and cash equivalents.................... $ 89,000 $ (910,000) $ (42,762,000)
Cash and cash equivalents at beginning of year.......................... 744,000 1,654,000 44,416,000
---------------- ---------------- ----------------
Cash and cash equivalents at end of year................................ $ 833,000 $ 744,000 $ 1,654,000
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
18
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
------------- ----------- -------------
<C> <S> <C> <C> <C>
Supplemental Information:
(A) Noncash investing and financing activities:
1. Assets acquired through the assumption of debt................ $ 442,000 $ 444,000 $ 115,000
------------- ----------- -------------
------------- ----------- -------------
2. Treasury shares received in lieu of cash for stock option
exercise.................................................... $ 86,000 $ -- $ --
------------- ----------- -------------
------------- ----------- -------------
3. Treasury shares issued for non cash exercise of stock
options..................................................... $ 773,000 $ -- $ --
------------- ----------- -------------
------------- ----------- -------------
4. Proceeds (primarily notes receivable) received from the sales
of discontinued operations.................................. $ -- $ -- $ 2,011,000
------------- ----------- -------------
------------- ----------- -------------
(B) Interest paid during year..................................... $ 1,636,000 $ 939,000 $ 2,657,000
------------- ----------- -------------
------------- ----------- -------------
(C) Income/franchise taxes paid during year, net of refunds....... $ 1,291,000 $ 471,000 $ 522,000
------------- ----------- -------------
------------- ----------- -------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
19
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
PREFERRED, COMMON AND TREASURY STOCK
<TABLE>
<CAPTION>
SERIES B
PREFERRED ($50 COMMON ($.01
STATED VALUE PAR VALUE TREASURY STOCK,
PER SHARE) PER SHARE) AT COST
--------------- --------------- ---------------
<S> <C> <C> <C>
Balance at December 31, 1993............................... $ 9,040,000 $ 91,000 $ --
Redemption of 34,000 Series B preferred shares........... (1,700,000) -- --
Issuance of 14,734 common shares in connection with the
exercises of stock options.............................. -- -- --
--------------- --------------- ---------------
Balance at December 31, 1994............................... $ 7,340,000 $ 91,000 $ --
Redemption of 146,800 Series B preferred shares.......... (7,340,000) -- --
Issuance of 35,000 common shares in connection with the
exercises of stock options.............................. -- -- --
--------------- --------------- ---------------
Balance at December 31, 1995............................... $ -- $ 91,000 $ --
Issuance of 226,500 common shares in connection with the
exercises of stock options.............................. -- 3,000 --
Purchase of 1,016,309 common shares for treasury
purposes................................................ -- -- (26,079,000)
Treasury shares issued (111,238) in connection with the
exercises of stock options.............................. -- -- 2,540,000
--------------- --------------- ---------------
Balance at December 31, 1996............................... $ -- $ 94,000 $ (23,539,000)
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
20
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
ADDITIONAL PAID-IN CAPITAL AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
PAID-IN EARNINGS
CAPITAL (DEFICIT)
-------------- ---------------
<S> <C> <C>
Balance at December 31, 1993...................................................... $ 92,395,000 $ (39,515,000)
Net income for the year......................................................... -- 14,333,000
Preferred dividends declared and paid:
Series B (variable based on prime rate--$3.375 per share)..................... -- (574,000)
Series C--$10.81 per share.................................................... -- (1,319,000)
Excess of cost ($843,000) over fair market value of 59,979 common shares
purchased and reissued in connection with the Company's incentive stock plan... (375,000) --
Issuance of 14,734 common shares in connection with the exercises of stock
options........................................................................ 126,000 --
-------------- ---------------
Balance at December 31, 1994...................................................... $ 92,146,000 $ (27,075,000)
Net income for the year......................................................... -- 33,989,000
Preferred dividends declared and paid:
Series B (variable based on prime rate--$1.825 per share)..................... -- (268,000)
Series C--$8.1075 per share................................................... -- (932,000)
Common dividends declared and paid--$.075 per share............................. -- (683,000)
Issuance of 35,000 common shares in connection with the exercises of stock
options........................................................................ 205,000 --
Excess of cost ($589,000) over fair market value of 41,961 common shares
purchased and reissued in connection with the Company's contribution to the
Employee Stock Plan............................................................ (30,000) --
Excess of cost ($614,000) over fair market value of 42,500 common shares
purchased and reissued in connection with the Company's incentive stock plan... (151,000) --
Excess of stated value over cost ($5,516,000) in connection with the early
retirement of the Series B preferred stock..................................... 973,000 --
-------------- ---------------
Balance at December 31, 1995...................................................... $ 93,143,000 $ 5,031,000
Net income for the year......................................................... -- 19,004,000
Common dividends declared and paid--$.20 per share.............................. -- (1,808,000)
Issuance of 226,500 common shares in connection with the exercises of stock
options........................................................................ 1,584,000 --
Excess of cost of treasury shares issued over exercise price in connection with
the exercises of stock options................................................. (1,754,000) --
Tax benefit associated with stock option exercises.............................. 1,698,000 --
-------------- ---------------
Balance at December 31, 1996...................................................... $ 94,671,000 $ 22,227,000
-------------- ---------------
-------------- ---------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements
21
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION--
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries. All significant intercompany items and
transactions have been eliminated.
NATURE OF OPERATIONS--
Allied Products Corporation manufactures large metal stamping presses and
implements and machinery used in agriculture, landscaping and ground maintenance
businesses, and supplies thermoplastic compounds and additives. All
manufacturing operations are within the United States. Implements and machinery
manufactured by the Bush Hog division are primarily sold through dealerships in
the United States with some limited export sales to Canada. Metal stamping
presses produced by the Verson division are sold directly to the end users which
include automobile manufacturers, first and second tier automotive parts
producing companies and the appliance industry. Automobile manufacturers and
automotive parts producing companies account for approximately 80% of the Verson
division's revenues. Press sales generally are concentrated in the United States
and Mexico. The Coz division provides a complete line of thermoplastic resins
and related services to the plastic molding and extrusion industry. Sales are
concentrated in the northeastern portion of the United States.
USE OF ESTIMATES--
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION--
Sales by the Bush Hog division are recorded when products are shipped to
independent dealers in accordance with industry practices. Provisions for sales
incentives and other sales related expenses are made at the time of the sale.
Revenues and profits are recognized on a percentage of completion basis for
major contracts at the Verson division. Changes in the Verson divison's
estimated sales, costs and profits are recognized in the period in which they
are determinable. Additionally, any anticipated losses on contracts are charged
to operations as soon as they are determinable. Other products are recorded as
sales when shipped.
ACCOUNTS RECEIVABLE--
Current accounts receivables for the Bush Hog division are net of provisions
for sales incentive programs and returns and allowances. Extended payment terms
(up to one year) are offered to dealers in the form of floor plan financing
which is customary within the industry. Such receivables (with the exception of
receivables associated with service parts) are generally not collected until the
dealer sells the related piece of equipment to a retail customer. The Company
maintains a security interest in the equipment related to such receivables to
minimize the risk of loss.
INVENTORIES--
The basis of all of the Company's inventories is determined by using the
lower of FIFO cost or market method.
Included in work in process inventory are accumulated costs ($23,674,000 at
December 31, 1996 and $15,983,000 at December 31, 1995) associated with
contracts under which the Company recognizes revenue on a percentage of
completion basis. These balances include unbilled actual production costs
incurred plus a measure of profit recognized in relation to the sales recorded,
less customer
22
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
payments ($43,579,000 at December 31, 1996 and $55,381,000 at December 31, 1995)
associated with the work in process inventory. A significant portion of the work
in process inventory will be completed, shipped and invoiced prior to the end of
the following year.
PLANT AND EQUIPMENT--
Expenditures for the maintenance and repair of plant and equipment are
charged to expense as incurred. Expenditures for major replacement or betterment
are capitalized. The cost and related accumulated depreciation of plant and
equipment replaced, retired or otherwise disposed of is removed from the
accounts and any gain or loss is reflected in earnings.
DEPRECIATION--
Depreciation of the original cost of plant and equipment is charged to
expense over the estimated useful lives of such assets calculated under the
straight-line method. Estimated useful lives are 20 to 40 years for buildings
and improvements and 3 to 12 years for machinery and equipment.
DEFERRED CHARGES (GOODWILL)--
Deferred charges (goodwill) associated with the 1986 acquisition of Verson
(approximately $13,113,000) are being amortized on a straight line basis over a
period of 20 years. The Company assesses at each balance sheet date whether
there has been a permanent impairment in the value of goodwill. Such assessment
includes obsolescence, demand, new technology, competition and other pertinent
economic factors and trends that may have an impact on the value of remaining
useful life of goodwill.
EARNINGS (LOSS) PER COMMON SHARE--
Earnings (loss) per common share is based on the average number of common
shares outstanding (9,014,000, 9,126,000 and 9,102,000 for the years ended
December 31, 1996, 1995 and 1994, respectively) after decreasing net income for
preferred dividend requirements ($1,200,000 and $1,893,000 for the years ended
December 31, 1995 and 1994, respectively). For 1995, the average number of
common shares outstanding was increased by the dilutive effect of outstanding
stock options (288,000 shares as it relates to weighted average shares
outstanding--primary and 368,000 shares as it relates to weighted average shares
outstanding--fully diluted). The assumed exercise of stock options would not
result in a material dilution for the years ended December 31, 1996 and 1994.
INCOME TAXES--
Income taxes are accounted for under the asset and liability method in
accordance with Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards No. 109 (SFAS 109)--Accounting for Income Taxes.
See Note 4.
STATEMENT OF CASH FLOWS--
For purposes of the Consolidated Statements of Cash Flows, the Company
considers investments with original maturities of three months or less to be
cash equivalents.
FINANCIAL INSTRUMENTS--
The fair value of cash and cash equivalents approximates the carrying value
of these assets due to the short maturity of these instruments. The fair value
of the Company's debt, current and long-term, is estimated to approximate the
carrying value of these liabilities based upon borrowing rates currently
available to the Company for borrowings with similar terms.
RECENTLY ISSUED ACCOUNTING STANDARD--
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 96-1 -- Environmental Remediation
Liabilities. This SOP provides that liabilities for environmental remediation
should be accrued when the criteria for the recognition of liabilities are met
under generally accepted accounting principles and provides guidance to aid in
the determination
23
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of when environmental remediation liabilities should be recognized. The SOP also
includes guidance as to costs that should be included in the accrual, basis for
measurement of these costs, and display and disclosure of environmental
remediation liabilities. Adoption of this SOP is required for fiscal years
beginning after December 15, 1996. The Company anticipates that any adjustment
from the application of this SOP in 1997 will not have a material effect on its
financial position or results of operations.
2. ACCRUED EXPENSES:
The Company's accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Salaries and wages.......................................................... $ 6,026,000 $ 5,542,000
Warranty.................................................................... 9,559,000 9,077,000
Self insurance accruals..................................................... 4,046,000 4,411,000
Restructuring and other costs, primarily related to discontinued
operations................................................................. -- 1,494,000
Pensions, including retirees' health........................................ 6,417,000 5,901,000
Taxes, other than income taxes.............................................. 811,000 738,000
Environmental matters....................................................... 2,020,000 3,019,000
Other....................................................................... 1,696,000 2,202,000
-------------- --------------
$ 30,575,000 $ 32,384,000
-------------- --------------
-------------- --------------
</TABLE>
3. DISCONTINUED OPERATIONS:
Prior to 1994, the Company closed the manufacturing operations of the
Kewanee Farm Equipment division, the Charles City machining and foundry division
and the R/B Die and Prototype division. Machinery and equipment associated with
these divisions were sold. The Company also sold the majority of the assets of
the Smith Energy Services division and closed the International Agro division
prior to 1994. At the end of 1993, the Company sold for cash substantially all
of the assets and liabilities of the White-New Idea Farm Equipment division. In
connection with this sale, the purchaser is required to purchase the real estate
located in Coldwater, Ohio pending a favorable review of environmental matters.
The Company is in the process of completing an evaluation of the status of
environmental conditions at this location--see Note 10. During 1995, the Company
and the purchaser of the White-New Idea division agreed to a five-year lease of
the Coldwater, Ohio facility while the Company completes the evaluation. Sale of
the facility to the purchaser of the White-New Idea division will occur after
completion of the evaluation and after resolution of any issues raised by the
evaluation. During 1995 and 1994, the Company provided additional amounts (based
upon an independent review) for the environmental clean up of this facility. The
Company also sold in 1994 the business and certain assets of the Cooper division
for cash and a collateralized short-term note. In 1994, discontinued operations
include operating losses at the Cooper division related to the delayed sale of
this business and additional provisions primarily related to environmental
issues and a dispute resolution on a business sold in 1993, net of an income tax
benefit allocation of $211,000.
RESTRUCTURING COSTS--
Prior to 1994, the Company provided $14,700,000 for the impact of an
operational restructuring plan designed to reduce operating losses by closing,
consolidating or scaling back certain operations. The restructuring of the
Company was substantially completed during 1996 with the remaining reserve being
allocated to accruals associated with certain noncontinuing businesses. Net
charges to the restructuring reserve in 1996, 1995 and 1994 were $748,000,
$1,879,000 and $3,931,000, respectively. Additional charges were made to the
restructuring reserve prior to 1994.
24
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of December 31, 1996, the accompanying consolidated balance sheet
includes real estate with a net book value of $2,257,000, which is held for
sale, including $1,601,000 related to real estate under lease to the purchaser
of the White-New Idea division as discussed above.
4. INCOME TAXES:
Provision (credit) for income taxes in 1996, 1995 and 1994 consists of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994
-------------- --------------- --------------
<S> <C> <C> <C>
Federal--current.......................................... $ 688,000 $ 756,000 $ 422,000
Federal--deferred......................................... 9,783,000 (16,648,000) --
State--current............................................ 233,000 233,000 244,000
-------------- --------------- --------------
Total provision (credit) $ 10,704,000 $ (15,659,000) $ 666,000
-------------- --------------- --------------
-------------- --------------- --------------
</TABLE>
Allocation of the provision (credit) for income taxes in the 1996, 1995 and
1994 Consolidated Statements of Income include the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994
-------------- --------------- --------------
<S> <C> <C> <C>
Continuing operations..................................... $ 10,704,000 $ (15,659,000) $ 877,000
Discontinued operations--loss on disposition of
discontinued operations and other costs.................. -- -- (211,000)
-------------- --------------- --------------
Total provision (credit).................................. $ 10,704,000 $ (15,659,000) $ 666,000
-------------- --------------- --------------
-------------- --------------- --------------
</TABLE>
The provision (credit) for income taxes in 1996, 1995 and 1994 differs from
amounts computed by applying the statutory rate to pretax income as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994
-------------- --------------- --------------
<S> <C> <C> <C>
Income tax at statutory rate.............................. $ 10,398,000 $ 6,416,000 $ 5,250,000
Utilization of net operating loss carryforward............ -- (5,997,000) (5,547,000)
State income tax, net of federal tax benefit.............. 151,000 151,000 159,000
Permanent book over tax differences on acquired assets.... 104,000 910,000 910,000
Stock option transactions................................. -- (296,000) (137,000)
Adjustment to deferred tax asset valuation allowance...... -- (16,648,000) --
Other, net................................................ 51,000 (195,000) 31,000
-------------- --------------- --------------
Total provision (credit).................................. $ 10,704,000 $ (15,659,000) $ 666,000
-------------- --------------- --------------
-------------- --------------- --------------
</TABLE>
25
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The significant components of deferred tax assets and liabilities were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Deferred tax assets:
Net operating loss and tax credits carryforwards.......................... $ -- $ 6,887,000
Self-insurance accruals................................................... 1,934,000 1,894,000
Inventories............................................................... 1,999,000 1,899,000
Receivables............................................................... 2,845,000 3,026,000
Sale/leaseback transaction................................................ 1,557,000 1,493,000
Restructuring reserve..................................................... -- 523,000
Employee benefits, including pensions..................................... 4,696,000 4,239,000
Warranty.................................................................. 3,489,000 3,177,000
Sales allowances.......................................................... 2,200,000 2,079,000
Environmental matters..................................................... 737,000 1,056,000
Other..................................................................... 357,000 1,456,000
-------------- --------------
Total deferred tax asset................................................ $ 19,814,000 $ 27,729,000
-------------- --------------
Deferred tax liabilities:
Depreciation.............................................................. $ -- $ 327,000
Other..................................................................... -- 41,000
-------------- --------------
Total deferred tax liabilities.......................................... $ -- $ 368,000
-------------- --------------
Net deferred tax asset.................................................. $ 19,814,000 $ 27,361,000
-------------- --------------
-------------- --------------
</TABLE>
During 1995, the Company evaluated its net operating loss carryforwards and
other deferred tax assets in relation to its earnings history over the past few
years and the estimated projected future earnings over the next few years. As a
result of this review, the Company recorded a deferred tax asset ($27,361,000)
which represented a reversal of a valuation allowance recorded prior to 1995.
The related credit to income taxes was reduced by $10,713,000 representing the
elimination of goodwill associated with certain acquisitions which included net
operating loss carryforwards. In addition to the above noted tax asset, the
Company has available net operating loss carryforwards of up to $166,893,000 (of
which $86,177,000 results from various acquisitions) which expire between 1997
and 2008, and investment tax credit carryforwards of $1,797,000 (which expire
between 1997 and 2004) including up to $99,000 resulting from acquisitions.
In years subsequent to 1996, the Company will be recording a tax provision
based upon the Federal statutory rate in effect and anticipates no reductions in
future tax provisions from additional tax credits at this time. However, the
Company projects that future Federal income tax payments will be based upon the
Alternative Minimum Tax rate as substantial tax loss carryforwards still exist
for tax reporting purposes.
Tax returns for the years subsequent to 1992 are potentially subject to
audit by the Internal Revenue Service.
26
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. FINANCIAL ARRANGEMENTS:
The Company's debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Capitalized lease obligations, at interest rates from 7.5% to 12% (weighted average of
10.3% and 10.1% at December 31, 1996 and 1995, respectively), due in varying amounts
through 2002 (Note 6).................................................................. $ 682,000 $ 882,000
Notes/mortgages payable................................................................. -- 54,000
----------- -----------
$ 682,000 $ 936,000
Less current portion.................................................................... 193,000 621,000
----------- -----------
$ 489,000 $ 315,000
----------- -----------
----------- -----------
</TABLE>
Scheduled maturities of the noncurrent portion of long-term debt at December
31, 1996 are due as follows:
<TABLE>
<S> <C>
1998............................................................. $ 162,000
1999............................................................. 148,000
2000............................................................. 121,000
2001............................................................. 53,000
2002............................................................. 5,000
---------
$ 489,000
---------
---------
</TABLE>
During 1994, the Company entered into a Revolving Credit Agreement (which
was subsequently amended in 1995) with two banks providing for up to $35,000,000
in working capital related loans (of which $11,200,000 was borrowed at December
31, 1995) and up to $15,000,000 in standby letters of credit required for the
Company's self-insurance program and for other commercial purposes, of which
approximately $13,000,000 was outstanding at December 31, 1995. Interest was at
prime rate or at other alternate variable rates as provided within the
agreement. During the last half of 1996, the Company entered into an Amended and
Restated Credit Agreement (which replaced the Revolving Credit Agreement) with
the same two banks. The new agreement provides for up to $100,000,000 of
borrowings and/or letters of credit at either a floating prime or fixed LIBOR
(with the rate dependent on the ratio of Funded Debt to Operating Cash Flow)
rate. Under the Amended and Restated Credit Agreement, the Company must meet
certain periodic financial tests, including minimum net worth, debt coverage and
fixed charge coverage ratio and maximum funded debt/operating cash flow ratio.
The agreement expires on September 30, 1999.
The weighted average interest rate on borrowings outstanding at December 31,
1996 and 1995 was 7.4% and 7.8%, respectively.
6. LEASES:
CAPITAL LEASES--
The Company conducts a portion of its business in leased facilities.
Purchase options for such facilities were exercised during 1996. The Company
also leases various types of manufacturing, office and transportation equipment.
27
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Capital leases included in Plant and Equipment in the accompanying balance
sheets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Land............................................................ $ -- $ 396,000
Buildings and improvements...................................... -- 1,111,000
Machinery and equipment......................................... 2,558,000 4,233,000
------------- -------------
$ 2,558,000 $ 5,740,000
Less--Accumulated amortization.................................. 1,764,000 3,378,000
------------- -------------
$ 794,000 $ 2,362,000
------------- -------------
------------- -------------
</TABLE>
See Note 5 for information as to future debt payments relating to the above
leases.
OPERATING LEASES--
Rent expense for operating leases, which is charged against income, was as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Minimum rentals.................................. $ 1,943,000 $ 1,922,000 $ 2,165,000
Contingent rentals............................... 79,000 89,000 657,000
------------- ------------- -------------
$ 2,022,000 $ 2,011,000 $ 2,822,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Contingent rentals are composed primarily of truck fleet unit charges for
actual usage. Some leases contain renewal and purchase options. The leases
generally provide that the Company pay taxes, maintenance, insurance and certain
other operating expenses.
At December 31, 1996, future minimum rental payment commitments under
operating leases that have initial or remaining noncancelable lease terms in
excess of one year are as follows:
<TABLE>
<CAPTION>
MINIMUM SUBLEASE NET MINIMUM
ANNUAL RENTAL RENTAL ANNUAL RENTAL
PAYMENTS INCOME PAYMENTS
------------- ------------ -------------
<S> <C> <C> <C>
Year ending December 31,
1997............................................ $ 2,343,000 $ (147,000) $ 2,196,000
1998............................................ 1,938,000 (122,000) 1,816,000
1999............................................ 1,439,000 -- 1,439,000
2000............................................ 1,176,000 -- 1,176,000
2001............................................ 381,000 -- 381,000
Later........................................... 857,000 -- 857,000
------------- ------------ -------------
$ 8,134,000 $ (269,000) $ 7,865,000
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
7. PREFERRED STOCK:
The Company has 2,000,000 shares of authorized preferred stock of which
350,000 shares are designated as Series B Variable Rate Cumulative Preferred
Stock and 150,000 shares are designated as Series C Cumulative Preferred Stock.
The remaining 1,500,000 shares of authorized preferred stock are undesignated
and unissued at December 31, 1996.
SERIES B--
The holder of the Series B Preferred Stock was entitled to receive
cumulative quarterly dividends at variable rates, computed by multiplying $50
times 1/4 of the prime rate in effect on the first day of the
28
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
quarter preceding the dividend date. At December 31, 1994, there were 146,800
shares of the Series B Preferred Stock outstanding. In addition to the scheduled
redemption of 17,000 shares, the Company redeemed the remaining 129,800 shares
at a discount of $973,000 during 1995. The discount was credited to Additional
Paid-in Capital.
SERIES C--
Holders of the Series C Cumulative Preferred Stock were entitled to receive
cumulative quarterly dividends at the annual rate of $10.81 per share. At
December 31, 1994, there were 115,000 shares of the Series C Cumulative
Preferred Stock outstanding. In addition to the permitted redemption of 50,000
shares, the Company redeemed the remaining 65,000 shares at a premium of
$130,000 during 1995.
8. COMMON STOCK AND OPTIONS:
The Company has an incentive stock plan (the 1977 plan) which authorizes
stock incentives for key employees in the form of stock awards, stock
appreciation rights and stock options. Options under the 1977 plan, which are
granted at fair market value at date of grant, are non-qualified options (not
"incentive stock options" as defined by the Internal Revenue Code). Options
currently outstanding under the 1977 plan become exercisable to the extent of
25% one year from date of grant and 25% in each of the next three years, and
expire 10 years from the date of grant. There were no stock awards issued under
this plan in 1996, 1995 or 1994. No stock appreciation rights have been granted
to date under this plan. There are 61,905 options outstanding under this plan at
December 31, 1996 and are included in the table below. Additional stock
incentives will not be issued under this plan.
In 1990, the Company's Board of Directors approved a new incentive stock
plan, the 1990 Long Term Incentive Stock Plan (the 1990 plan) which authorizes
stock incentives for key employees in the form of stock awards and stock
options. The 1990 plan, as amended, authorizes the issuance of up to 1,000,000
shares of the Company's Common Stock. Options under the 1990 plan, which are
granted at fair market value at date of grant, may be granted as either
incentive stock options or non-statutory stock options. Options granted become
exercisable to the extent of 50% one year from date of grant and the remaining
50% two years from date of grant. Since the inception of the 1990 plan, the
Company has issued options to purchase 986,251 shares (net of forfeitures) of
the Company's Common Stock at prices between $1.50 and $28.50 per share. There
are 412,767 options outstanding under this plan at December 31, 1996 and are
included in the table below. At December 31, 1996, the Company has the capacity
to issue an additional 13,749 stock incentives under the 1990 plan.
In 1994, shareholders approved a new incentive plan, the 1993 Directors
Incentive Plan (the 1993 plan) which authorizes the issuance of stock options to
members of the Board of Directors who are not employees of the Company. Options
under the 1993 plan, which are granted at fair market value at date of grant,
are granted as non-statutory stock options. Options granted become exercisable
to the extent of 50% one year from date of grant and the remaining 50% two years
from date of grant. Since the inception of the 1993 plan, the Company has issued
options to purchase 146,500 shares of the Company's Common Stock at prices
between $12.50 and $28.50 per share. During 1996, options to purchase 70,000
shares of the Company's Common Stock were issued subject to shareholder
approval. All options issued are outstanding under this plan at December 31,
1996 and are included in the table below.
29
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock option transactions in 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------- ----------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year........ 765,350 $ 11.56 744,349 $ 10.85 519,637 $ 9.45
Granted............................... 275,500 24.27 127,001 14.48 318,500 12.50
Exercised............................. (418,012) 10.04 (77,500) 8.62 (74,713) 7.96
Expired............................... -- -- -- -- (375) 12.25
Forfeited............................. (1,666) 14.25 (28,500) 13.84 (18,700) 11.81
---------- ---------- ----------
Outstanding at end of year.............. 621,172 $ 18.22 765,350 $ 11.56 744,349 $ 10.85
---------- ---------- ----------
---------- ---------- ----------
Options exercisable at end of year...... 316,339 $ 14.40 504,599 $ 10.63 383,349 $ 10.16
Weighted average fair value of options
granted during the year................ $5.71 $5.77 $6.18
</TABLE>
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Risk free interest rate............................. 5.80% 7.70% 5.15%
Dividend yield...................................... 0.80% 0.40% --
Expected lives...................................... 4 years 4 years 4 years
Volatility.......................................... 22.00% 39.00% 58.00%
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
RANGES OF EXERCISE PRICES SHARES LIFE PRICE SHARES PRICE
- ------------------------------------- --------- ------------ ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
$2.625-5.75 41,850 4.4 years $ 4.21 41,850 $ 4.21
12.50-18.125 271,112 6.6 years 13.60 218,279 13.41
19.375-28.50 308,210 8.2 years 24.18 56,210 25.81
--------- ---------
$2.625-28.50 621,172 7.2 years $ 18.22 316,339 $ 14.40
--------- ---------
--------- ---------
</TABLE>
30
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, 1996, the Company has three stock options plans, which are
described above. The Company applied Accounting Principles Board (APB) Opinion
25 and related interpretations in accounting for these plans. Accordingly, no
compensation costs have been recognized for these plans. Had compensation costs
for the Company's stock option plans been determined based on the fair value at
the grant date for options granted under these plans consistent with the method
of SFAS 123-- Accounting for Stock-Based Compensation, the Company's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C> <C>
Net Income As reported $ 19,004,000 $ 33,989,000
Pro forma 18,581,000 33,651,000
Primary earnings per share As reported $ 2.11 $ 3.48
Pro forma 2.06 3.45
Fully diluted earnings per share As reported $ 2.11 $ 3.45
Pro forma 2.06 3.42
</TABLE>
Under provisions of SFAS 123, the above pro forma disclosures are not
representative of the effects on reported net income of options issued during
the financial reporting phase in period as options vest over a two year period
from date of issuance and have, in some instances, been issued on several
occasions during each year.
On February 15, 1991, the Company declared a dividend distribution of one
right ("Right") to purchase an additional share of the Company's Common Stock
for $50 on each share of Common Stock outstanding. The Rights become exercisable
10 days after a person or group acquires, or tenders for, 20% or more of the
Company's Common Stock. The Company is entitled to redeem the Rights at $.01 per
Right at any time until 10 days after any person or group has acquired 20% of
the Common Shares. If a person or group acquires 20% or more of the Company's
Common Stock (other than pursuant to an acquisition from the Company or pursuant
to a tender offer deemed fair by the Board of Directors), then each Right, other
than Rights held by the acquiring person or group, entitles the holder to
purchase for $50 that number of shares of the Company's Common Stock having a
current market value of $100. If a person or group acquires 20% or more of the
Company's Common Stock and prior to the person or group acquiring 50% of such
outstanding stock, the Company may convert each outstanding Right, other than
the Rights held by the acquiring person or group, into one new share of the
Company's Common Stock. If a person or group acquiring more than 20% of the
Company's Common Stock merges with the Company or engages in certain other
transactions with the Company, each Right, other than Rights held by the
acquiring person or group, entitles the holder to purchase shares of common
stock of the acquiring person or group having a current market value of $100 for
$50. The Rights attach to all of the Company's Common Stock outstanding as of
February 15, 1991, or subsequently issued, and have a term of 10 years. The
Rights also expire upon a merger or acquisition of the Company undertaken with
the consent of the Company's Board of Directors.
9. RETIREMENT, PENSION AND POSTRETIREMENT HEALTH PLANS:
The Company sponsors several defined benefit pension plans which cover
certain union and office employees. Benefits under these plans generally are
based on the employee's years of service and compensation during the years
immediately preceding retirement. The Company's general funding policy is to
contribute amounts deductible for Federal income tax purposes.
Effective January 1, 1994, the Company instituted an unfunded deferred
compensation defined benefit pension plan called the Executive Retirement Plan.
The noncontributory plan is designed to
31
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
provide supplemental retirement benefits to certain executive officers of the
Company as determined by the Board of Directors. Retirement benefits will be
reduced by benefits received under the Target Benefit Plan described below.
Net periodic pension costs as they relate to defined benefit plans for
continuing operations were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Service cost.................................. $ 658,000 $ 673,000 $ 652,000
Interest cost................................. 2,438,000 2,284,000 2,260,000
Actual loss (gain) on plan assets............. (2,787,000) (7,989,000) 327,000
Net amortization and deferral................. 316,000 6,038,000 (2,422,000)
Curtailment (income).......................... -- (64,000) --
-------------- -------------- --------------
Net periodic pension cost..................... $ 625,000 $ 942,000 $ 817,000
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
Although the actual return on plan assets is shown, the expected long-term
rate of return used in determining the net periodic pension cost in all years
was 7.5%. The difference between the actual return and the expected return is
included in the "Net amortization and deferral" in the above table. The
actuarial present value of benefits was determined using a discount rate of
7.75% in 1996, 7% in 1995 and 7.25% in 1994. The rate of compensation increase
used to measure the projected benefit obligation in two plans was 5%. All other
plans are based on current compensation levels.
The following table sets forth the funded status of the Company's defined
benefit pension plans:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1996 1995
--------------------------------- ---------------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS EXCEED ACCUMULATED BENEFITS EXCEED
BENEFITS ASSETS BENEFITS ASSETS
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Plan assets at fair value................. $ 41,270,000 $ -- $ 36,455,000 $ --
--------------- ---------------- --------------- ----------------
Actuarial present value of benefit
obligations:
Vested benefits......................... $ 28,981,000 $ 843,000 $ 28,970,000 $ 604,000
Nonvested benefits...................... 1,456,000 -- 1,555,000 51,000
--------------- ---------------- --------------- ----------------
Accumulated benefit obligation............ $ 30,437,000 $ 843,000 $ 30,525,000 $ 655,000
Effect of projected future compensation
increases................................ 1,750,000 382,000 2,326,000 481,000
--------------- ---------------- --------------- ----------------
Projected benefit obligation.............. $ 32,187,000 $ 1,225,000 $ 32,851,000 $ 1,136,000
--------------- ---------------- --------------- ----------------
Plan assets in excess of (less than)
projected benefit obligation............. $ 9,083,000 $ (1,225,000) $ 3,604,000 $ (1,136,000)
Unrecorded net (gain) loss from past
experience different from that assumed
and effect of changes in assumptions..... (10,913,000) (115,000) (4,651,000) (52,000)
Unrecorded prior service cost............. 226,000 407,000 249,000 538,000
Unrecognized net (asset) at date of
initial application...................... (1,427,000) -- (1,900,000) --
--------------- ---------------- --------------- ----------------
(Accrued) pension costs................... $ (3,031,000) $ (933,000) $ (2,698,000) $ (650,000)
--------------- ---------------- --------------- ----------------
--------------- ---------------- --------------- ----------------
</TABLE>
32
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The plans' assets include common stocks, fixed income securities, short-term
investments and cash. Common stock investments include approximately 164,000 and
314,000 shares of the Company's Common Stock at December 31, 1996 and 1995,
respectively.
The Company also has a defined contribution retirement plan which covers
certain employees. There are no prior service costs associated with this plan.
The Company follows the policy of funding retirement contributions under this
plan as accrued. Contributions to this plan for continuing operations were
$217,000 in 1996, $206,000 in 1995 and $255,000 in 1994.
The Company employees are also eligible to become participants in the Save
Money and Reduce Taxes (SMART) plan. Under terms of the plan, the trustee is
directed by each employee on how to invest the employee's deposit. Investment
alternatives include a money market fund, four mutual funds and a fixed income
fund. As of December 31, 1996 and 1995, assets of the SMART plan include
approximately 483,000 and 524,000 shares, respectively, of the Company's Common
Stock.
The Company has a noncontributory defined contribution plan (the Employee
Stock Plan). All non-union employees not covered by pension plans are covered
under the Employee Stock Plan. Company contributions were $450,000 in 1994. No
contribution was made in 1996 and 1995.
Effective January 1, 1995, the Company instituted a noncontributory defined
contribution retirement plan called the Target Benefit Plan. All employees
covered by the Employee Stock Plan are covered under the Target Benefit Plan.
Under the terms of the Target Benefit Plan, the Company will make an actuarially
determined annual contribution based upon each eligible employee's years of
service and earnings as defined. Employee investment alternatives include a
money market fund, four mutual funds and a fixed income fund. Employees become
vested in the Company contribution after five years of service. Provisions for
the contribution to this plan in 1996 and 1995 were $773,000 and $932,000,
respectively.
The Company provides medical benefits for retirees and their spouses at one
operating division and certain other individuals related to several discontinued
operations. Accruals for such costs are recognized in the financial statements
over the service lives of these employees. Contributions are required of most
retirees for medical coverage. The current obligation was determined by
application of the terms of the related medical plans, including the effects of
established maximums on covered costs, together with relevant actuarial
assumptions and health-care cost trend rates projected at annual rates ranging
ratably from 8.2% for retirees under age 65 (7.4% for retirees age 65 and older)
in 1997 to 5.5% over 25 years. The effect of a 1% annual increase in these
assumed cost trend rates would increase the accumulated postretirement benefit
obligation by approximately $65,000. The annual service costs would not be
materially affected.
The following table provides information on the status of these plans:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
-------------- ------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees and their dependents..................................................... $ (265,000) $ (287,000)
Fully eligible active plan participants........................................... (55,000) (43,000)
Active employees not fully eligible............................................... (447,000) (464,000)
-------------- ------------
Accumulated postretirement benefit obligation....................................... $ (767,000) $ (794,000)
Plan assets......................................................................... -- --
Unrecognized prior service costs.................................................... 12,000 13,000
Unamortized net (gain) loss......................................................... (274,000) (139,000)
-------------- ------------
(Accrued) postretirement benefit costs.............................................. $ (1,029,000) $ (920,000)
-------------- ------------
-------------- ------------
</TABLE>
33
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net periodic postretirement benefit costs include the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Service cost.................................................... $ 37,000 $ 33,000 $ 31,000
Interest cost................................................... 40,000 56,000 53,000
Amortization of unrecognized net (gain) loss.................... (3,000) (18,000) (3,000)
Amortization of prior plan amendment............................ 1,000 1,000 1,000
--------- --------- ---------
Net periodic postretirement benefit cost........................ $ 75,000 $ 72,000 $ 82,000
--------- --------- ---------
--------- --------- ---------
</TABLE>
Measurement of the accumulated postretirement benefit obligation was based
on a discount rate of 7.75% in 1996, 7.0% in 1995 and 8.0% in 1994.
During 1995, the Company made provisions totaling $1,543,000 for the
termination/retirement of certain individuals.
10. ENVIRONMENTAL, LEGAL AND CONTINGENT LIABILITIES:
ENVIRONMENTAL MATTERS--
The Company's manufacturing plants generate both hazardous and nonhazardous
wastes, the treatment, storage, transportation and disposal of which are subject
to federal, state and local laws and regulations. The Company believes that its
manufacturing plants are in substantial compliance with the various federal,
state and local laws and regulations, and does not anticipate any material
expenditures to remain in compliance.
Under the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended (CERCLA), and other statutes, the United States
Environmental Protection Agency (EPA) and the states have the authority to
impose liability on waste generators, site owners and operators, and others
regardless of fault or the legality of the original disposal activity.
Accordingly, the Company has been named as a potentially responsible party
(PRP), or may otherwise face potential liability for environmental remediation
or cleanup, in connection with the sites described below that are in various
stages of investigation or remediation.
At one site, the Company is one of seven PRP's because of its apparent
absentee ownership of four parcels of land from 1967 to 1969 which may have held
part or all of one or more settling ponds operated by a tenant business. The
Company has already paid $85,000 as its share of a settlement of an EPA demand
for $415,000 in past response costs, and the EPA has sought payment from the
PRP's of an additional $572,000 in response costs. The EPA has ordered the
Company and one other PRP to undertake the design and construction of the
remediation project. All PRP's have agreed to undertake the design and
construction of the remediation project pursuant to a financial participation
agreement. The EPA estimates the present value of the cost to implement its
selected cleanup method to be approximately $1,869,000. The Company has accrued
its estimated share of the remaining cleanup cost which is not considered
significant. The Company has also filed a claim against its insurers.
Pursuant to a consent decree entered into in November 1991 with the U.S.
Department of Justice, the Company has agreed to close and remediate a landfill
leased by the Company and formerly used for the disposal of spent foundry sands.
The Company provided for remediation costs associated with this landfill. During
1995, remedial action required by the consent decree was completed, and the EPA
approved the Remedial Action Report submitted by the Company. The Company's
remaining obligations under the consent decree include periodic inspections,
monitoring and maintenance as needed.
The Company has also been named as a PRP, along with numerous parties, at
various hazardous waste sites undergoing cleanup or investigation for cleanup.
The Company believes that at each of these sites, it has been improperly named
or will be considered to be a "de minimis" party.
34
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company is a defendant in an action where a private party seeks recovery
of costs associated with an environmental cleanup at a site formerly owned by
the Company. At this site, which the Company or one of its subsidiaries owned
from 1968 until 1976, the plaintiff and current owner seeks to recover in excess
of $1,500,000 from the Company and other defendants. The estimated present value
of a remediation plan proposed by the state environmental agency is
approximately $1,900,000. The Company has denied liability and asserted a
counter-claim against plaintiff and cross-claims against the co-defendants.
The Company is in the process of investigating or has determined the need to
perform environmental remediation or clean up at certain manufacturing sites
formerly operated and still owned by the Company. At the sites where the Company
has determined that some remediation or cleanup is required, the Company has
provided for the estimated cost for such remediation or cleanup.
One site, located in Coldwater, Ohio, is under contract to be sold to the
purchaser of the White-New Idea business. That sale is contingent on completion
of an environmental study (now in progress), remediation, if any, determined by
the Company's independent consultant to be necessary, and the issuance of a
covenant not to sue and related no further action letters by the State of Ohio
under the Ohio Voluntary Action Program. Following the completion of the sale of
the White-New Idea business in 1993, an independent consultant retained by the
Company indicated cleanup costs at the site could range from $500,000 to
$5,300,000. The Company provided in 1994 and 1993 for amounts equal to the lower
value of this range. The Company is discussing financial contribution with the
prior owner of the facility for any cleanup costs as a significant portion of
the environmental conditions under review existed prior to the Company's
ownership of the facility.
During 1996, 1995 and 1994, the Company recorded provisions (credits) of
approximately $(418,000), $921,000 and $1,383,000, respectively, toward various
environmental matters discussed above. At December 31, 1996, the Company has
accruals, including those discussed above, of $2,020,000 for the estimated cost
to resolve its potential liability with the above and other, less significant,
matters. Additional liabilities are possible and the ultimate outcome of these
matters may have an effect on the financial position or results of operations in
a future period. However, the Company believes that the above accruals are
adequate for the resolution of known environmental matters and the outcome of
these matters is not expected to have a material adverse effect on the Company's
financial position or its ongoing results of operations.
OTHER--
In connection with the sale of the business and assets of the Littell
division in 1991, the Company entered into a "License Agreement" pursuant to
which the Company licensed certain technology to the purchaser for which the
purchaser agreed to pay royalties totaling $8,063,000 plus interest, in minimum
quarterly installments of $312,500 commencing in November 1992, with a final
lump sum payment ($7,342,000) due May 22, 1996. The purchaser's payment
obligation is secured by the technology license and is guaranteed by the
purchaser's parent. The Company initially recorded this agreement as a long-term
note receivable. In 1995, however, the Company established a reserve of
$7,699,000 (reduced to $7,165,000 at December 31, 1996) against the receivable,
due to published adverse financial information about the purchaser and its
parent which raised serious concerns about the collectability of the receivable.
Through the end of the third quarter of 1994, the Company received the
required minimum quarterly payments, usually 30 days after the due date. During
the fourth quarter of 1994, the purchaser withheld payment of the minimum
quarterly payment beyond 30 days and asserted that the Company had violated
certain non-compete and non-referral covenants contained in the license
agreement. On March 10, 1995, the purchaser filed an action in the Circuit Court
of Cook County, Illinois, seeking a reduction in royalties of approximately
$8,000,000 and unspecified damages for
35
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
alleged breach of contract. At December 31, 1996, the amounts due the Company
under this agreement is approximately $8,415,000, plus interest accruing from
May 22, 1996 at the contract rate of 10%. During 1995, as noted above, the
Company made provisions against the collectability of this receivable. After
taking into consideration counsel's evaluation of the above facts, the Company
is of the opinion that the outcome of this action would not have a significant
adverse effect on the Company's consolidated financial statements.
The Company is involved in a number of other legal proceedings as a
defending party, including product liability claims for which additional
liability is reasonably possible. It is the Company's policy to reserve on a
non-discounted basis for all known product liability claims, with necessary
reserves ($3,168,000 and $2,342,000 at December 31, 1996 and 1995, respectively)
determined in consultation with independent insurance companies and legal
counsel. Payment of these claims may take place over the next several years.
Additional liabilities are possible and the ultimate outcome of these matters
may have an effect on the financial position or results of operations in a
future period. However, after consideration of relevant data, including
insurance coverage and accruals, management believes that the eventual outcome
of these matters will not have a material adverse effect on the Company's
financial position or its ongoing results of operations.
At December 31, 1996, the Company was contingently liable for approximately
$2,300,000 primarily relating to outstanding letters of credit.
The Company has entered into agreements with certain executive officers of
the Company which provide that, if within one year following a defined change in
ownership or control of the Company there shall be an involuntary termination of
such executive's employment, or if there shall be defined patterns of activity
during such period by the Company causing such executive to resign, then,
subject to prevailing tax laws and regulations, the executive shall be entitled
to payments equal to approximately three years' compensation.
11. OPERATIONS BY INDUSTRY SEGMENT:
The Company's operations involve a single industry segment as described in
Note 1.
Approximately 16%, 11% and 2% of the Company's net sales from continuing
operations in 1996, 1995 and 1994, respectively, were exported principally to
Canada and Mexico.
Approximately 39%, 29% and 14% of the Company's net sales from continuing
operations in 1996, 1995 and 1994, respectively, were derived from sales to the
three major U.S. automobile manufacturers.
36
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. SUMMARY OF OTHER (INCOME) EXPENSE:
Other (income) expense consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Interest income................................................... $ (112,000) $ (437,000) $ (1,293,000)
Goodwill amortization............................................. 177,000 2,068,000 2,067,000
Loan cost expenses/amortization................................... 333,000 440,000 563,000
Environmental related expenses (credits).......................... (418,000) 1,110,000 410,000
Net gain on sales of operating and non-operating assets........... (106,000) (2,000,000) (222,000)
Provision (credit) for collectability (recovery) of long-term note
receivable (Note 10)............................................. (534,000) 7,699,000 --
Idle facility income.............................................. (147,000) (30,000) (361,000)
Litigation settlements/insurance provisions....................... 1,512,000 (1,125,000) --
Other miscellaneous............................................... (74,000) (242,000) 34,000
-------------- -------------- --------------
$ 631,000 $ 7,483,000 $ 1,198,000
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
37
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
See the Company's Proxy Statement incorporated by reference as part of this
Part III, under the caption "Proposal 1: Election of Directors" for information
with respect to the directors. In addition, see the information under the
caption "Executive Officers of the Company" as part of Part I, Item 1 of this
Report which is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
See the Company's Proxy Statement incorporated by reference as part of Part
III, Item 10 of this report, under the captions "Management Compensation" for
information with respect to executive compensation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners.
See the Company's Proxy Statement incorporated by reference as part of Part
III, Item 10 of this report, under the captions "Outstanding Stock and Voting
Rights", "Beneficial Owners" and "Principal Stockholders and Management
Ownership" for information with respect to the ownership of certain beneficial
owners of Common Stock of the Company.
(b) Security Ownership of Management.
See the Company's Proxy Statement incorporated by reference as part of Part
III, Item 10 of this report, under the caption "Principal Stockholders and
Management Ownership" for information with respect to the beneficial ownership
by management of capital stock of the Company.
(c) Changes in Control.
There is no arrangement known to the Company, the operation of which may at
a subsequent date result in a change in control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the Company's Proxy Statement incorporated by reference as part of Part
III, Item 10 of this report, under the captions "Proposal 1: Election of
Directors" and "Management Compensation" for information with respect to certain
relationships and related transactions with management.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. FINANCIAL STATEMENTS
Included in Part II of this report:
Report of Independent Accountants
Consolidated statements of income for the years ended December 31, 1996,
1995 and 1994
Consolidated balance sheets as of December 31, 1996 and 1995
Consolidated statements of cash flows for the years ended December 31,
1996, 1995 and 1994
Consolidated statements of shareholders' investment for the years ended
December 31, 1996,
1995 and 1994
Notes to consolidated financial statements
(a) 2. FINANCIAL STATEMENT SCHEDULES
Included in Part IV of this report:
Schedule II--Valuation and qualifying accounts for the years ended
December 31, 1996, 1995 and 1994
38
<PAGE>
(a) 3. EXHIBITS
The following exhibits are incorporated by reference as noted below:
<TABLE>
<S> <C>
3(a) The Registrant's Restated Certificate of Incorporation, as amended, is
incorporated by reference to Exhibit 3 of the Company's 1988 Annual Report
on Form 10-K (File No. 1-5530).
3(b) The Registrant's Amendments to Restated Certificate of Incorporation is
incorporated by reference to Exhibit 3 of the Company's 1990 Annual Report
on Form 10-K (File No. 1-5530).
3(c) The Registrant's By-Laws of the Company, as amended, are incorporated by
reference to Exhibit 3 of the Company's 1989 Annual Report on Form 10-K
(File No. 1-5530).
10(a) The Registrant's 1977 Incentive Stock Plan is incorporated by reference to
Exhibit 10(a) of the Company's 1980 Annual Report on Form 10-K (File No.
1-5530).
10(b) The Registrant's SMART Plan is incorporated by reference to Exhibit 10(d) of
the Company's 1984 Annual Report on Form 10-K (File No. 1-5530).
10(c) The Registrant's 1990 Long-Term Incentive Stock Plan is incorporated by
reference to Exhibit 10 of the Company's 1991 Annual Report on Form 10-K
(File No. 1-5530).
10(d) The Registrant's Agreement for the sale of the assets of the White-New Idea
Farm Equipment Division of Allied Products Corporation is incorporated by
reference to Exhibit(c)(2)(a)(i) of the Company's report on Form 8-K dated
January 14, 1994 (File No. 1-5530).
10(e) The Registrant's Credit Agreement dated as of March 17, 1994 among Allied
Products Corporation, the Banks Named Herein and Continental Bank N.A.,
individually and as agent is incorporated by reference to Exhibit 10(I) of
the Company's report on Form 8-K dated April 8, 1994 (File No. 1-5530).
10(f) The Registrant's Allied Products Corporation Executive Retirement Plan dated
April 4, 1994 is incorporated by reference to Exhibit 10(a) of the
Company's 1994 Annual Report on Form 10-K (File No. 1-5530).
10(g) The Registrant's Executive Officer's Agreement in Event of Change in Control
or Ownership of Allied Products Corporation dated April 1, 1994 is
incorporated by reference to Exhibit 10(b) of the Company's 1994 Annual
Report on Form 10-K (File No. 1-5530).
10(h) The Registrant's Second Amendment to Credit Agreement dated February 15,
1995 is incorporated by reference to Exhibit 10(c) of the Company's 1994
Annual Report on Form 10-K (File No. 1-5530).
10(i) The Registrant's Allied Products Corporation Retirement Plan dated as of
December 31, 1993 is incorporated by reference to Exhibit 10(d) of the
Company's 1994 Annual Report on Form 10-K (File No. 1-5530).
10(j) The Registrant's Bush Hog Segment of the Allied Products Corporation
Combined Retirement Plan effective December 31, 1993 is incorporated by
reference to Exhibit 10(e) of the Company's 1994 Annual Report on Form 10-K
(File No. 1-5530).
10(k) The Registrant's Verson Segment of the Allied Products Corporation Combined
Retirement Plan effective December 31, 1993 is incorporated by reference to
Exhibit 10(f) of the Company's 1994 Annual Report on Form 10-K (File No.
1-5530).
10(l) The Registrant's Littell Segment of the Allied Products Corporation Combined
Retirement Plan effective December 31, 1993 is incorporated by reference to
Exhibit 10(g) of the Company's 1994 Annual Report on Form 10-K (File No.
1-5530).
</TABLE>
39
<PAGE>
The following exhibits are attached only to the copies of this report filed
with the Securities and Exchange Commission:
<TABLE>
<CAPTION>
EXHIBIT NO. NAME OF EXHIBIT
- --------------- --------------------------------------------------------------------------------------
<C> <S>
10A Material Contract--Amended and Restated Credit Agreement.
10B Material Contract--Consent to Stock Repurchases.
11 Computation of Earnings per Share.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
24 Power of Attorney.
27 Financial Data Schedule.
</TABLE>
Other financial statements, schedules and exhibits not included above have
been omitted as inapplicable or because the required information is included in
the consolidated financial statements or notes thereto.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the fourth quarter
of the year ended December 31, 1996.
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Allowance for doubtful accounts--
Current receivables:
Balance at beginning of year.......... $ 948,000 $ 1,521,000 $ 1,996,000
Add (deduct)--
Provision charged to income......... 214,000 451,000 256,000
Receivables charged off as bad
debts, net of recoveries........... (533,000) (1,024,000) (731,000)
-------------- ------------- --------------
Balance at end of year................ $ 629,000 $ 948,000 $ 1,521,000
-------------- ------------- --------------
-------------- ------------- --------------
Long-term receivables:
Balance at beginning of year.......... $ 7,699,000 $ -- $ --
Add (deduct)--
Provision charged to income......... -- 7,699,000 --
Receivable recoveries............... (534,000) -- --
-------------- ------------- --------------
Balance at end of year................ $ 7,165,000 $ 7,699,000 $ --
-------------- ------------- --------------
-------------- ------------- --------------
</TABLE>
40
<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.
ALLIED PRODUCTS CORPORATION
(Registrant)
By: /s/ RICHARD A. DREXLER
---------------------------------------
Richard A. Drexler, CHAIRMAN,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
March 12, 1997
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.
<TABLE>
<S> <C> <C>
* /s/ [RICHARD A. DREXLER]
----------------------------------------------
Richard A. Drexler, CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER; DIRECTOR
* /s/ [KENNETH B. LIGHT]
----------------------------------------------
Kenneth B. Light, EXECUTIVE VICE PRESIDENT,
CHIEF
FINANCIAL AND ADMINISTRATIVE OFFICER; DIRECTOR
* /s/ [ROBERT J. FLECK]
----------------------------------------------
Robert J. Fleck, VICE PRESIDENT--ACCOUNTING AND
CHIEF ACCOUNTING OFFICER
March 12, 1997
* /s/ [LLOYD DREXLER]
----------------------------------------------
Lloyd Drexler,
DIRECTOR
* /s/ [WILLIAM D. FISCHER]
----------------------------------------------
William D. Fischer,
DIRECTOR
* /s/ [STANLEY J. GOLDRING]
----------------------------------------------
Stanley J. Goldring,
DIRECTOR
* /s/ [JOHN E. JONES]
----------------------------------------------
John E. Jones,
DIRECTOR
* /s/ [JOHN W. PUTH]
----------------------------------------------
John W. Puth,
DIRECTOR
* /s/ [MITCHELL I. QUAIN]
----------------------------------------------
Mitchell I. Quain,
DIRECTOR
</TABLE>
41
<PAGE>
<TABLE>
<S> <C> <C>
* /s/ [S. S. SHERMAN]
----------------------------------------------
S. S. Sherman,
DIRECTOR
* By: /s/ [DAVID B. CORWINE]
-------------------------------------------
David B. Corwine,
ATTORNEY-IN-FACT
</TABLE>
42
<PAGE>
EXHIBIT 10A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED CREDIT AGREEMENT
dated as of August 23, 1996
among
ALLIED PRODUCTS CORPORATION,
THE BANKS NAMED HEREIN
and
BANK OF AMERICA ILLINOIS,
individually and as Agent
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
SECTION 1 COMMITMENTS OF THE BANKS; TYPES OF LOANS; LETTER OF
CREDIT, BORROWING AND CONVERSION PROCEDURES. . . . . . . . . . . . 1
1.1 Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1.1 Revolving Loan Commitment . . . . . . . . . . . . . . . . . 1
1.1.2 Letter of Credit Commitments. . . . . . . . . . . . . . . . 2
1.1.3 Commitment Limits . . . . . . . . . . . . . . . . . . . . . 2
1.2 Various Types of Loans . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Borrowing Procedures . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Conversion Procedures . . . . . . . . . . . . . . . . . . . . . . 3
1.5 Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . . . 4
1.6 Letter of Credit Procedures . . . . . . . . . . . . . . . . . . . 4
1.7 Participation in Letters of Credit . . . . . . . . . . . . . . . . 4
1.8 Reimbursement Obligations . . . . . . . . . . . . . . . . . . . . 5
1.9 Limitation on BAI's Obligations . . . . . . . . . . . . . . . . . 5
1.10 Funding by Banks to BAI . . . . . . . . . . . . . . . . . . . . . 5
1.11 Cash Collateral . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.12 Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.13 Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2 NOTES EVIDENCING LOANS . . . . . . . . . . . . . . . . . . . . . . 7
2.1 Revolving Notes . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2 Recordation of Loans . . . . . . . . . . . . . . . . . . . . . . . 7
2.3 Replacement Notes . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3 INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.1 Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2 Interest Payment Dates . . . . . . . . . . . . . . . . . . . . . . 8
3.3 Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.4 Setting and Notice of Eurodollar Rates . . . . . . . . . . . . . . 9
3.5 Computation of Interest . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4 RESERVED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 5 FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.1 Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . 9
5.2 Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.3 Upper Usage Fee . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.4 Agent's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 6 REDUCTION OR TERMINATION OF THE COMMITMENTS;
VOLUNTARY PREPAYMENTS. . . . . . . . . . . . . . . . . . . . . . . 11
6.1 Reduction or Termination of the Commitments . . . . . . . . . . . 11
6.2 Voluntary Prepayments . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF . . . . . . . . . . . . . 12
7.1 Making of Payments. . . . . . . . . . . . . . . . . . . . . . . . . 12
7.2 Application of Certain Payments . . . . . . . . . . . . . . . . . . 12
7.3 Due Date Extension. . . . . . . . . . . . . . . . . . . . . . . . . 12
7.4 Setoff. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.5 Proration of Payments . . . . . . . . . . . . . . . . . . . . . . . 13
8.1 Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.2 Basis for Determining Interest Rate Inadequate or Unfair . . . . . . 15
8.3 Changes in Law Rendering Certain Loans Unlawful . . . . . . . . . . 16
8.4 Funding Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.5 Right of Banks to Fund through Other Offices. . . . . . . . . . . . 17
8.6 Discretion of Banks as to Manner of Funding . . . . . . . . . . . . 17
8.7 Conclusiveness of Statements; Survival of Provisions. . . . . . . . 17
SECTION 9 WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.1 Organization and Qualification . . . . . . . . . . . . . . . . . . 17
9.2 Authorization: No Conflict and Validity of
Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 18
9.5 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . 18
9.6 Litigation and Contingent Liabilities. . . . . . . . . . . . . . . 18
9.7 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.8 Pension and Welfare Plans. . . . . . . . . . . . . . . . . . . . . 19
9.9 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . 19
9.10 Regulation U . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.11 Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.12 Company's Material Agreements. . . . . . . . . . . . . . . . . . . 20
9.13 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.14 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.15 Business Locations . . . . . . . . . . . . . . . . . . . . . . . . 20
9.16 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.17 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . 20
9.18 Treatment and Storage. . . . . . . . . . . . . . . . . . . . . . . 21
9.19 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . 21
9.20 Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 10 COVENANTS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
10.1 Reports, Certificates and Other Information. . . . . . . . . . . . 21
10.1.1 Audit Report . . . . . . . . . . . . . . . . . . . . . . . . 21
10.1.2 Quarterly Reports . . . . . . . . . . . . . . . . . . . . . 22
10.1.3 Monthly Reports . . . . . . . . . . . . . . . . . . . . . . 22
10.1.4 Compliance Certificates . . . . . . . . . . . . . . . . . . 22
10.1.5 Reports to SEC and to Shareholders. . . . . . . . . . . . . 22
10.1.6 Notice of Default, Litigation and ERISA
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
10.1.7 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . 23
10.1.8 Projections . . . . . . . . . . . . . . . . . . . . . . . . 23
10.1.9 Other Information . . . . . . . . . . . . . . . . . . . . . 23
10.2 Books, Records and Inspections . . . . . . . . . . . . . . . . . . 23
10.3 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.4 Taxes and Liabilities. . . . . . . . . . . . . . . . . . . . . . . 23
10.5 Net Worth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.6 Funded Debt/Operating Cash Flow Ratio. . . . . . . . . . . . . . . 24
10.7 Fixed Charge Coverage. . . . . . . . . . . . . . . . . . . . . . . 24
10.8 Minimum Debt Coverage. . . . . . . . . . . . . . . . . . . . . . . 24
10.9 Purchase or Redemption of Company's Securities;
Divided Restrictions . . . . . . . . . . . . . . . . . . . . . . . 24
10.10 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.11 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.12 Guaranties, Loans or Advances. . . . . . . . . . . . . . . . . . . 25
10.13 Mergers, Consolidations, Sales . . . . . . . . . . . . . . . . . . 26
10.14 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.15 Environmental Covenants.. . . . . . . . . . . . . . . . . . . . . 28
10.15.1 Environmental Response Obligation. . . . . . . . . . . . . 28
10.15.2 Environmental Liabilities. . . . . . . . . . . . . . . . . 28
10.16 Unconditional Purchase Obligations. . . . . . . . . . . . . . . . 29
10.17 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . 29
10.18 Regulation U. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.19 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.20 Significant Subsidiary. . . . . . . . . . . . . . . . . . . . . . 29
10.21 Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . 29
10.22 Compliance With Laws. . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 11 EFFECTIVENESS; CONDITIONS OF LENDING. . . . . . . . . . . . . . . 30
11.1 Effectiveness. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.1.1 Revolving Notes . . . . . . . . . . . . . . . . . . . . . . 30
11.1.2 [Reserved]. . . . . . . . . . . . . . . . . . . . . . . . . 30
11.1.3 Resolutions . . . . . . . . . . . . . . . . . . . . . . . . 30
11.1.4 Consents and Approvals. . . . . . . . . . . . . . . . . . . 30
11.1.5 Incumbency and Signatures . . . . . . . . . . . . . . . . . 30
11.1.6 Opinions of Counsel for the Company . . . . . . . . . . . . 31
11.1.7 Other Documents . . . . . . . . . . . . . . . . . . . . . . 31
11.2 All Loans and Letters of Credit. . . . . . . . . . . . . . . . . . 31
11.2.1 No Default. . . . . . . . . . . . . . . . . . . . . . . . . 31
11.2.2 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT. . . . . . . . . . . . . . . . 32
12.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . 32
12.1.1 Non-Payment of Notes, etc . . . . . . . . . . . . . . . . . 32
12.1.2 Non-Payment of Other Indebtedness for Borrowed Money. . . . 32
12.1.3 Other Material Obligations. . . . . . . . . . . . . . . . . 32
12.1.4 Bankruptcy, Insolvency. . . . . . . . . . . . . . . . . . . 32
12.1.5 Non-Compliance with This Agreement. . . . . . . . . . . . . 33
12.1.6 Warranties. . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
12.1.7 Pension Plans . . . . . . . . . . . . . . . . . . . . . . . 33
12.1.8 Material Adverse Change . . . . . . . . . . . . . . . . . . 33
12.1.9 Change of Control . . . . . . . . . . . . . . . . . . . . . 33
12.2 Effect of Event of Default . . . . . . . . . . . . . . . . . . . . 33
SECTION 13 CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 14 THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.1 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.2 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.3 Exculpation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.4 Credit Investigation . . . . . . . . . . . . . . . . . . . . . . . 46
14.5 Agent and Affiliates . . . . . . . . . . . . . . . . . . . . . . . 46
14.6 Resignation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 15 GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15.1 Waiver; Amendments . . . . . . . . . . . . . . . . . . . . . . . . 47
15.2 Confirmations. . . . . . . . . . . . . . . . . . . . . . . . . . . 48
15.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
15.4 Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
15.5 Regulation U . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
15.6 Costs, Expenses and Taxes. . . . . . . . . . . . . . . . . . . . . 48
15.7 Subsidiary References. . . . . . . . . . . . . . . . . . . . . . . 49
15.8 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
15.9 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 49
15.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 50
15.11 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . 50
15.12 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . 50
15.13 Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . . . . 50
15.14 Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . 50
</TABLE>
Exhibits
- --------
Exhibit A Commitment Limits and Percentages
Exhibit B Revolving Note
Exhibit C Opinion of Counsel (1)
(1) Not filed as part of Exhibit 10A.
-iv-
<PAGE>
Schedules
- ---------
9.1 Foreign Jurisdictions (1)
9.3 Subsidiaries (1)
9.4 Financial Statements (1)
9.5 Adverse Change (1)
9.6 Litigation (1)
9.8 Pension and Welfare (1)
9.14 Insurance (1)
9.15 Business Locations (1)
9.17 Environmental Matters (1)
9.18 Treatment and Storage (1)
10.1.3 Monthly Reports (1)
10.10 Indebtedness (1)
10.11 Liens (1)
10.14 Investments (1)
(1) Not filed as part of Exhibit 10A.
-v-
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of August 23, 1996
THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of August 23, 1996
(herein, as amended or otherwise modified from time to time, called this
"Agreement"), is entered into among ALLIED PRODUCTS CORPORATION, a Delaware
corporation (herein called the "Company"), the undersigned banks (together with
BAI herein collectively called the "Banks" and individually each called a
"Bank"), and BANK OF AMERICA ILLINOIS, an Illinois banking corporation (herein,
in its individual capacity, called "BAI") and as agent for the Banks (herein, in
such capacity, called the "Agent"). Certain terms are used in this Agreement as
hereinafter defined.
W I T N E S S E T H:
WHEREAS, the Company and the Banks are party to a Credit Agreement, dated
as of March 17, 1994 (as amended to date, the "Existing Credit Agreement"),
whereby the Banks have agreed to make loans and certain other financial
accommodations to the Company; and
WHEREAS, the Company and the Banks desire to amend and restate the Existing
Credit Agreement in its entirety, subject to the terms and conditions of this
Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree that as
of the Effective Date the Existing Credit Agreement is amended and restated in
its entirety, as follows:
SECTION 1 COMMITMENTS OF THE BANKS; TYPES OF LOANS; LETTER OF CREDIT,
BORROWING AND CONVERSION PROCEDURES.
SECTION 1.1 COMMITMENTS. On and subject to the terms and conditions of
this Agreement, each of the Banks, severally and for itself alone, agrees to
make loans to the Company as follows:
SECTION 1.1.1 REVOLVING LOAN COMMITMENT. Loans on a revolving basis
(herein collectively called the "Revolving Loans" and each individually called a
"Revolving Loan") from time to time before the Revolving Termination Date in
such Bank's Percentage of such aggregate amounts as the Company may from time to
time request from all Banks, subject to the terms and conditions of this
Agreement.
<PAGE>
SECTION 1.1.2 LETTER OF CREDIT COMMITMENTS. (a) BAI and the Banks agree
that BAI will issue documentary and standby letters of credit containing such
terms and conditions as shall be permitted pursuant to this Agreement and
reasonably satisfactory to BAI (herein collectively called the "Letters of
Credit" and each individually called a "Letter of Credit") at the request of and
for the account of the Company from time to time before the Revolving
Termination Date and (b) as more fully set forth in SECTION 1.7, each Bank
agrees to purchase a participation in all such Letters of Credit.
SECTION 1.1.3 COMMITMENT LIMITS. Notwithstanding any other provision of
this Agreement (a) the aggregate principal amount of the Revolving Loans which
all Banks are committed to lend to the Company is $100,000,000 LESS the
aggregate Stated Amount of all Letters of Credit; (b) the aggregate Stated
Amount of all Letters of Credit shall not at any time, exceed $20,000,000;
PROVIDED, HOWEVER that the aggregate principal amount of all outstanding
Revolving Loans PLUS the aggregate Stated Amount of all Letters of Credit shall
not at any time exceed $100,000,000 (less any reductions made pursuant to
SECTION 6.1), and (c) the aggregate principal amount of each Bank's
participation in the Revolving Loans shall not exceed the amounts set forth
opposite such Bank's name in Column I of EXHIBIT A and the aggregate principal
amount of each Bank's participation in all Letters of Credit shall not exceed
the amounts set forth opposite such Bank's name in Column II of EXHIBIT A (less
any reductions made pursuant to SECTION 6.1).
SECTION 1.2 VARIOUS TYPES OF LOANS. Each Revolving Loan shall be either a
Floating Rate Loan or a Eurodollar Loan as the Company shall specify in the
related notice of borrowing or Conversion pursuant to SECTION 1.3 or 1.4.
Eurodollar Loans having the same Interest Period are sometimes called a "Group"
or collectively "Groups". Floating Rate Loans and Eurodollar Loans may be
outstanding at the same time, it being understood, however, that (i) there shall
not at any time be more than three Groups of Eurodollar Loans and (ii) the
aggregate principal amount of each Group of Eurodollar Loans shall be at least
$500,000 and in an integral multiple of $100,000.
SECTION 1.3 BORROWING PROCEDURES.
(a) Provided that the conditions in SECTION 11 are satisfied, the Company
shall give notice to the Agent of each proposed borrowing by 11:00 A.M., Chicago
time, on the proposed date of such borrowing, in the case of a Floating Rate
borrowing, and on a Business Day at least two Business Days prior to the
proposed date of such borrowing, in the case of a Eurodollar borrowing. Each
such notice shall be effective upon receipt by the Agent, shall be in writing
(or by telephone to be promptly confirmed in writing by
-2-
<PAGE>
the Company), and shall specify the date, amount and type of borrowing and, in
the case of a Eurodollar borrowing, the initial Interest Period for such
borrowing. Promptly upon receipt of such notice, but in any event by 12:30
P.M., the Agent shall advise each Bank thereof. Not later than 2:00 P.M.
Chicago time, on the date of the proposed borrowing, each Bank shall provide the
Agent at the principal office of the Agent in Chicago with immediately available
funds covering such Bank's Percentage of the borrowing, and, subject to the
satisfaction of the conditions precedent set forth in SECTION 11 with respect to
such borrowing, the Agent shall pay over the requested amount to the Company on
the requested borrowing date. Each borrowing shall be on a Business Day and
shall be in an aggregate amount of at least $500,000 and an integral multiple of
$100,000.
(b) Unless the Agent shall have received notice from a Bank prior to the
proposed date of any borrowing in the case of a Eurodollar borrowing, or prior
to 12:30 P.M., Chicago time, on the proposed date of any Floating Rate
borrowing, that such Bank will not make available to the Agent such Bank's
ratable portion of such borrowing, the Agent may assume that such Bank has made
such portion available to the Agent on the date of such borrowing in accordance
with SUBSECTION (a) above and the Agent may, in reliance upon such assumption,
make available to the Company on such date a corresponding amount. If and to
the extent such Bank shall not have so made such ratable portion available to
the Agent, such Bank and the Company severally agree to repay to the Agent
forthwith on demand such corresponding amount together with interest thereon,
for each day from the date such amount is made available to the Company until
the date such amount is repaid to the Agent, (i) in the case of the Company, at
the interest rate applicable at the time to the Revolving Loans comprising such
borrowing and (ii) in the case of such Bank, at the Federal Funds Rate. If such
Bank shall repay to the Agent such corresponding amount, such amount so repaid
shall constitute such Bank's Revolving Loan as part of such borrowing for
purposes of this Agreement. Nothing in this SUBSECTION (b) shall be deemed to
diminish the Commitments of any Bank.
(c) The failure of any Bank to make the Revolving Loan to be made by it as
part of any borrowing shall not relieve any other Bank of its obligation
hereunder to make its Revolving Loan on the date of such borrowing, but no Bank
shall be responsible for the failure of any other Bank to make the Revolving
Loan to be made by such other Bank on the date of any borrowing.
SECTION 1.4 CONVERSION PROCEDURES. Subject to the provisions of SECTION
1.2, the Company may Convert all or any part of any outstanding Revolving Loan
into a Revolving Loan of a different type by giving notice to the Agent of such
Conversion by 11:00
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A.M., Chicago time, on the proposed date of such Conversion, in the case of
Conversion into a Floating Rate Loan, and at least two Business Days prior to
the proposed date of such Conversion, in the case of Conversion into a
Eurodollar Loan. Each such notice shall be effective upon receipt by the Agent,
shall be in writing (or by telephone to be promptly confirmed in writing by the
Company), shall specify the date and amount of such Conversion, the Revolving
Loan or portion thereof to be so Converted, the type of Revolving Loan such
Revolving Loan shall be Converted into and, in the case of a Conversion into a
Eurodollar Loan, the initial Interest Period. Promptly upon receipt of such
notice the Agent shall advise each Bank thereof. Subject to SECTIONS 1.12 and
1.13, such Revolving Loan shall be so Converted on the requested date of
Conversion. Each Conversion shall be on a Business Day and shall be in an
aggregate principal amount of at least $500,000 and an integral multiple of
$100,000.
SECTION 1.5 PRO RATA TREATMENT. All borrowings, Conversions and
repayments shall be effected so that after giving effect thereto all types and
Groups of Revolving Loans shall be pro rata among the Banks according to their
respective Percentages.
SECTION 1.6 LETTER OF CREDIT PROCEDURES. Provided that the conditions in
SECTION 11.2 are satisfied, the Company shall give notice to BAI of the proposed
issuance of each Letter of Credit on a Business Day which is at least two (2)
Business Days prior to the proposed date of issuance of such Letter of Credit.
Each such notice shall be accompanied by a Letter of Credit Application, duly
executed by the Company and in all respects satisfactory to BAI, together with
such other documentation as BAI may request in support thereof, it being
understood that each Letter of Credit Application shall specify, among other
things, the date on which the proposed Letter of Credit is to be issued, the
expiration date of such Letter of Credit (which shall not extend beyond the
earlier of (a) one year from the date of issuance of the Letter of Credit or (b)
the Revolving Termination Date) and whether such Letter of Credit is to be
transferable in whole or in part. Subject to the satisfaction of the conditions
precedent set forth in SECTION 11 with respect to the issuance of such Letter of
Credit, BAI shall issue such Letter of Credit on the requested issuance date.
SECTION 1.7 PARTICIPATION IN LETTERS OF CREDIT. Concurrently with the
issuance of each Letter of Credit, (it being expressly understood that all
letter of credit obligations of the Company and Subsidiaries existing before the
Effective Date shall be deemed issued as of the Effective Date solely for
purposes of this SECTION 1.7) BAI shall notify each Bank of such issuance and
shall be deemed to have sold and transferred to each other Bank, and each other
Bank shall be deemed irrevocably and unconditionally to have purchased and
received from BAI, without recourse or warranty, an
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undivided interest and participation, to the extent of such other Bank's
Percentage, in such Letter of Credit and the Company's reimbursement
obligations with respect thereto. For the purpose of this Agreement, the
unparticipated portion of each Letter of Credit shall be deemed to be BAI's
"participation" therein. BAI hereby agrees to deliver to such Bank a list of
outstanding Letters of Credit, copies of such Letters of Credit, Letter of
Credit Applications and related documentation as such other Bank may from
time to time reasonably request.
SECTION 1.8 REIMBURSEMENT OBLIGATIONS. The Company hereby unconditionally
and irrevocably agrees to reimburse BAI for each payment or disbursement made by
BAI under any Letter of Credit honoring any demand for payment made by the
beneficiary thereunder, on the date that such payment or disbursement is made.
Any amount not reimbursed on the date of such payment or distribution shall bear
interest from and including the date of such payment or disbursement to but not
including the date that BAI is reimbursed by the Company therefor, payable
monthly in arrears, at a rate per annum equal to the Alternate Reference Rate
from time to time in effect (but not less than the Alternate Reference Rate in
effect at the date of such payment or disbursement by BAI) PLUS 2% per annum.
BAI shall notify the Company whenever any demand for payment is made under any
Letter of Credit by the beneficiary thereunder; PROVIDED, however, that the
failure of BAI to so notify the Company shall not affect the rights of BAI or
the Banks in any manner whatsoever.
SECTION 1.9 LIMITATION ON BAI'S OBLIGATIONS. In determining whether to
pay under any Letter of Credit, BAI shall have no obligation to the Company or
any Bank other than to confirm that any documents required to be delivered under
such Letter of Credit appear to have been delivered and that they appear to
comply on their face with the requirements of such Letter of Credit. Any action
taken or omitted to be taken by BAI under or in connection with any Letter of
Credit, if taken or omitted in the absence of gross negligence or willful
misconduct, shall not impose upon BAI any liability to the Company or any Bank
and shall not reduce or impair the Company's reimbursement obligations set forth
in SECTION 1.8 or the funding obligations of the Banks pursuant to SECTION 1.10.
SECTION 1.10 FUNDING BY BANKS TO BAI. In the event that BAI makes any
payment or disbursement under any Letter of Credit and the Company shall not
have reimbursed BAI in full for such payment or disbursement by 10:00 A.M.,
Chicago time, on the date of such payment or disbursement, or in the event that
any reimbursement received by BAI from the Company is or must be returned or
rescinded upon or during any bankruptcy or reorganization or otherwise, each
Bank shall be obligated to pay to BAI, in full or
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partial payment of the purchase price of its participation in such Letter of
Credit, its pro rata share, according to its Percentage, of such payment or
disbursement (but such obligation of the Banks shall not diminish the
obligation of the Company under SECTION 1.8), and the Agent shall promptly
notify each other Bank thereof. Each other Bank irrevocably and
unconditionally agrees to so pay to the Agent in immediately available funds
for BAI's account the amount of such other Bank's Percentage of such payment
or disbursement. If and to the extent any Bank shall not have made such
amount available to the Agent by 2:00 P.M., Chicago time, on the Business Day
on which such Bank receives notice from the Agent of such payment or
disbursement (it being understood that any such notice received after noon,
Chicago time, on any Business Day shall be deemed to have been received on
the next following Business Day), such Bank agrees to pay interest on such
amount to the Agent for BAI's account forthwith on demand for each day from
and including the date such amount was to have been delivered to the Agent to
but not including the date such amount is paid, at a rate per annum equal to
the Federal Funds Rate. Any Bank's failure to make available to the Agent
its Percentage of any such payment or disbursement shall not relieve any
other Bank of its obligation hereunder to make available to the Agent such
other Bank's Percentage of such payment, but no Bank shall be responsible for
the failure of any other Bank to make available to the Agent such other
Bank's Percentage of any such payment or disbursement.
SECTION 1.11 CASH COLLATERAL. If any Letter of Credit remains
outstanding on the Revolving Termination Date, the Company shall deposit with
the Agent, as security for all outstanding Letters of Credit and pursuant to
documentation in form and substance satisfactory to the Banks, cash
collateral in an amount equal to the Stated Amount of all outstanding Letters
of Credit, which cash collateral may be placed in an interest bearing account
acceptable to the Banks and the Company.
SECTION 1.12 WARRANTY. Each notice of borrowing and/or of Conversion
pursuant to SECTION 1.3 or 1.4, and the delivery of each Letter of Credit
Application pursuant to SECTION 1.6 shall automatically constitute a warranty by
the Company to the Agent and each Bank to the effect that on the date of such
requested borrowing or Conversion (other than any Conversion from a Eurodollar
Loan to a Floating Rate Loan required by SECTION 1.13 or 8.3) or the issuance of
the requested Letter of Credit, as the case may be, (a) the warranties of the
Company contained in SECTION 9 of this Agreement shall be true and correct as of
such requested date as though made on the date thereof and (b) no Event of
Default or Unmatured Event of Default shall have then occurred and be continuing
or will result therefrom.
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SECTION 1.13 CONDITIONS. Notwithstanding any other provision of this
Agreement, no Bank shall be obligated to make any Revolving Loan or to Convert
into or permit the continuation at the end of the applicable Interest Period of
any Eurodollar Loan, and BAI shall not be obligated to issue any Letter of
Credit, if an Event of Default or Unmatured Event of Default exists or would
result therefrom.
SECTION 2 NOTES EVIDENCING LOANS.
SECTION 2.1 REVOLVING NOTES. The Revolving Loans of each Bank shall be
evidenced by a promissory note (herein individually called a "Revolving Note,
and collectively for all Banks called the "Revolving Notes"), substantially in
the form set forth in EXHIBIT B, with appropriate insertions, dated the
Effective Date payable to the order of such Bank in the principal amount of the
Revolving Loan Commitment of such Bank (or, if less, in the aggregate unpaid
principal amount of such Bank's Revolving Loans).
SECTION 2.2 RECORDATION OF LOANS. Each Bank shall record in its records,
or at its option on the schedule attached to its Revolving Note, the date and
amount of each Revolving Loan made by such Bank, each repayment or Conversion
thereof and, in the case of each Eurodollar Loan the dates on which each
Interest Period for such Revolving Loan shall begin and end and, in the event
that any Bank assigns or transfers its Revolving Note, such Bank shall record on
the schedule attached to its Revolving Note, the aggregate unpaid principal
amount of Revolving Loans of such Bank on the date of such assignment or
transfer. The aggregate unpaid principal amount so recorded shall be rebuttable
presumptive evidence of the principal amount owing and unpaid on such Revolving
Note. The failure to so record any such amount or any error in so recording any
such amount shall not, however, limit or otherwise affect the obligations of the
Company hereunder or under any Revolving Note to repay the principal amount of
the Revolving Loans evidenced by such Revolving Note together with all interest
accruing thereon.
SECTION 2.3 REPLACEMENT NOTES. The Revolving Note to each Bank is issued
in replacement of the Note ("Existing Note") issued to such Bank under the
Existing Credit Agreement. Each Bank is authorized to add to the schedule
attached to its Revolving Note the information contained on the schedule
attached to its Existing Note.
SECTION 3 INTEREST.
SECTION 3.1 INTEREST RATES. The Company hereby promises to pay interest on
the unpaid principal amount of each Revolving Loan
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for the period commencing on the date of such Revolving Loan until such
Revolving Loan is paid in full, as follows:
(a) At all times while such Revolving Loan is a Floating Rate Loan, at a
rate per annum equal to the Alternate Reference Rate from time to time in
effect;
(b) At all times while such Revolving Loan is a Eurodollar Loan, at a rate
per annum equal to the Eurodollar Rate (Reserve Adjusted) applicable to each
Interest Period for such loan plus the Margin; and
(c) Notwithstanding the provisions of the preceding CLAUSES (a) and (b),
in the event that any principal of any Revolving Loan is not paid when due
(whether by acceleration or otherwise), interest shall accrue after the due date
of such principal until such principal is paid, at a rate per annum equal to the
applicable interest rate from time to time in effect (but not less than the
applicable interest rate in effect for such Revolving Loan as at such due date),
plus 2% per annum.
SECTION 3.2 INTEREST PAYMENT DATES. Accrued interest on each Floating
Rate Loan shall be payable on the last day of each calendar quarter and at
maturity, commencing with the first of such dates to occur after the date
hereof. Subject to SECTION 3.3 below, accrued interest on each Eurodollar Loan
shall be payable on the last day of each Interest Period relating to such Loan
and at maturity; provided that accrued interest on any Eurodollar Loan with an
Interest Period in excess of 3 months shall also be payable at the end of each
three month period of such Interest Period. After maturity, accrued interest on
all Revolving Loans shall be payable on demand.
SECTION 3.3 INTEREST PERIODS. Each Interest Period for a Eurodollar Loan
shall commence on the date such Eurodollar Loan is made or Converted from a
Floating Rate Loan, or on the expiration of the immediately preceding Interest
Period for such Eurodollar Loan, and shall end on the date which is 1, 2, 3 or 6
months thereafter, as the Company may specify:
(a) in the case of an Interest Period which commences on the date a
Eurodollar Loan is made or Converted from a Floating Rate Loan, in the
related notice of borrowing or Conversion pursuant to SECTION 1.3 or 1.4, or
(b) in the case of a succeeding Interest Period with respect to any
Eurodollar Loan, by notice to the Agent by 11:00 A.M., Chicago time, at least
two Business Days prior to the first day of such succeeding Interest Period,
being understood that (i) each such notice shall be effective upon receipt by
the Agent and
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shall be in writing (or by telephone to be promptly confirmed in writing) and
(ii) if the Company fails to give such notice, such Eurodollar Loan shall
automatically become a Floating Rate Loan at the end of its then-current
Interest Period.
Each Interest Period for a Eurodollar Loan which would otherwise end on a day
which is not a Business Day shall end on the next succeeding Business Day
(unless such next succeeding Business Day is the first Business Day of a
calendar month, in which case such Interest Period shall end on the next
preceding Business Day). Notwithstanding any other provision of this Agreement,
the Company may not select any Interest Period that extends beyond the Revolving
Termination Date.
SECTION 3.4 SETTING AND NOTICE OF EURODOLLAR RATES. The applicable
Eurodollar Rate for each Interest Period shall be determined by the Agent, and
notice thereof shall be given by the Agent promptly to the Company and each
Bank. Each determination of the applicable Eurodollar Rate by the Agent shall
be conclusive and binding upon the parties hereto, in the absence of
demonstrable error. The Agent shall, upon written request of the Company or any
Bank, deliver to the Company or such Bank a statement showing the computations
used by the Agent in determining any applicable Eurodollar Rate hereunder.
SECTION 3.5 COMPUTATION OF INTEREST. Interest shall be computed for the
actual number of days elapsed on the basis of a year of 360 days. The
applicable interest rate under CLAUSES (a) and (c) of SECTION 3.1 shall (to the
extent applicable in the case of CLAUSE (c)) change simultaneously with each
change in the Alternate Reference Rate.
SECTION 4 RESERVED.
[Reserved]
SECTION 5 FEES.
SECTION 5.1 LETTER OF CREDIT FEES.
(a) The Company agrees to pay to the Agent for the account of the Banks
pro rata according to their respective Percentages a letter of credit fee for
each Letter of Credit in an amount equal to the applicable Margin at the time of
issuance of such Letter of Credit (computed for the actual number of days
elapsed on the basis of a year of 360 days) of the face amount of such Letter of
Credit, such fee to be payable in arrears on the last day of each calendar
quarter and on the Revolving Termination Date for the period from and including
the date of the issuance of such Letter of Credit to
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and including such payment date or the date upon which such Letter of Credit
expired or was terminated.
(b) In addition, with respect to each Letter of Credit, the Company agrees
to pay to BAI such fees and expenses as BAI shall customarily require in
connection with the issuance, negotiation, processing and/or administration of
letters of credit in similar situations, including, but not limited to, an
agency administration fee for each Letter of Credit in an amount equal to 1/4%
per annum (computed for the actual number of days elapsed on the basis of a 360
day year) of the face amount of such Letter of Credit, payable in arrears on the
last day of each calendar quarter and on the Revolving Termination Date for the
period from and including the date of the issuance of such Letter of Credit to
and including such date or the date upon which such Letter of Credit expired or
was terminated.
SECTION 5.2 FACILITY FEE. The Company agrees to pay each Bank a facility
fee, for the period from and including the Effective Date to and including the
Revolving Termination Date, on the total Commitment (whether used or unused) (as
may be reduced by Section 6.1). Such facility fee shall be payable in arrears
on the last day of each Fiscal Quarter and on the Revolving Termination Date for
any period then ending for which such facility fee shall not have been
theretofore paid. The facility fee shall be computed for any period at the
applicable facility fee rate set forth below for the actual number of days
elapsed on the basis of a year of 360 days.
Funded Debt/Operating
Cash Flow Ratio Facility Fee Rate
--------------------- -----------------
=< 1.0 0.225 %
> 1.0 but =< 1.5 0.250 %
> 1.5 but =< 2.0 0.300 %
> 2.0 but =< 2.5 0.325 %
> 2.5 but =< 3.0 0.350 %
The applicable facility fee rate shall be adjusted, to the extent applicable, 45
days (or in the case of the last Fiscal Quarter of any Fiscal Year, 90 days)
after the end of each Fiscal Quarter beginning on the 45th day after the first
Fiscal Quarter ending after the Effective Date, based on the Funded
Debt/Operating Cash Flow Ratio as of the last day of such Fiscal Quarter; IT
BEING UNDERSTOOD that if the Company fails to deliver the certificate required
by SECTION 10.1.4 by the 45th day (or, if applicable, the 90th day) after any
Fiscal Quarter, the applicable facility fee rate shall be 0.350% per annum until
such certificate is delivered. The initial facility fee rate shall be 0.225%
per annum.
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SECTION 5.3 UPPER USAGE FEE. The Company agrees to pay an upper usage fee
of 1/8 of 1% per annum on the amount by which the average daily used amount of
the total Commitment exceeds $50,000,000. Such upper usage fee shall be payable
in arrears on the last day of each Fiscal Quarter and on the Revolving
Termination Date for any period then ending for which such upper usage fee shall
not have been theretofore paid. The upper usage fee shall be computed for the
actual number of days elapsed on the basis of a year of 360 days.
SECTION 5.4 AGENT'S FEE. The Company agrees to pay to the Agent for its
own account an annual agent's fee pursuant to the terms of a letter agreement
between the Company and the Agent.
SECTION 6 REDUCTION OR TERMINATION OF THE COMMITMENTS; VOLUNTARY
PREPAYMENTS.
SECTION 6.1 REDUCTION OR TERMINATION OF THE COMMITMENTS. The Company may
from time to time prior to the Revolving Termination Date on at least five
Business Days, prior written notice received by the Agent (which shall promptly
advise each Bank thereof) permanently reduce the amount of the Revolving Loan
Commitments and/or the Letter of Credit Commitments (such reduction to be pro
rata among the Banks according to their respective Percentages) to an amount not
less than (i) the sum of the aggregate unpaid principal amount of the Revolving
Loans then outstanding in the case of a reduction in the Revolving Loan
Commitments, or (ii) the aggregate Stated Amount of all Letters of Credit then
outstanding, in the case of a reduction in the Letter of Credit Commitments.
Any such reduction shall be in an aggregate amount of at least $500,000 and an
integral multiple of $500,000. The Company may at any time on like notice
terminate the Revolving Loan Commitments and/or the Letter of Credit Commitments
upon payment in full of the Revolving Notes and all other obligations of the
Company hereunder in respect of the Revolving Loans or, in the case of
obligations arising with respect to the Letters of Credit, upon cash
collateralization thereof in full pursuant to documentation in form and
substance satisfactory to the Banks.
SECTION 6.2 VOLUNTARY PREPAYMENTS. The Company may from time to time
prepay the Revolving Loans in whole or in part, provided that (a) the Company
shall give the Agent (which shall promptly advise each Bank) notice thereof
no later than (i) 11:00 A.M., Chicago time, on the proposed date of
prepayment with respect to Floating Rate Loans and (ii) three Business Days'
prior to the proposed date of prepayment with respect to Eurodollar Loans,
specifying the Revolving Loans to be prepaid and the date and amount of
prepayment, (b) any prepayment of a Eurodollar Loan prior to the end of the
Interest Period relating thereto shall be subject to SECTION 8.4, (c) each
partial prepayment shall be in a principal
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amount of at least $250,000 and an integral multiple of $250,000, and (d) any
prepayment of any Eurodollar Loan or of the entire principal amount of all
Floating Rate Loans shall include accrued interest to the date of prepayment.
SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF.
SECTION 7.1 MAKING OF PAYMENTS. All payments (including those made
pursuant to SECTION 6.2) of principal of, or interest on, the Revolving Loans
shall be made by the Company to the Agent in immediately available funds for the
account of the holders of the Revolving Notes pro rata according to their
respective Percentage of the unpaid principal amount of the Revolving Loans.
All payments of Letter of Credit fees pursuant to SECTIONS 5.1(a) AND 5.2 shall
be made by the Company to the Agent for the account of the Banks. All payments
of Letter of Credit fees and expenses pursuant to SECTION 5.1(b) shall be made
to the Agent for the account of BAI. All such payments shall be made to the
Agent at its office in Chicago not later than noon, Chicago time, on the date
due; and funds received after that time shall be deemed to have been received by
the Agent on the next following Business Day. The Company hereby authorizes the
Agent to charge any demand deposit account maintained by the Company with BAI
for the amount of any such payment on the due date therefor, but the Agent's
failure to so charge such account shall in no way affect the obligation of the
Company to make any such payment. The Agent shall notify the Company after any
charge is so made by the Agent against any demand deposit account maintained by
the Company with BAI; PROVIDED that the failure of the Agent to so notify the
Company shall not affect the rights of the Agent or the Banks in any manner
whatsoever. The Agent shall promptly remit to each Bank or other holder of a
Revolving Note its share of all such payments received in collected funds by the
Agent for the account of such Bank or holder.
All payments under SECTIONS 8.1 and 8.4 shall be made by the
Company directly to the Bank or Banks entitled thereto.
SECTION 7.2 APPLICATION OF CERTAIN PAYMENTS. Each payment of principal
shall be applied to such Revolving Loans as the Company shall direct by notice
to be received by the Agent on or before the date of such payment, or in the
absence of such notice, as the Agent shall determine in its discretion.
Concurrently with each remittance to any Bank of its share of any such payment
the Agent shall advise such Bank as to the application of such payment.
SECTION 7.3 DUE DATE EXTENSION. If any payment of principal or interest
with respect to any of the Revolving Loans or the Notes falls due on a Saturday,
Sunday or other day which is not a Business Day, then such due date shall be
extended to the next
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following Business Day, and additional interest shall accrue and be payable
for the period of such extension.
SECTION 7.4 SETOFF. The Company agrees that BAI and LaSalle, and each
remaining Bank and each remaining holder of a Revolving Note provided it obtains
the prior consent of the Agent (it being understood that BAI and LaSalle may
exercise the rights provided in this Section 7.4 without obtaining the prior
consent of the Agent), have all rights of setoff and bankers, lien provided by
applicable law, and in addition thereto, the Company agrees that at any time (i)
any payment or other amount owing by the Company under this Agreement is then
due to BAI, LaSalle or any Bank or (ii) any Event of Default or Event of Default
described in SECTION 12.1.4 exists, the Agent, BAI, LaSalle, and each remaining
Bank and each remaining holder of a Revolving Note provided it obtains the prior
consent of the Agent, may apply to the payment of such payment or other amount
(or, in the case of CLAUSE (ii) above, any obligation of the Company hereunder,
whether or not then due) any and all balances, credits, deposits, accounts or
moneys of the Company then or thereafter with the Agent, BAI, LaSalle or any
such Bank. The Agent, BAI, LaSalle and each remaining Bank shall undertake to
notify the Company following the exercise by the Agent, BAI, LaSalle and each
such Bank of any of the rights described in this SECTION 7.4; provided that the
failure by the Agent, BAI, LaSalle, or any other Bank to so notify the Company
shall not affect the rights of the Agent, BAI, LaSalle, the other Banks, or the
holder of any Revolving Note in any manner whatsoever.
SECTION 7.5 PRORATION OF PAYMENTS. If any Bank or other holder of a
Revolving Note shall obtain any payment or other recovery (whether voluntary,
involuntary, by application of offset or otherwise) on account of principal of
or interest on any Revolving Loan or Revolving Note (or on account of its
participation in any Letter of Credit) in excess of its pro rata share of
payments and other recoveries obtained by all Banks or other holders of on
account of principal of and interest on the Revolving Loan or Revolving Notes
(or such participation) then held by them, such Bank or other holder shall
purchase from the other Banks or holders such participation in the Notes held by
them (or sub-participation in such Letter of Credit) as shall be necessary to
cause such purchasing Bank or other holder to share the excess payment or other
recovery ratably with each of them; PROVIDED, HOWEVER, that if all or any
portion of the excess payment or other recovery is thereafter recovered from
such purchasing Bank or holder, the purchase shall be rescinded and the purchase
price restored to the extent of such recovery.
SECTION 8 INCREASED COSTS; SPECIAL PROVISIONS FOR EURODOLLAR LOANS.
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SECTION 8.1 INCREASED COSTS.
(a) If (i) Regulation D of the Board of Governors of the Federal Reserve
System, or (ii) after the date hereof, the adoption of any applicable law, rule
or regulation, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Bank (or any Eurodollar Office of such Bank) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency
(A) shall subject any Bank (or any Eurodollar Office of such Bank) to
any tax, duty or other charge with respect to its Eurodollar Loans, any of
its Revolving Notes or its obligation to make Eurodollar Loans, or shall
change the basis of taxation of payments to any Bank of the principal of or
interest on its Eurodollar Loans or any other amounts due under this
Agreement in respect of its Eurodollar Loans or its obligation to make
Eurodollar Loans (except for changes in the rate of tax on the overall net
income of such Bank or its Eurodollar Office imposed by the jurisdiction in
which such Banks principal executive office or Eurodollar Office is
located); or
(B) shall impose, modify or deem applicable any reserve (including,
without limitation, any reserve imposed by the Board of Governors of the
Federal Reserve System, but excluding any reserve included in the
determination of interest rates pursuant to SECTION 3), special deposit or
similar requirement against assets of, deposits with or for the account of,
or credit extended by, any Bank (or any Eurodollar Office of such Bank); or
(C) shall impose on any Bank (or its Eurodollar Office) any other
condition affecting its Eurodollar Loans, any of its Revolving Notes or its
obligation to make Eurodollar Loans;
and the result of any of the foregoing is to increase the cost to (or in the
case of Regulation D referred to above, to impose a cost on) such Bank (or any
Eurodollar Office of such Bank) of making or maintaining any Eurodollar Loan, or
to reduce the amount of any sum received or receivable by such Bank (or its
Eurodollar Office) under this Agreement or under any of its Revolving Notes with
respect thereto, then within 10 days after demand by such Bank (which demand
shall be accompanied by a statement setting forth the basis of such demand), the
Company shall pay directly to such Bank such additional amount or amounts as
will compensate such Bank for such increased cost or such reduction.
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(b) If any Bank shall reasonably determine that the adoption or phase-in
of any applicable law, rule or regulation regarding capital adequacy, or any
change therein, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or its
Eurodollar Office) or any Person controlling such Bank with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Bank's or such controlling
Person's capital as a consequence of such Bank's obligations hereunder
(including, without limitation, such Bank's Revolving Loan Commitment or Letter
of Credit Commitment) to a level below that which such Bank or such controlling
Person could have achieved but for such adoption, change or compliance (taking
into consideration such Bank's or such controlling Person's policies with
respect to capital adequacy) by an amount deemed by such Bank or such
controlling Person to be material, then from time to time, within 10 days after
demand by such Bank (which demand shall be accompanied by a statement setting
forth the basis of such demand), the Company shall pay to such Bank such
additional amount or amounts as will compensate such Bank or such controlling
Person for such reduction.
(c) Each Bank will promptly notify the Company and the Agent of any event
of which it has knowledge which will entitle such Bank to compensation pursuant
to this SECTION 8.1.
SECTION 8.2 BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR UNFAIR. If
with respect to any Interest Period:
(a) deposits in Dollars (in the applicable amounts) are not being offered
to one or more Banks in the relevant market for such Interest Period, or the
Agent otherwise determines (which determination shall be binding and conclusive
on all parties) that by reason of circumstances affecting the interbank
eurodollar market adequate and reasonable means do not exist for ascertaining
the applicable Eurodollar Rate; or
(b) Banks having an aggregate Percentage of 20% or more advise the Agent
that the Eurodollar Rate (Reserve Adjusted) as determined by the Agent will not
adequately and fairly reflect the cost to such Banks of maintaining or funding
Eurodollar Loans for such Interest Period, or that the making or funding of
Eurodollar Loans has become impracticable as a result of an event occurring
after the date of this Agreement which in the opinion of such Banks materially
affects such Loans, then the Agent shall promptly notify the other parties
thereof and, so long as such circumstances shall continue, (i) no Bank shall be
under any obligation to make or Convert into Eurodollar Loans and (ii) on the
last day of the
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current Interest Period for each Eurodollar Loan, such Loan shall, unless
then repaid in full, automatically Convert to a Floating Rate Loan.
SECTION 8.3 CHANGES IN LAW RENDERING CERTAIN LOANS UNLAWFUL. In the event
that any change in (including the adoption of any new) applicable laws or
regulations, or any change in the interpretation of applicable laws or
regulations by any governmental or other regulatory body charged with the
administration thereof, should make it (or in the good faith judgment of any
Bank raise a substantial question as to whether it is) unlawful for any Bank (an
"Affected Bank") to make, maintain or fund Eurodollar Loans, then the Affected
Bank shall promptly notify each of the other parties hereto and, so long as such
circumstances shall continue, (a) the Affected Bank shall have no obligation to
make or Convert into Eurodollar Loans (but shall make Floating Rate Loans
concurrently with the making of or Conversion into Eurodollar Loans by the Banks
which are not Affected Banks, in each case in an amount equal to the Affected
Banks Percentage of all Eurodollar Loans which would be made or Converted into
at such time in the absence of such circumstances) and (b) on the last day of
the current Interest Period for each Eurodollar Loan (or, in any event, if the
Affected Bank so requests, on such earlier date as may be required by the
relevant law, regulation or interpretation), such Eurodollar Loan shall, unless
then repaid in full, automatically Convert to a Floating Rate Loan. Each
Floating Rate Loan made by an Affected Bank which, but for the circumstances
described in the foregoing sentence, would be a Eurodollar Loan (an "Affected
Loan") shall, notwithstanding any other provision of this Agreement, remain
outstanding for the same period as the Group of Eurodollar Loans of which such
Affected Loan would be a part absent such circumstances.
SECTION 8.4 FUNDING LOSSES. The Company hereby agrees that upon demand by
any Bank (which demand shall be accompanied by a statement setting forth the
basis for the calculations of the amount being claimed) the Company will
indemnify such Bank against any net loss or expense which such Bank may sustain
or incur (including, without limitation, any net loss or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
such Bank to fund or maintain Eurodollar Loans), as reasonably determined by
such Bank, as a result of (a) any payment or prepayment or Conversion of any
Eurodollar Loan of such Bank on a date other than the last day of an Interest
Period for such Loan (including, without limitation, any Conversion pursuant to
SECTION 8.3) or (b) any failure of the Company to borrow or Convert any
Revolving Loans on a date specified therefor in a notice of borrowing or
Conversion pursuant to this Agreement. For this purpose, all notices to the
Agent pursuant to this Agreement shall be deemed to be irrevocable.
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SECTION 8.5 RIGHT OF BANKS TO FUND THROUGH OTHER OFFICES. Each Bank may,
if it so elects, fulfill its commitment as to any Eurodollar Loan by causing a
foreign branch or Affiliate of such Bank to make such Eurodollar Loan, PROVIDED
that in such event for the purposes of this Agreement such Eurodollar Loan shall
be deemed to have been made by such Bank and the obligation of the Company to
repay such Eurodollar Loan shall nevertheless be to such Bank and shall be
deemed held by it, to the extent of such Eurodollar Loan, for the account of
such branch or Affiliate.
SECTION 8.6 DISCRETION OF BANKS AS TO MANNER OF FUNDING. Notwithstanding
any provision of this Agreement to the contrary, each Bank shall be entitled to
fund and maintain its funding of all or any part of its Revolving Loans in any
manner it sees fit, it being understood, however, that for the purposes of this
Agreement all determinations hereunder shall be made as if such Bank had
actually funded and maintained each Eurodollar Loan during each Interest Period
for such Loan through the purchase of deposits having a maturity corresponding
to such Interest Period and bearing an interest rate equal to the Eurodollar
Rate for such Interest Period.
SECTION 8.7 Conclusiveness of Statements; Survival of Provisions.
Determinations and statements of any Bank pursuant to SECTION 8.1, 8.2, 8.3 or
8.4 shall be conclusive absent demonstrable error. Banks may use reasonable
averaging and attribution methods in determining compensation under SECTIONS 8.1
and 8.4, and the provisions of such Sections shall survive termination of this
Agreement.
SECTION 9 WARRANTIES.
To induce the Agent and the Banks to enter into this Agreement and to make
Revolving Loans and issue or purchase participation in Letters of Credit
hereunder, the Company warrants to the Agent and the Banks that:
SECTION 9.1 ORGANIZATION AND QUALIFICATION. The Company is a corporation
duly existing and in good standing under the laws of the State of Delaware; each
Subsidiary is a corporation duly existing and in good standing under laws of the
state of its incorporation; and the Company and each Subsidiary is duly
qualified and in good standing as a foreign corporation authorized to do
business in each jurisdiction where, because of the nature of its activities or
properties, such qualification is required and the failure to so qualify would
materially and adversely affect the Company's financial condition, operations,
or business prospects. SCHEDULE 9.1 lists the foreign jurisdictions of the
Company.
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SECTION 9.2 AUTHORIZATION: NO CONFLICT AND VALIDITY OF OBLIGATIONS. The
Company has full right and authority to enter into this Agreement, to make the
borrowings herein provided for, to request that Letters of Credit be issued
hereunder, to issue its Revolving Notes and to perform all of its obligations
under the Loan Documents; each Loan Document delivered by the Company has been
duly authorized, executed and delivered by the Company and constitutes the valid
and binding obligations of the Company, enforceable in accordance with their
terms; and the Loan Documents do not, nor does the performance or observance by
the Company of any of the matters or things therein provided for, contravene any
provision of law or the certificate of incorporation or bylaws of the Company or
any material covenant, indenture or agreement of or affecting the Company.
SECTION 9.3 SUBSIDIARIES. The Subsidiaries of the Company and their
respective states of incorporation and foreign jurisdictions are designated
on SCHEDULE 9.3.
SECTION 9.4 FINANCIAL STATEMENTS The Company's audited consolidated
financial statement as at December 31, 1995 and, except as disclosed on SCHEDULE
9.4, its unaudited consolidated financial statements as at March 31, 1996 and
June 30, 1996, copies of which have been furnished to the Banks, have been
prepared in conformity with GAAP applied on a basis consistent with that of the
preceding fiscal year, and accurately present the financial condition of the
Company and the Subsidiaries as at such dates and the results of their
operations for the periods then ended, and since such dates there has been no
material adverse change in their financial condition or operations or business
prospects.
SECTION 9.5 NO MATERIAL ADVERSE CHANGE. Except as disclosed on SCHEDULE
9.5, since December 31, 1995, there has been no material change in the
management of the Company and there has been no material adverse change in the
condition, financial or otherwise, operations or business prospects of the
Company or the Subsidiaries.
SECTION 9.6 LITIGATION AND CONTINGENT LIABILITIES. Except as disclosed
in SCHEDULE 9.6, there is no litigation (including, without limitation,
derivative actions), arbitration proceedings or governmental proceedings pending
or, to the best of the Company's knowledge, threatened against the Company or
any Subsidiary which if adversely determined would (i) result in any material
adverse change in the financial condition, business prospects or continued
operations of the Company or the Subsidiaries or (ii) impair the validity or
enforceability of, or materially impair the ability of the Company to perform
its obligations hereunder or under any of the Loan Documents. Other than any
liability incident to such litigation or proceedings,
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neither the Company nor any Subsidiary has any contingent liabilities singly
or in the aggregate in excess of $500,000 not provided for or disclosed in
the financial statements referred to in SECTION 9.4.
SECTION 9.7 LIENS. None of the assets of the Company or any Subsidiary is
subject to any mortgage, pledge, title retention lien, or other lien,
encumbrance or security interest, EXCEPT liens permitted by SECTION 10.11.
SECTION 9.8 PENSION AND WELFARE PLANS. Each of the Company and
Subsidiaries is in compliance in all material respects with ERISA with respect
to all employee benefit plans maintained by the Company or such Subsidiaries and
has received no notice to the contrary from the PBGC or any other governmental
entity or agency. During the twelve consecutive month period prior to the date
of the execution and delivery of this Agreement, no steps have been taken to
terminate any Pension Plan, and no contribution failure has occurred with
respect to any Pension Plan sufficient to give rise to a lien under Section
302(f) of ERISA. No condition exists or event or transaction has occurred with
respect to any Pension Plan which could result in the incurrence by the Company
of any material liability, fine or penalty. Except as described in SCHEDULE
9.8, the Company has no contingent liability with respect to any post-retirement
benefits under a Welfare Plan, other than liability for continuation coverage
described in Part 6 of title I to ERISA and described in applicable state
continuation coverage laws.
SECTION 9.9 INVESTMENT COMPANY ACT. The Company is not
an "investment company" or a company "controlled" by an "investment company"
with the meaning of the Investment Company
Act of 1940, as amended.
SECTION 9.10 REGULATION U. The Company is not engaged principally, or as
one of its important activities, in the business of extending credit, and will
not use the proceeds of any of the Revolving Loans, for the purpose of
purchasing or carrying Margin Stock and the Company will not use the proceeds of
the Revolving Loans or the Letters of Credit in a manner that violates any
provision of Regulations U, G or X of the Board of Governors of the Federal
Reserve System.
SECTION 9.11 APPROVALS. No authorization, consent, license, exemption or
filing or registration with any court or governmental department, agency or
instrumentality, or any approval or consent from any other Person is necessary
in connection with the valid execution, delivery or performance by the Company
of the Loan Documents.
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SECTION 9.12 COMPANY'S MATERIAL AGREEMENTS. The Company is not 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 might have a material adverse affect on the business, properties
or assets, operations or condition (financial or otherwise) of the Company or
(ii) any agreement or instrument evidencing or governing indebtedness.
SECTION 9.13 TAXES. Each of the Company and the Subsidiaries has filed
all tax returns which are required to have been filed and has paid, or made
adequate provision for the payment of all of its taxes which are due and
payable, except such taxes, if any, as are being contested in good faith and by
appropriate proceedings and as to which such reserves or other appropriate
provisions as may be required by GAAP have been maintained. The Company is
not aware of any proposed assessment against the Company or any Subsidiaries for
additional taxes (or any basis for any such assessment) which might be material
to the Company.
SECTION 9.14 INSURANCE. SCHEDULE 9.14 completely and accurately
summarizes the property and casualty insurance program carried by the Company
and the Subsidiaries and includes any self insurance program that is in effect.
SECTION 9.15 BUSINESS LOCATIONS. The office where the
Company keeps its books and records and the principal place of business of the
Company is set forth on the signature pages of this Agreement. SCHEDULE 9.15
lists the address of any other place of business of the Company and the
Subsidiaries.
SECTION 9.16 USE OF PROCEEDS. The proceeds of the Revolving Loans and the
Letters of Credit shall be used for working capital and general corporate
purposes, including but not limited to, acquisitions under Section 10.13(b) and
the uses referred to in SECTION 10.19.
SECTION 9.17 ENVIRONMENTAL MATTERS. Except as set forth on SCHEDULE 9.17,
to the best of the Company's knowledge, (a) the Company and its Subsidiaries
comply in all material respects with all applicable Environmental Laws, (b) the
Company and its Subsidiaries have obtained all Governmental Approvals required
for its operations, and its use and/or occupancy of any real property by any
applicable Environmental Law, (c) there are no pending or threatened claims,
notices, investigations or litigation involving the Company or any of its
Subsidiaries relating to any Release, threatened Release or disposal of any
Hazardous Material, and (d) the Company and its Subsidiaries have no pending
material liability for response or corrective action, natural resource damage,
or other harm pursuant to CERCLA, RCRA, or any comparable state law.
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SECTION 9.18 TREATMENT AND STORAGE. Except in compliance with applicable
law in all material respects, or as otherwise described on SCHEDULE 9.18, any
real property currently owned by or leased to the Company and any of its
Subsidiaries does not contain any of the following: (a) underground storage
tanks, (b) any landfills or dumps, or (c) hazardous waste management facilities
as defined pursuant to RCRA or comparable state law.
SECTION 9.19 COMPLIANCE WITH LAWS. To the best of the Company's
knowledge, the Company and its Subsidiaries are in compliance in all material
respects with all applicable statutes, laws, rules and regulations.
SECTION 9.20 INFORMATION. All information heretofore or
contemporaneously herewith furnished by the Company to any Bank for purposes
of or in connection with this Agreement and the transactions contemplated
hereby is, and all information hereafter furnished by or on behalf of the
Company to any Bank will be, true and accurate in every material respect on
the date as of which such information is dated or certified, and none of such
information is or will be incomplete by omitting to state any material fact
necessary to make such information not misleading.
SECTION 10 COVENANTS.
Until the expiration or termination of the Commitments and thereafter until
all obligations of the Company hereunder and under the Revolving Notes are paid
in full and all Letters of Credit have been terminated, the Company agrees that,
unless at any time the Banks shall otherwise expressly consent in writing, it
will:
SECTION 10.1 REPORTS, CERTIFICATES AND OTHER INFORMATION. Furnish to each
Bank:
SECTION 10.1.1 AUDIT REPORT. Within 90 days after each fiscal year of the
Company, a copy of an annual audit report of the Company and the Subsidiaries
for such fiscal year then ended prepared on a consolidating and consolidated
basis and in conformity with GAAP (except for such consolidating statements)
applied on a basis consistent with the audited consolidated financial statement
of the Company and the Subsidiaries as at December 31, 1995, duly certified
(except for such consolidating statements) by Coopers & Lybrand, or other
independent certified public accountants of recognized standing selected by the
Company and reasonably acceptable to the Banks, certified without qualification
by such independent certified public accountants together with a certificate to
the effect that, in making the examination necessary for the signing of such
annual audit report by such independent certified public accountants, they have
not become aware of any Event of Default or Unmatured Event of Default
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that has occurred and is continuing, or if they have become aware of any such
event, stating the nature and status thereof.
SECTION 10.1.2 QUARTERLY REPORTS. Within 45 days after the end of each
Fiscal Quarter (except the fourth Fiscal Quarter), a copy of (a) the unaudited
consolidated and consolidating balance sheets of the Company and the
Subsidiaries as of the close of such Fiscal Quarter and the related consolidated
changes in financial position for that portion of the fiscal year and (b) the
unaudited consolidated and consolidating statements of income of the Company and
the Subsidiaries, in each case prepared in substantially the same manner as the
audit report referred to in SECTION 10.1.1 and signed by the Chief Financial
Officer of the Company.
SECTION 10.1.3 MONTHLY REPORTS. Within 30 days after the end of each
calendar month, a Directors' Statement which at a minimum provides the unaudited
financial statements of the Company and its Subsidiaries prepared in
substantially the same manner as Schedule 10.1.3, and is signed by the Chief
Financial Officer of the Company. Notwithstanding the foregoing, the Directors'
Statement for the last month of the Company's fiscal year shall be due within
sixty (60) days after the end of that month.
SECTION 10.1.4 COMPLIANCE CERTIFICATES. Within 45 days after the end of
each Fiscal Quarter, a certificate signed by the President or the Chief
Financial Officer of the Company to the effect that no Event of Default or
Unmatured Event of Default has occurred and is continuing, or, if there is any,
such event, describing it and the steps, if any, being taken, to cure it, and
containing a computation of, and showing compliance with, each of the financial
ratios, including the Funded Debt/Operating Cash Flow Ratio, and the
restrictions contained in this SECTION 10.
SECTION 10.1.5 REPORTS TO SEC AND TO SHAREHOLDERS. Copies of each filing
and report made by the Company or any Subsidiary with or to any securities
exchange or the Securities and Exchange Commission, and of each communication
from the Company or any Subsidiary to shareholders of the Company generally,
promptly upon the filing or making thereof.
SECTION 10.1.6 NOTICE OF DEFAULT, LITIGATION AND ERISA MATTERS. As soon
as possible, but in no event later than [30] days, after the Company learns of
the occurrence of any of the following, written notice thereof, describing the
same and the steps being taken by the Company or the Subsidiary affected with
respect thereto: (i) the occurrence of an Event of Default or an Unmatured Event
of Default, or (ii) the institution of, or any adverse determination in, any
litigation, arbitration proceeding or governmental proceeding which is
materially adverse to the Company and its Subsidiaries on a consolidated basis,
or (iii) the
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institution of any steps by the Company or any other Person to terminate any
Pension Plan, or the failure to make a required contribution to any Pension
Plan if such failure is sufficient to give rise to a lien under Section
302(f) of ERISA, or the taking of any action with respect to a Pension Plan
which could result in the requirement that the Company furnish a bond or
other security to the PBGC or such Pension Plan, or the occurrence of any
event with respect to any Pension Plan which could result in the incurrence
by the Company of any material liability, fine or penalty, or any material
increase in the contingent liability of the Company with respect to any
post-retirement Welfare Plan benefit.
SECTION 10.1.7 SUBSIDIARIES. A written report of any changes in the list
of its Subsidiaries within thirty (30) days
of such change.
SECTION 10.1.8 PROJECTIONS. Within 60 days after the end of each fiscal
year of the Company, a copy of the one-year projections (quarter by quarter) of
the Company and its Subsidiaries, including balance sheets and statements of
earnings and cash flow prepared on a consolidated and on a divisional basis.
SECTION 10.1.9 OTHER INFORMATION. From time to time such other
information concerning the Company and its Subsidiaries as the Agent or any Bank
may reasonably request.
SECTION 10.2 BOOKS, RECORDS AND INSPECTIONS. Maintain, and cause each
Subsidiary to maintain, complete and accurate books and records; permit, and
cause each Subsidiary to permit, access by the Agent and each Bank to the books
and records of the Company and of any Subsidiary; permit, and cause each
Subsidiary to permit, the Agent and each Bank to inspect the properties and
operations of the Company and of any Subsidiary; and, if the Agent and each Bank
are unable to conduct such review, permit, and cause each Subsidiary to permit,
any accounting firm selected by the Agent which is reasonably satisfactory to
the Company, on a semi-annual basis, to conduct, at the Company's expense, such
reviews of the books and records of the Company and of any Subsidiary as the
Agent shall reasonably request.
SECTION 10.3 INSURANCE. Maintain, and cause each Subsidiary to maintain,
such insurance as may be required by law and such other insurance, to such
extent and against such hazards and liabilities, as is customarily maintained by
companies similarly situated.
SECTION 10.4 TAXES AND LIABILITIES. Pay, and cause each Subsidiary to
pay, when due all taxes, assessments and other liabilities except as
contested in good faith and by appropriate proceedings.
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SECTION 10.5 NET WORTH. Not permit the Company's Consolidated Net Worth
at any time to be less than (a) $103,436,000 PLUS (b) fifty percent (50%) of the
Company's positive consolidated net income for each Fiscal Quarter ended after
June 30, 1996, LESS (c) repurchases by the Company of its capital stock to the
extent such repurchases do not exceed $10,000,000 in the aggregate.
SECTION 10.6 FUNDED DEBT/OPERATING CASH FLOW RATIO. Not permit the ratio
("Funded Debt/Operating Cash Flow Ratio") of (x) Consolidated Total Funded Debt
to (y) Consolidated Operating Cash Flow during any period of four consecutive
Fiscal Quarters to exceed the ratio of 3.00:1.
SECTION 10.7 FIXED CHARGE COVERAGE. Not permit the ratio of (a)
Consolidated Adjusted Operating Cash Flow for any period of four consecutive
Fiscal Quarters to (b) interest expense (before any deferral and capitalization
of such interest, but including attributable interest from Capitalized Lease
Obligations) plus rental expense of the Company and its Subsidiaries on a
consolidated basis during such period, to be less than 2.50:1.
SECTION 10.8 MINIMUM DEBT COVERAGE. Not permit the ratio of (a) the sum
of (i) the accounts receivable of the Company and its Subsidiaries, plus (ii)
the book value of inventory of the Company and its Subsidiaries (provided that
the value of such inventory shall not exceed 150% of the net amount of accounts
receivable under clause (i) above), plus (iii) cash and cash equivalents
(determined according to GAAP) of the Company and its Subsidiaries to (b) the
aggregate principal amount of all Indebtedness of the Company and its
Subsidiaries, to be less than 1.50:1.
SECTION 10.9 PURCHASE OR REDEMPTION OF COMPANY'S SECURITIES; DIVIDED
RESTRICTIONS. Not purchase or redeem any shares of the capital stock of the
Company, declare or pay any dividends thereon (other than stock dividends), make
any distribution to stockholders or set aside any funds for any such purpose,
and not prepay, purchase or redeem, and not permit any Subsidiary to purchase,
any subordinated indebtedness of the Company; PROVIDED HOWEVER, that so long as
no Event of Default or Unmatured Event of Default exists or would result
therefrom, the Company may, in its sole discretion (i) pay or declare cash
dividends to the holders of common stock of the Company; and (ii) purchase the
common stock of the Company to be held by the Company as treasury shares for its
own account or otherwise considered treasury shares, or cancel the common stock
of the Company.
SECTION 10.10 INDEBTEDNESS. Not, and not permit any Subsidiary to, incur
or permit to exist any indebtedness or liability on account of deposits or
advances or for borrowed money or for the deferred purchase price of any
property or services,
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except (i) the obligations arising under the Commitments, (ii) obligations
under any Capital Lease, (iii) indebtedness of any Subsidiary to the Company
or any other Subsidiary, (iv) indebtedness of the Company relating to any
hedging agreements entered into by the Company with respect to interest rate
exposure resulting from its obligations under this Agreement, (v) current
liabilities of the Company arising in the ordinary course of business, (vi)
the obligations of the Company in connection with the Letter of Credit
Applications or the Letters of Credit, (vii) debt in respect of taxes,
assessments or governmental charges to the extent that payment thereof shall
not at the time be required to be made, (viii) indebtedness subordinated to
the obligations of this Agreement, with terms and conditions acceptable to
Agent, (ix) indebtedness assumed by the Company in connection with
acquisitions permitted by SECTION 10.13, (x) indebtedness described in
SCHEDULE 10.10, and (xi) other indebtedness of the Company not to exceed
$10,000,000 in the aggregate. Schedule 10.10 specifically describes the
indebtedness of the Company and Subsidiaries which will remain after the
Effective Date.
SECTION 10.11 LIENS. Not, and not permit any Subsidiary to, create or
permit to exist, any mortgage, pledge, title retention lien, or other lien,
encumbrance or security interest with respect to any assets now owned or
hereafter acquired, EXCEPT (i) for current taxes not delinquent or for taxes
being contested in good faith and by appropriate proceedings, (ii) liens arising
in the ordinary course of business for sums not due or sums being contested in
good faith and by appropriate proceedings and not involving any deposits or
advances or borrowed money or the deferred purchase price of property or
services (iii) those granted by any Subsidiary to secure indebtedness of such
Subsidiary to the Company or any Subsidiary, (iv) liens in favor of the Agent
and the Banks in connection herewith, (v) preexisting liens on or security
interests affecting assets acquired pursuant to SECTION 10.13(d), (vi) liens
arising in the ordinary course of business and consistent with past practices
not to exceed $1,000,000 in the aggregate, or (vii) liens listed in SCHEDULE
10.11.
SECTION 10.12 GUARANTIES, LOANS OR ADVANCES. Not, and not permit any
Subsidiary to, become or be a guarantor or surety of, or otherwise become or be
responsible in any manner (whether by agreement to purchase any obligations,
stock, assets, goods or services, or to supply or advance any funds, assets,
goods or services, or otherwise) with respect to, any undertaking of any
advances to any other person or entity, EXCEPT for (i) the endorsement, in the
ordinary course of collection, of instruments payable to it or to its order,
(ii) loans or advances by the Company to any Subsidiary, (iii) advances not to
exceed, in the aggregate for the Company and all Subsidiaries at any one time
outstanding, $150,000 to officers and employees and $100,000 to
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subcontractors or suppliers other than Subsidiaries, (iv) customary and usual
indemnities given in connection with any Permitted Dispositions, (v)
indemnities of the Bush Hog and Verson Divisions given to certain of their
customers and dealers in the ordinary course of business and consistent with
past practices, (vi) customary and usual indemnities given by the Company in
connection with past divestitures, (vii) deposits not to exceed, in the
aggregate for the Company and all Subsidiaries at any one time outstanding,
$1,000,000 to the sellers of fixed assets in connection with the purchase by
the Company of such fixed assets.
SECTION 10.13 MERGERS, CONSOLIDATIONS, SALES. Not, and not permit any
Subsidiary to, be a party to any merger or consolidation, or purchase or
otherwise acquire all or substantially all of the assets, or any stock of any
class of, or any partnership or joint venture interest in, any other Person, or,
except in the ordinary course of its business, sell, transfer, convey or lease
all or any substantial part of its assets or sell or assign with or without
recourse any receivables, EXCEPT for:
(a) any such merger or consolidation, sale, transfer, conveyance, lease or
assignment of or by any wholly-owned Subsidiary into the Company or into, with
or to any other wholly owned Subsidiary;
(b) negotiated friendly acquisitions of any Person which is in a line of
business substantially similar to the business of the Company and its
Subsidiaries, provided that (i) the total consideration paid or given for all
such acquisitions during any consecutive eighteen month period shall not exceed
$25,000,000 (exclusive of the value of common stock of the Company used as
consideration in connection with any such acquisition); (ii) the proforma
combined Funded Debt/Operating Cash Flow Ratio as of the effective date of any
such acquisition of the Company and the acquired Person, for the four Fiscal
Quarters most recently ended at the time of such effective date does not exceed
2.75:1; (iii) no Event of Default or Unmatured Event of Default shall exist
before or after giving effect to such acquisition; (iv) the Agent shall have
received a certificate from the Company satisfactory to the Agent as to
compliance by the Company with preceding clauses (i) through (iii); and (v) any
acquisition of stock of a Person shall not be less than 80% of the issued and
outstanding capital stock of such Person.
(c) the Sale and Leaseback of property comprising assets employed by the
Company's Coz division, provided the aggregate amount of all such Sale and
Leasebacks shall not exceed $15,000,000; and
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(d) the sale, transfer or disposition of any fixed asset(s), as long as
either: (i) during any fiscal year, the aggregate consideration paid or given to
the Company or any Subsidiary is less than 5% of the Company's consolidated
assets as reflected on the Company's then most recent audited financial
statements, or (ii) the Company uses the proceeds of such transaction to finance
the purchase of replacement fixed asset(s), delivers to the Agent written
evidence of the use of the proceeds, and such replacement fixed asset(s) is free
and clear of all liens;
PROVIDED, HOWEVER, that as to all mergers, consolidations, acquisitions, sales
and transfers no Event of Default or Unmatured Event of Default shall have
occurred and be continuing or will result therefrom. For purposes of this
SECTION 10.13, for all such transactions, the term "consideration" shall include
the amount of any indebtedness for borrowed money assumed by the Company PLUS
the amount, if any, by which the difference of (a) the amount of the liabilities
of the acquired Person assumed by the Company LESS (b) the amount of the
indebtedness for borrowed money assumed by the Company exceeds the value of the
Tangible Assets of such acquired Person.
SECTION 10.14 INVESTMENTS. Not, and not permit any Subsidiary to, make or
permit any Investment in any Person, except for:
(a) Extensions of credit in the nature of accounts
receivable or notes receivable arising from the sale of goods and
services in the ordinary course of business consistent with past
practices;
(b) Investments and securities with maturities of one
year or less from the date of acquisition issued or fully
guaranteed or insured by the United States of America or any
agency thereof;
(c) Investments and commercial paper maturing within 270 days or less from
the date of issuance rated in the highest grade by a nationally recognized
credit agency;
(d) Investments and certificates of deposit maturing within one year from
the date of acquisition issued by a bank or trust company organized under the
laws of the United States or any State thereof having capital, surplus and
undivided profits aggregating at least $100,000,000;
(e) Investments of the Company outstanding on the date hereof to the
extent disclosed in the financial statements referred to in SECTION 9.4 or
disclosed on Schedule 10.14;
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(f) Investments in overnight repurchase or reverse repurchase transactions
involving marketable direct obligations issued or unconditionally guaranteed by
the United States of America or any agency thereof and backed by the full faith
and credit of the United States, in each case maturing within one year from the
date of acquisition thereof, entered into with a counter party with a net worth
in excess of $100,000,000;
(g) Investments of the Company evidenced by promissory or demand notes
issued by purchasers of assets of the Company permitted by the terms of this
Agreement; and
(h) Investments permitted under Sections 10.9.1, 10.9.2, 10.9.3, 10.9.4,
10.10, 10.12 and 10.13.
(i) Investments in shares of a money market fund which (1) is a registered
investment company under the Investment Company Act of 1940 (the "Act"); (2)
complies with Rule 270.2(a)-7 of the Act (the "Rule"); and (3) is either (a)
rated in one of the two highest rating categories by Standard and Poors or
Moody's, or (b)(i) has assets of at least $200,000,000 at all times upon and
after the purchase of shares by the Company, and (ii) will limit its portfolio
investments to instruments that are, at the time of acquisition "First Tier
Securities" or "Government Securities" as such terms are defined in this Rule.
SECTION 10.15 ENVIRONMENTAL COVENANTS.
SECTION 10.15.1 ENVIRONMENTAL RESPONSE OBLIGATION. (a) Comply, and
cause each Subsidiary to comply, in all material respects with all applicable
Environmental Laws, or judicial or administrative orders requiring the
performance at any real property owned, operated, or leased by the Company or
any subsidiary of activities in response to the release or threatened release
of a Hazardous Material except for the period of time that the Company or
such Subsidiary is diligently in good faith contesting such order; (b) notify
the Bank within 30 days of the receipt of any written claim, demand,
proceeding, action, or notice of liability by any Person arising out of or
relating to the release or threatened release of a Hazardous Material; and
(c) notify the Bank promptly, but in no event later than thirty (30) days,
after the occurrence of any release, threat of release, or disposal of
Hazardous Material reported to any governmental regulatory authority at any
real property owned, operated, or leased by the Company or any Subsidiary.
SECTION 10.15.2 ENVIRONMENTAL LIABILITIES. Not violate in any material
respect any applicable Environmental Law and, without limiting the foregoing,
not commence disposal of any Hazardous Material into or onto any real property
owned, operated, or leased
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by the Company or any Subsidiary nor allow any lien imposed pursuant to any
law, regulation or order relating to Hazardous Materials or the disposal
thereof to remain on such real property.
SECTION 10.16 UNCONDITIONAL PURCHASE OBLIGATIONS. Not, and not permit any
Subsidiary to, enter into or be a party to any contract for the purchase of
materials, supplies or other property or services, if such contract requires
that payment be made by it regardless of whether or not delivery is ever made of
such materials, supplies or other property or services.
SECTION 10.17 EMPLOYEE BENEFIT PLANS. Maintain, and cause
each Subsidiary to maintain, each Pension Plan in compliance in
all material respects with all applicable requirements of the law
and regulations.
SECTION 10.18 REGULATION U. Not use or permit any proceeds of the
Revolving Loans or the Letters of Credit to be used, either directly or
indirectly, for the purpose, whether immediate, incidental or ultimate, of
"purchasing or carrying" any Margin Stock.
SECTION 10.19 USE OF PROCEEDS. To the extent the principal amount of
Revolving Loans plus the Stated Amount of Letters of Credit exceeds $75,000,000,
cause the proceeds representing such excess to be used by the Company's Verson
Division ("Verson") for the purpose of funding working capital with respect to
active and outstanding binding purchase contracts (of at least corresponding
size in the aggregate) between Verson and Ford Motor Company, Chrysler
Corporation and General Motors, in each case for the purchase of new steel
presses, it being understood that (i) in the case of contracts with Chrysler
Corporation, such contracts shall be in excess of $10,000,000 and shall not
provide for progress payments, and (ii) prior to the use of such proceeds, the
Company shall furnish to each Bank summaries of such contracts together with
payment schedules and such other information as either Bank may request in
connection therewith.
SECTION 10.20 SIGNIFICANT SUBSIDIARY. Cause each present or future
Significant Subsidiary to forthwith execute and deliver to the Agent a guaranty
of the Company's obligations under this Agreement, such guaranty to be in form
and substance satisfactory to the Agent and to be supported by such supporting
documents as the Agent shall require.
SECTION 10.21 OTHER AGREEMENTS. Not, and not permit any of its
Subsidiaries to, enter into any agreement containing any provision which (a)
would be violated or breached by the performance of its obligations hereunder or
under any instrument or document delivered or to be delivered by it hereunder or
in
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connection herewith, (b) prohibits or restricts the creation or assumption of
any Lien upon its properties, revenues or assets, whether now owned or hereafter
acquired, (c) prohibits or restricts the ability of any Subsidiary to make
dividends or advances to the Borrower, or (d) prohibits or restricts the ability
of the Borrower or any Subsidiary to amend or otherwise modify this Agreement or
any other document executed in connection herewith.
SECTION 10.22 COMPLIANCE WITH LAWS. Comply, and cause each Subsidiary to
comply in all material respects with all applicable statutes, laws, rules and
regulations.
SECTION 11 EFFECTIVENESS; CONDITIONS OF LENDING
Section 11.1 EFFECTIVENESS. This Agreement shall become effective on such
date (herein called the "Effective Date") that (i) the conditions specified in
SECTION 11.2 have been satisfied, (ii) the Agent shall have received the fees
described in SECTIONS 5.1, 5.2 AND 5.3 (to the extent then due), and (iii) the
Agent shall have received all the following, each duly executed and dated the
Effective Date (or such earlier date as shall be satisfactory to the Agent), in
form and substance satisfactory to the Agent, and each (except for the Notes, of
which only the originals shall be signed) in sufficient number of signed
counterparts to provide one for each Bank:
SECTION 11.1.1 REVOLVING NOTES. The Revolving Notes of the
Company payable to the order of each Bank.
SECTION 11.1.2 [Reserved].
SECTION 11.1.3 RESOLUTIONS. Certified copies of resolutions of the Board
of Directors of the Company authorizing the execution, delivery and performance
of this Agreement, the Notes, the Letter of Credit Applications, and the other
documents to be executed by the Company pursuant to this Agreement.
SECTION 11.1.4 CONSENTS AND APPROVALS. The required consents and
governmental approvals (if any) with respect to this Agreement, the Revolving
Notes, the Letter of Credit Applications, and the other documents to be executed
by the Company pursuant to this Agreement.
SECTION 11.1.5 INCUMBENCY AND SIGNATURES. A certificate of the Secretary
or an Assistant Secretary of the Company certifying the names of the officer or
officers of the Company authorized to sign this Agreement, the Notes, the Letter
of Credit Applications, and the other documents provided for in this Agreement,
together with a sample of the true signature of each such officer (it being
understood that the Agent and the Banks may conclusively rely on
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such certificate until formally advised by a like certificate of any changes
therein).
SECTION 11.1.6 OPINIONS OF COUNSEL FOR THE COMPANY. The opinions of
Gardner, Carton & Douglas, and David B. Corwine, Esq. as counsels for the
Company, substantially in the forms set forth in EXHIBIT C.
SECTION 11.1.7 OTHER DOCUMENTS. Such other documents as the Agent or any
Bank may reasonably request.
SECTION 11.2 ALL LOANS AND LETTERS OF CREDIT. The occurrence of the
Effective Date and the obligation of each Bank to make any Revolving Loan and to
issue any Letter of Credit is subject to the conditions precedent that:
SECTION 11.2.1 NO DEFAULT. (a) No Event of Default, or
Unmatured Event of Default, has occurred and is continuing or will result from
the making of such Revolving Loan or the issuance of such Letter of Credit and
(b) the warranties of the Company contained in Section 9 are true and correct as
of the date of such requested Revolving Loan or the issuance of such Letter of
Credit, with the same effect as though made on such date.
SECTION 11.2.2 LITIGATION. No litigation (including, without limitation,
derivative actions), arbitration proceedings or governmental proceedings not
disclosed in writing by the Company to the Banks prior to the date of the last
previous Revolving Loan hereunder (or, in the case of the initial Revolving Loan
prior to the date of execution and delivery of this Agreement) are pending or
known to be threatened against the Company or any Subsidiary which if adversely
determined could reasonably be expected to (i) result in any material adverse
change in the financial condition, business propects or continued operations of
the Company or any Subsidiary or (ii) impair the validity or enforceability of,
or materially impair the ability of the Company to perform its obligations
hereunder or under any of the other Loan Documents, and no material development
not so disclosed has occurred in any such litigation (including, without
limitation, derivative actions), arbitration proceedings or governmental
proceedings so disclosed, which could reasonably be expected to cause such a
material adverse change.
Each request by the Company for a Loan or a Letter of credit shall
automatically constitute a representation and warranty of the Company to the
effect that all conditions to the making of such Loan or issuance of such Letter
of Credit will be satisfied as of the date of the making of such Loan or
issuance of such Letter of Credit will be satisfied as of the date of the making
of such Loan or issuance of such Letter of Credit.
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SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT.
SECTION 12.1 EVENTS OF DEFAULT. Each of the following
shall constitute an Event of Default under this Agreement:
SECTION 12.1.1 NON-PAYMENT OF NOTES, ETC. Default in the payment when due
of (a) any principal of, or interest on, any Revolving Note or (b) any
reimbursement obligation with respect to any Letter of Credit or any fees
payable by the Company hereunder.
SECTION 12.1.2 NON-PAYMENT OF OTHER INDEBTEDNESS FOR BORROWED MONEY.
Default in the payment when due (subject to and applicable grace period),
whether by acceleration-or otherwise, of any other indebtedness for borrowed
money of, or guaranteed by, the Company or any Subsidiary in excess of $250,000
in the aggregate or default in the performance or observance of any obligation
or condition with respect to any such other indebtedness if the effect of such
default is to accelerate the maturity of any such indebtedness or to permit the
holder or holders thereof, or any trustee or agent for such holders, to cause
such indebtedness to become due and payable prior to its expressed maturity.
SECTION 12.1.3 OTHER MATERIAL OBLIGATIONS. Default in the payment when
due, or in the performance or observance of, any material obligation of, or
condition agreed to by the Company or any Subsidiary with respect to any
material purchase or lease of goods or services reasonably valued in excess of
$750,000 in the aggregate (and not constituting an Event of Default under any of
the other provisions of this SECTION 12) and except only to the extent that the
existence of any such default is being contested by the Company or such
Subsidiary in good faith and by appropriate proceedings.
SECTION 12.1.4 BANKRUPTCY, INSOLVENCY. The Company or any Subsidiary
becomes insolvent or generally fails to pay, or admits in writing its inability
or refusal to pay, debts as they become due; or the Company or any Subsidiary
applies for, consents to, or acquiesces in the appointment of a trustee,
receiver or other custodian for the Company or such Subsidiary or any property
thereof, or makes a general assignment for the benefit of creditors; or in the
absence of such application, consent or acquiescence, a trustee, receiver or
other custodian is appointed for the Company or any Subsidiary or for a
substantial part of the property of any thereof and is not discharged within 30
days; or any bankruptcy, reorganization, debt arrangement, or other case or
proceeding under any bankruptcy or insolvency law, or any dissolution or
liquidation proceeding (except the voluntary dissolution, not under any
bankruptcy or insolvency law, of a Subsidiary), is commenced in respect of the
Company or any Subsidiary, and if such case or proceeding is not commenced by
the
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Company or such Subsidiary, it is consented to or acquiesced in by the
Company or such Subsidiary or remains for 30 days undismissed; or the Company or
any Subsidiary takes any corporate action to authorize, or in furtherance of,
any of the foregoing.
SECTION 12.1.5 NON-COMPLIANCE WITH THIS AGREEMENT. Failure by the Company
to comply with or to perform any provision of this Agreement (and not
constituting an Event of Default under any other provision of this SECTION 12)
and continuance of such failure for 15 days after notice thereof to the Company
from the Agent, any Bank, or the holder of any Revolving Note.
SECTION 12.1.6 WARRANTIES. Any warranty made by the Company herein or in
any Instrument is breached or is false or misleading in any material respect, or
any schedule, certificate, financial statement, report, notice, or other writing
furnished by the Company to the Agent or any Bank is false or misleading in any
material respect on the date as of which the facts therein set forth are stated
or certified.
SECTION 12.1.7 PENSION PLANS. (a) Institution of any steps by the Company
or any other Person to terminate a Pension Plan if as a result of such
termination the Company could be required to make a contribution to such Pension
Plan, or could incur a liability or obligation to such Pension Plan, in excess
of $100,000, or (b) a contribution failure occurs with respect to any Pension
Plan sufficient to give rise to a lien under section 302(f) of ERISA.
SECTION 12.1.8 MATERIAL ADVERSE CHANGE. There is a material adverse
change in the financial or business conditions or prospects of the Company or
any of the Subsidiaries.
SECTION 12.1.9 CHANGE OF CONTROL. The acquisition, through purchase or
otherwise (including the agreement to act in concert without more), by any
Person or group of Persons acting in concert directly or indirectly, in one or
more transactions, of beneficial ownership or control of securities representing
more than fifty percent (50%) of the combined voting power of the Company's
voting stock. For purposes of this definition, "beneficial ownership" shall
have the meaning set forth in Rule 13d-3 under the Securities and Exchange Act
of 1934. A merger or consolidation pursuant to Section 10.13 with respect to
which the voting stock of the surviving corporation is not more than fifty
percent (50%) owned by the Company shall constitute a "Change of Control."
SECTION 12.2 EFFECT OF EVENT OF DEFAULT. If any Event of Default
described in SECTION 12.1.4 shall occur, the Commitments (if they have not
theretofore terminated) shall immediately terminate and the Revolving Notes and
all other obligations hereunder shall become immediately due and payable and the
Company
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shall become immediately obligated to deliver to the Agent cash collateral in
an amount equal to the outstanding face amount of all Letters of Credit, all
without presentment, demand, protest or notice of any kind; and, in the case
of any other Event of Default, the Agent may (and upon written request of the
Banks shall) declare the Commitments (if they have not theretofore
terminated) to be terminated and/or declare all Revolving Notes and all other
obligations hereunder to be due and payable and/or demand that the Company
immediately deliver to the Agent cash collateral in an amount equal to the
outstanding face amount of all Letters of Credit, whereupon the Commitments
(if they have not theretofore terminated) shall immediately terminate and/or
all Revolving Notes and all other obligations hereunder shall become
immediately due and payable and/or the Company shall immediately become
obligated to deliver to the Agent cash collateral in an amount equal to the
face amount of all Letters of Credit, all without presentment, demand,
protest or notice of any kind. The Agent shall promptly advise the Company
of any such declaration, but failure to do so shall not impair the effect of
such declaration. Any collateral delivered by the Company to the Agent shall
be held by the Agent (without liability for interest thereon) and applied to
obligations arising in connection with any drawing under a Letter of Credit.
After the expiration or termination of all Letters of Credit, such cash
collateral shall be applied by the Agent to any remaining obligations
hereunder and any excess shall be delivered to the Company or as a court of
competent jurisdiction may elect.
SECTION 13 CERTAIN DEFINITIONS. When used herein the following terms
shall have the following meaning (such definitions to be applicable to both
the singular and plural forms of such terms):
AFFILIATE shall mean, with respect to any Person, a Person: (a) which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such Person; (b) which
beneficially owns or holds, directly or indirectly, five percent (5%) or more of
any class of the Voting Stock (or, in the case of a Person which is not a
corporation, five percent (5%) or more of the equity interested such Person; or
(c) five percent (5%) or more of the Voting Stock (or, in the case of a Person
which is not a corporation, five percent (5%) or more of the equity interest) of
which is beneficially owned or held, directly or indirectly, by such Person;
PROVIDED, HOWEVER, that no Bank shall in any event be deemed to be an Affiliate
of the Company or any Subsidiary. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
Stock or an equity interest, by contract, or otherwise.
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AGENT - see PREAMBLE.
AGREEMENT - see PREAMBLE.
ALTERNATE REFERENCE RATE shall mean, on any date and with respect to all
Floating Rate Loans, a fluctuating rate of interest per annum (rounded upward to
the next highest one-eighth (1/8) of one percent (1%) if not already an integral
multiple of one-eighth (1/8) of one percent (1%)) equal to the higher of (a) the
rate of interest most recently announced by the Agent at its Chicago office as
its Reference Rate; or (b) the Market Federal Funds Rate most recently
determined by the Agent plus one-half percent (.50%).
The Alternate Reference Rate is not necessarily intended to be the lowest
rate of interest determined by the Agent in connection with extensions of
credit. For purposes of this Agreement (i) any change in the Alternate
Reference Rate due to a change in the Reference Rate shall be effective,on the
date such change in the Reference Rate is announced and (ii) any change in the
Alternate Reference Rate due to a change in the Market Federal Funds Rate shall
be effective on the effective date of such change in the Market Federal Funds
Rate. If for any reason the Agent shall have determined (which determination
shall be conclusive in the absence of manifest error) that it is unable to
ascertain the Market Federal Funds Rate for any reason, including, without
limitation, the inability or failure of the Agent to obtain sufficient bids or
publications in accordance with the terms hereof, the Alternate Reference Rate
shall be the Reference Rate until the circumstances giving rise to such
inability no longer exist. The Agent will give notice promptly to the Company
and the Banks of changes in the Alternate Reference Rate.
BAI - see PREAMBLE.
BANK - see PREAMBLE.
BUSINESS DAY shall mean any day on which banks are open for commercial
banking business in Chicago, Illinois and, in the case of a Business Day which
relates to a Eurodollar Loan, on which dealings are carried on in the interbank
eurodollar market.
CAPITAL EXPENDITURES shall mean all payments for any fixed assets or
improvements or for replacements, substitutions or additions thereto, that have
a useful life of more than one year and which are required to be capitalized
under GAAP.
CAPITAL LEASE shall mean, with respect to any Person, any lease of any
property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, either would be required to be classified and accounted
for as a capital lease on
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a balance sheet of such Person or otherwise be disclosed as such in a note to
such balance sheet,
CAPITAL LEASE OBLIGATION shall mean, with respect to any Capital Lease, the
amount of the obligation of the lessee thereunder that, in accordance with GAAP,
would appear on a balance sheet of such lessee in respect of such Capital Lease
or otherwise be disclosed in a note to such balance sheet.
CERCLA shall mean the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 USC 9601 ET SEQ., and any future amendments.
COMMITMENTS shall mean the Revolving Loan Commitments and the Letter of
Credit Commitments.
COMPANY - see PREAMBLE.
CONSOLIDATED ADJUSTED OPERATING CASH FLOW shall mean (a) the sum of (i)
consolidated net income for such period, plus (ii) consolidated interest expense
for such period, plus (iii) the aggregate amount which was deducted by the
Company in respect of Federal, state and local income taxes by the Company and
its Subsidiaries in determining the Company's consolidated net income for such
period, plus depreciation and amortization for such period, plus all rental
expense (including attributable interest from Capitalized Lease Obligations)
less (b) the sum of (i) interest income for the period, plus (ii) extraordinary
gains for the period, all as determined for the Company and its Subsidiaries on
a consolidated basis.
CONSOLIDATED OPERATING CASH FLOW shall mean (a) the sum of (i) consolidated
net income for such period, plus (ii) consolidated interest expense for such
period, plus (iii) the aggregate amount which was deducted by the Company in
respect of Federal, state and local income taxes by the Company and its
Subsidiaries in determining the Company's consolidated net income for such
period, plus depreciation and amortization for such period less (b) the sum of
(i) interest income for the period, plus (ii) extraordinary gains for the
period, all as determined for the Company and its Subsidiaries on a consolidated
basis.
CONSOLIDATED NET WORTH shall mean, as of the date of any determination
thereof, the assets minus the sum of the liabilities of the Company and
Subsidiaries on a consolidated basis. Assets and liabilities of the Company and
Subsidiaries shall have the meanings usually given to such terms in accordance
with GAAP.
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CONSOLIDATED TOTAL FUNDED DEBT shall mean the total of all Funded Debt of
the Company and such Subsidiaries outstanding on such date determined in
accordance with GAAP applied on a consistent basis.
CONVERT, CONVERSION AND CONVERTED shall refer to a conversion of Loans
pursuant to SECTION 1.4, 3.3, 8.2 or 8.3.
DIRECTORS STATEMENT shall mean the report prepared by the Company in the
form of SCHEDULE 10.1.3.
DOLLAR and the sign "$" shall mean lawful money of the United States of
America.
EFFECTIVE DATE - see SECTION 11.1.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA also refer to any successor sections.
EUROCURRENCY RESERVE PERCENTAGE shall mean, with respect to each Interest
Period, a percentage (expressed as a decimal) equal to the daily average during
such Interest Period of the percentage in effect on each day of such Interest
Period, as prescribed by the Board of Governors of the Federal Reserve System
(or any successor), for determining the aggregate maximum reserve requirements
applicable to "Eurocurrency Liabilities" pursuant to Regulation D or any other
then applicable regulation of the Board of Governors which prescribes reserve
requirements applicable to "Eurocurrency Liabilities" as presently defined in
Regulation D.
EURODOLLAR LOAN or Eurodollar borrowing shall mean any Revolving Loan which
bears interest at a rate determined by reference to the Eurodollar Rate (Reserve
Adjusted).
EURODOLLAR OFFICE shall mean with respect to any Bank the office or offices
of such Bank which shall be making or maintaining the Eurodollar Loans of such
Bank hereunder or such other office or offices through which such Bank
determines its Eurodollar Rate. A Eurodollar Office of any Bank may be, at the
option of such Bank, either a domestic or foreign office.
EURODOLLAR RATE shall mean, with respect to any Eurodollar Loan for any
Interest Period, the rate per annum equal to the rate at which Dollar deposits
in immediately available funds are offered to the Eurodollar Office of BAI two
Business Days prior to the beginning of such Interest Period by major banks in
the interbank
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eurodollar market as at or about the relevant local time of such Eurodollar
Office, for delivery on the first day of such Interest Period, for the number
of days comprised therein and in an amount equal or comparable to the amount
of the Eurodollar Loan of BAI for such Interest Period. As used herein,
"relevant local time" as to any Eurodollar Office shall mean 11:00 A.M.,
London time, when such Eurodollar Office is located in Europe or the Middle
East, or 11:00 A.M., Chicago time, when such Eurodollar office is located in
North America or the Caribbean.
EURODOLLAR RATE (RESERVE ADJUSTED) shall mean, with respect to any
Eurodollar Loan for any Interest Period, a rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 10%) determined pursuant to the following
formula:
Eurodollar Rate = Eurodollar Rate
--------------
(Reserve Adjusted) 1-Eurocurrency
Reserve Exchange
EVENT OF DEFAULT shall mean any of the events described in
SECTION 12.1.
ENVIRONMENTAL LAW shall mean any current or future legal requirement
pertaining to (a) the protection of health, safety, and the indoor or outdoor
environment, (b) the conservation, management, or use of natural resources and
wildlife, (c) the protection or use of surface water and groundwater, (d) the
management, manufacture, possession, presence, use, generation, transportation,
treatment, storage, disposal, Release, threatened Release, abatement, removal,
remediation or handling of, or exposure to, any Hazardous Material or (e)
pollution (including any Release to air, land, surface water and groundwater),
and includes, without limitation, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986, 42 USC 906 ET SEQ.; Solid Waste Disposal Act,
as amended by the Resource Conservation and Recovery Act of 1976 and Hazardous
and Solid Waste Amendments of 1984, 42 USC 6901 ET SEQ.; Federal Water Pollution
Control Act, as amended by the Clean Water Act of 1977, 33 USC 1251 ET SEQ.;
Clean Air Act of 1966, as amended, 42 USC 7401 ET SEQ.; Toxic Substances Control
Act of 1976, 15 USC 2601 ET SEQ.; Hazardous Materials Transportation Act, 49 USC
App. 1801 ET seq.; Occupational Safety and Health Act of 1970, as amended, 29
USC 651 ET SEQ.; Oil Pollution Act of 1990, 33 USC 2701 ET SEQ.; Emergency
Planning and Community Right-to-Know Act of 1986, 42 USC 11001 ET SEQ.; National
Environmental Policy Act of 1969, 42 USC 4321 ET SEQ.; Safe Drinking Water Act
of 1974, as amended, 42 USC 300(f) ET SEQ.; and any similar, implementing or
successor law, and any amendment, rule, regulation, order, or directive issued
thereunder.
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FEDERAL FUNDS RATE shall mean, for any day, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Board of Governors of the Federal Reserve System
(including any such successor publication, "H.15(519)") for such day opposite
the caption "Federal Funds (Effective)". If on any relevant day such rate is
not yet published in H.15(519), the rate for such day will be the rate set forth
in the daily statistical release designated as the Composite 3:30 p.m.
Quotations for U.S. Government Securities, or any successor publication,
published by the Federal Reserve Bank of New York (including any such successor
publication, the "Composite 3:30 p.m. Quotations") for such day under the
caption "Federal Funds Effective Rate". If on any relevant day the appropriate
rate for such day is not yet published in either H.15(519) or the Composite 3:30
p.m. Quotations, that rate for such day will be the arithmetic mean of the rates
for the last transaction in overnight Federal funds arranged prior to 9:00 a.m.,
New York City time, on such day by each of three leading brokers of Federal
funds transactions in New York City, selected by the Agent. The rate for any
day which is not a Business Day shall be the rate for the immediately preceding
Business Day.
FISCAL QUARTER shall mean the period ending on either March 31, June 30,
September 30 or December 31 of each year.
FLOATING RATE LOAN or Floating Rate borrowing shall mean any Revolving Loan
which bears interest at or by reference to the Alternate Reference Rate.
FUNDED DEBT shall mean all indebtedness of the Company and its Subsidiaries
which by the terms of the agreement governing or instrument evidencing such
indebtedness matures more than one year from, or is directly or indirectly
renewable or extendable at the option of the debtor under a revolving credit or
similar agreement obligating the lender or lenders to extend credit over a
period of more than one year from the creation thereof, including current
maturities of long-term debt, revolving credit, short-term debt extendable
beyond one-year at the option of the debtor, the present value of all Capital
Lease Obligations and the Commitments.
FUNDED DEBT/OPERATING CASH FLOW RATIO - see SECTION 10.7.
GAAP shall mean generally accepted accounting principles in the United
States of America as in effect from time to time.
GOVERNMENTAL APPROVAL shall mean any permit, license, variance,
certificate, consent, letter, clearance, closure, exemption, decision or
action or approval of a governmental authority.
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<PAGE>
GROUP - see SECTION 1.2.
HAZARDOUS MATERIAL shall mean: (a) any "hazardous substance" as now defined
pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Section 9601(14) as amended by the Superfund Amendments and
Reauthorization Act, and including the judicial interpretation thereof; (b) any
"pollutant or contaminant" as defined in 42 U.S.C.A. Section 9601(33); (c) any
material now defined as "hazardous waste" pursuant to 40 C.F.R. Part 261; (d)
any petroleum, including crude oil and any fraction thereof; (e) natural gas,
natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel;
(f) any "hazardous chemical, as defined pursuant to 29 C.F.R. Part 1910; (g) any
asbestos, polychlorinated biphenyl (PCB), or isomer or dioxin, and (h) any other
substance, regardless of physical form, that is regulated under any
environmentally related federal, state or local government statute, rule or
regulation.
INDEBTEDNESS shall mean, with respect to any Person at any date, without
duplication: (i) all obligations of such Person with respect to borrowed money,
(ii) all obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments including, without limitation, all obligations
comprising subordinated indebtedness of such Person; (iii) all reimbursement
obligations in respect of letters of credit, issued for the account of such
Person, following any draw under such letters of credit, if not paid when due;
(iv) all obligations in respect of bankers' acceptances issued for the account
of such person after designation of, and delivery to, a payee; (v) all
Capitalized Lease Obligations of such Person; and (vi) whether or not included
as liabilities in accordance with GAAP, obligations secured by a Lien on
property owned or being purchased by such Person (including obligations arising
under conditional sales or other title retention agreements) whether or not such
obligations shall have been assumed by such Person or are limited in recourse.
INSOLVENCY EVENT shall mean, with respect to any Person, (il the
application for, consent to, or acquiescence in, the appointment of a receiver,
trustee, custodian or liquidator of or for it or its business or of or for all
or a substantial part of its assets; (ii) the filing of a voluntary petition or
answer seeking reorganization or an arrangement with creditors or seeking to
take advantage, as a debtor, of any other law (whether federal, state or
foreign) relating to relief of debtors, or the admission (by answer, by default
or otherwise) of the material allegations of a petition filed against it in any
bankruptcy, reorganization, arrangement, insolvency or other proceeding whether
federal, state or foreign) relating to relief of debtors, or the admission in
writing of its inability to pay its debts generally as they become due; (iii)
the permitting to continue unstayed for ten (10) days
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any judgment, decree or order which adjudges it a bankrupt or insolvent or
approves as properly filed petition seeking its reorganization or arrangement
or appoints receiver, trustee, custodian or liquidator of or for it or its
business or of or for all or a substantial part of its assets or decrees the
winding up or liquidation of its affairs; (iv) the filing against it, by
Persons other than Banks prior to the occurrence of a Default, of any
bankruptcy, reorganization, arrangement, insolvency or other proceeding
(whether federal, state or foreign) relating to the relief of debtors, which
proceeding shall not be dismissed within thirty (30) days after the
commencement thereof; (v) the commencement by or against it of a proceeding
seeking its dissolution, liquidation or winding up, and, in the case of a
proceeding commenced against it, the consent to such proceeding by it or its
failure to cause such proceeding to be dismissed within thirty (30) days
after the commencement thereof; or (vi) the taking of any corporate action in
furtherance of any of the foregoing.
INTEREST PERIOD - see SECTION 3.3.
INVESTMENT shall mean any investment, made in cash or by delivery of any
kind of property or asset, in any Person, whether by acquisitions of stock or
similar interest, or any other obligation or security, or by loan, advance or
capital contribution, or otherwise.
LASALLE shall mean LaSalle National Bank, a national banking association.
LETTER OF CREDIT - see SECTION 1.1.3.
LETTER OF CREDIT APPLICATION shall mean a letter of credit application in
the form then used by BAI for the type of letter of credit requested (with
appropriate adjustments to indicate that any letter of credit issued thereunder
is to be issued pursuant to, and subject to the terms and conditions of, this
Agreement).
LETTER OF CREDIT COMMITMENTS shall mean the commitment of BAI to issue, and
of each Bank to participate in, the Letters of Credit pursuant to SECTION 1.1.3.
LOAN DOCUMENTS shall mean this Agreement, the Revolving Notes, the Letter
of Credit Applications and all schedules, certificates, exhibits and notices
delivered pursuant to any of the foregoing.
LONG TERM LEASE shall mean any lease of any property (whether real,
personal or mixed) whose term (including renewals and extensions) is greater
than one (1) year.
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MARGIN shall mean, subject to the next sentence, the following rate based
on the Funded Debt/Operating Cash Flow Ratio as of the end of the Fiscal Quarter
most recently ended, as follows:
Funded Debt/Operating
Cash Flow Ratio Rate Per Annum
--------------------- --------------
= < 1.0 0.625%
> 1.0 but = < 1.5 0.750%
> 1.5 but = < 2.0 1.000%
> 2.0 but = < 2.5 1.250%
> 2.5 but = < 3.0 1.500%
The applicable Margin shall be adjusted, to the extent applicable, 45 days (or
in the case of the last Fiscal Quarter of any Fiscal Year, 90 days) after the
end of each Fiscal Quarter beginning on the 45th day after the first Fiscal
Quarter ending after the Effective Date, based on the Funded Debt/Operating Cash
Flow Ratio as of the last day of such Fiscal Quarter; IT BEING UNDERSTOOD that
if the Company fails to deliver the certificate required by SECTION 10.1.4 by
the 45th day (or, if applicable, the 90th day) after any Fiscal Quarter, the
applicable margin shall be 1.5% per annum until such certificate is delivered.
As of the Effective Date, the initial Margin is 0.625% per annum.
MARGIN STOCK shall mean any "margin stock" as defined in Regulation U of
the Board of Governors of the Federal Reserve System.
MARKET FEDERAL FUNDS Rate means, for any period, a fluctuating interest
rate per annum equal for each day during such period to (a) the weighted average
of the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York; or (b) if such rate is not so published for
any day which is a Business Day, the average of the quotations for such day on
such transactions received by the Agent from three federal funds brokers of
recognized standing selected by it.
OBLIGOR shall mean any Person obligated in respect of any Receivable, and
"RELATED OBLIGOR", when used with reference to any Receivable, shall mean any
Obligor in respect thereof.
PBGC shall mean the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
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PENSION PLAN shall mean a "pension plan", as such term is defined in
section 3(2) of ERISA, which is subject to title IV of ERISA (other than a
multiemployer plan as defined in section 4001(a)(3) of ERISA), and to which the
Company or any corporation, trade or business that is, along with the Company, a
member of a controlled group of corporations or a controlled group of trades or
businesses, as described in sections 414(b) and 414(c), respectively, of the
Internal Revenue Code of 1986, as amended or section 4001 of ERISA may have any
liability, including any liability by reason of having been a substantial
employer within the meaning of section 4063 of ERISA at any time during the
preceding five years, or by reason of being deemed to be a contributing sponsor
under section 4069 of ERISA.
PERCENTAGE shall mean as to any Bank the percentage set forth opposite
such Banks name under COLUMN IV of EXHIBIT A.
PERSON shall mean any natural person, corporation, partnership, trust,
association, governmental authority or unit, or any other entity, whether acting
in an individual, fiduciary or other capacity.
PERMITTED DISPOSITIONS shall mean the dispositions of the assets of the
Company set forth on Schedule 10.13.
RCRA shall mean the Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act of 1976 and Hazardous and Solid Waste Amendments
of 1984, 42 USC 6901 ET SEQ., and any future amendments.
REFERENCE RATE shall mean at any time the rate of interest then most
recently announced by BAI at Chicago, Illinois as its reference rate.
RELEASE shall mean any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, or disposing into
the indoor or outdoor environment, including, without limitation, the
abandonment or discarding of barrels, drums, containers, tanks, and other
receptacles containing or previously containing any Hazardous Material.
REQUIRED BANKS shall mean (i) if BAI and LaSalle are the only Banks, then
both of the Banks, and (ii) if there are more than two (2) Banks, then Banks
holding at least 51% of the then aggregate outstanding principal amount of the
Revolving Loans then held by the Banks, or, if no such principal amount is then
outstanding, Banks having at least 51% of the Commitments.
REVOLVING LOAN - see SECTION 1.1.1.
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REVOLVING LOAN COMMITMENT shall mean the commitment of each
Bank to make Revolving Loans pursuant to SECTION 1.1.1.
REVOLVING NOTE - see SECTION 2.1.
REVOLVING TERMINATION DATE shall mean September 30, 1999.
SALE AND LEASEBACK shall mean any transaction or series of related
transactions in which the Company or any Subsidiary becomes or remains liable as
lessee or as guarantor or other surety with respect to any lease, whether an
operating lease or a Capital Lease, of any property (whether real or personal or
mixed), whether now owned or hereafter acquired, (i) which the Company or any
Subsidiary has sold or transferred or is to sell or transfer to any other
Person, or (ii) which the Company or any Subsidiary intends to use for
substantially the same purpose as any other property which has been or is to be
sold or transferred by the Company or any Subsidiary to any other Person in
connection with such lease.
SIGNIFICANT SUBSIDIARY shall mean any Subsidiary as to which the assets or
operating income exceeds 10% of the assets or operating income of the Company
and its Subsidiaries on a consolidated basis.
STATED AMOUNT shall mean with respect to any Letter of Credit at any date
of determination thereof, the maximum aggregate amount available thereunder at
any time during the then ensuing term of such Letter of Credit under any and all
circumstances, plus the aggregate amount of all unreimbursed payments and
disbursements under such Letter of Credit.
SUBSIDIARY shall mean, with respect to any Person, a corporation of which
such Person and/or its other Subsidiaries own, directly or indirectly, such
number of outstanding shares as have more than 50% of the ordinary voting power
for the election of directors. Unless the context otherwise requires, each
reference to Subsidiaries herein shall be a reference to Subsidiaries of the
Company.
TANGIBLE ASSETS shall mean with respect to any Person, the book value of
all of the assets of such Person less the book value of any intangible assets,
including without limitation, goodwill, franchises, licenses, patents,
trademarks, trade names, service marks and brand names.
TYPE OF LOAN OR BORROWING means either Floating Rate Loans or borrowings or
Eurodollar Loans or borrowings.
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UNMATURED EVENT OF DEFAULT shall mean any event which if it continues
uncured will, with lapse of time or notice or lapse of time and notice,
constitute an Event of Default.
VOTING STOCK shall mean securities of any class or classes of a
corporation, the holders of which are ordinarily, in the absence of
contingencies, or which are in fact, entitled to elect a majority of the
corporate directors (or Persons performing similar functions) of such
corporation.
WELFARE PLAN shall mean a "welfare plan", as such term is
defined in section 3(l) of ERISA.
SECTION 14 THE AGENT.
SECTION 14.1 AUTHORIZATION. Each Bank and the holder of each Note
authorizes the Agent to take such actions on behalf of such Bank or holder and
to exercise such powers hereunder, any Letter of Credit Application or any other
document or instrument delivered hereunder or in connection herewith as are
granted to the Agent and/or the Banks pursuant to such documents and are
specifically delegated to the Agent herein and therein in connection with the
administration of and the enforcement of any rights or remedies with respect to
this Agreement, the Revolving Notes, the Letter of Credit Applications or any
other document or instrument delivered hereunder or in connection herewith. The
general administration of the Revolving Loans shall be with the Agent, subject
to control by the Banks.
SECTION 14.2 INDEMNIFICATION. Each Bank and the holder of each Revolving
Note agrees to reimburse and indemnify the Agent for, and hold the Agent
harmless against, a share (determined in accordance with the percentage which
(x) the sum of (A) the participation in all outstanding Letters of Credit of
such Bank plus (E) the principal amount of the Revolving Loans of such Bank or
holder is of (y) the sum of (A) all outstanding Letters of Credit plus (B) the
aggregate principal amount of all Revolving Loans) of any loss, damages,
penalty, action, judgment, obligation, cost, disbursement, liability or expense
(including attorneys, fees) incurred without gross negligence or willful
misconduct on the part of the Agent arising out of or in connection with the
performance of its obligations or the exercise of its powers hereunder or under
any document or instrument delivered hereunder or in connection herewith, as
well as the costs and expenses of defending against any claim against the Agent
arising hereunder or thereunder.
SECTION 14.3 EXCULPATION. The Agent shall be entitled to rely upon advice
of counsel concerning legal matters, and upon this Agreement and any Revolving
Note, Letter of Credit Application,
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schedule, certificate, statement, report, notice or other writing which it
believes to be genuine or to have been presented by a proper person. Neither
the Agent nor any of its directors, officers, employees or agents shall (a)
be responsible for any recitals, representations or warranties contained in,
or for the execution, validity, genuineness, effectiveness or enforceability
of, this Agreement, any Revolving Note, any Letter of Credit Application or
any other instrument or document delivered hereunder or in connection
herewith, (b) be responsible for the validity, genuineness, perfection,
effectiveness, enforceability, existence, value or enforcement of any
collateral security, (c) be under any duty to inquire into or pass upon any
of the foregoing matters, or to make any inquiry concerning the performance
by the Company or any other Obligor of its obligations, or (d) in any event,
be liable as such for any action taken or omitted by it or them, except for
its or their own gross negligence or willful misconduct. The agency hereby
created shall in no way impair or affect any of the rights and powers of, or
impose any duties or obligations upon BAI in its individual capacity.
SECTION 14.4 CREDIT INVESTIGATION. Each Bank acknowledges that it has
made such inquiries and taken such care on its own behalf as would have been the
case had such Bank's Commitment been granted, the Letters of Credit issued and
such Bank's Revolving Loans been made directly by such Bank to the Company
without the intervention of the Agent or any other Bank. Each Bank agrees and
acknowledges that the Agent makes no representations or warranties about the
credit worthiness of the Company or any other party to this Agreement or with
respect to the legality, validity, sufficiency or enforceability of this
Agreement, any Revolving Note or any Letter of Credit Application.
SECTION 14.5 AGENT AND AFFILIATES. The Agent shall have the same
rights and powers hereunder as any other Bank and may exercise or refrain
from exercising the same as though it were not the Agent, and the Agent and
its Affiliates may accept deposits from and generally engage in any kind of
business with the Company or any Subsidiary as if the Agent were not the
Agent hereunder.
SECTION 14.6 RESIGNATION. The Agent may resign as such at any time upon
at least 30 days prior notice to the Company and the Banks. In the event of any
such resignation, the Banks shall as promptly as practicable appoint a successor
Agent. If no successor shall have been so appointed, and shall have accepted
such appointment, within 30 days after the giving of notice of such resignation,
then the retiring Agent may, on behalf of the Banks, appoint a successor Agent,
which shall be a commercial bank organized under the laws of the United States
of America having a combined capital, surplus and undivided profits of at least
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$400,000,000. 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 rights, powers, privileges and duties of the retiring Agent, and
the retiring Agent shall be discharged from all further duties and obligations
under this Agreement. After any resignation pursuant to this SECTION 14.6, the
provisions of this SECTION 14 shall inure to the benefit of the retiring Agent
as to any actions taken or omitted to be taken by it while it was Agent
hereunder.
SECTION 15 GENERAL.
SECTION 15.1 WAIVER; AMENDMENTS. The provisions of this Agreement and
of each other Loan Document may from time to time be amended, modified or
waived, if such amendment, modification or waiver is in writing and consented
to by the Company and the Required Banks; PROVIDED, however, that no such
amendment, modification or waiver which would:
(a) modify any requirement hereunder that any particular action be taken
by all the Banks or by the Required Banks shall be effective unless consented to
by each Bank;
(b) modify this SECTION 15.1, change the definition of "Required Banks",
increase the Commitments or the Percentage of any Bank, reduce any fees
described in Section 5, or extend the Revolving Termination Date shall be made
without the consent of each Bank and each holder of a Revolving Note;
(c) extend the due date for, or reduce the amount of, any scheduled
repayment or prepayment of principal or of interest on any Revolving Loan (or
reduce the principal amount of or rate of interest on any Revolving Loan) shall
be made without the consent of each Bank and the holder of the Revolving Note
evidencing such Revolving Loan; or
(d) affect adversely the interests, rights or obligations of the Agent QUA
the Agent shall be made without consent of the Agent.
No failure or delay on the part of the Agent, any Bank or the, holder of any
Revolving Note in exercising any power or right under this Agreement or any
other Loan Document shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power or right preclude any other or further
exercise thereof or the exercise of any other power or right. No notice to or
demand on the Company in any case shall entitle it to any notice or demand in
similar or other circumstances. No waiver or approval by the Agent, any Bank or
the holder of any Revolving Note under this Agreement or any other Loan Document
shall, except as may be otherwise stated in such waiver or approval, be
applicable to
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<PAGE>
subsequent transactions. No waiver or approval hereunder shall require any
similar or dissimilar waiver or approval thereafter to be granted hereunder.
SECTION 15.2 CONFIRMATIONS. The Company and each holder of a Revolving
Note agree from time to time, upon written request received by it from the
other, to confirm to the other in writing (with a copy of each such
confirmation to the Agent) the aggregate unpaid principal amount of the
Revolving Loans then outstanding under the applicable Revolving Note.
SECTION 15.3 NOTICES. Except as otherwise provided in SECTIONS 1.3, 1.4
and 3.3, all notices hereunder shall be in writing (including, without
limitation, telex or facsimile transmission) and shall be sent to the applicable
party at its address shown below its signature hereto or at such other address
as such party may, by written notice received by the other parties hereto, have
designated as its address for such purpose. Notices sent by telex or facsimile
transmission shall be deemed to have been given when sent; notices sent by mail
shall be deemed to have been given three Business Days after the date when sent
by registered or certified mail, postage prepaid; and notices sent by hand
delivery shall be deemed to have been given when received.
SECTION 15.4 COMPUTATIONS. Where the character or amount of any asset or
liability or item of income or expense is required to be determined, or any
consolidation or other accounting computation is required to be made, for the
purpose of this Agreement, such determination or calculation shall, to the
extent applicable and except as otherwise specified in this Agreement, be made
in accordance with GAAP applied on a basis consistent with those in effect as at
the date of the Company's most recent financial statements referred to in
SECTION 10.1.1. If there should be any material change in GAAP after the date
hereof which materially affects the financial covenants in this Agreement, the
parties hereto agree to negotiate in good faith appropriate revisions of such
covenants.
SECTION 15.5 REGULATION U. Each Bank represents that it in good faith is
not relying, either directly or indirectly, upon any Margin Stock as collateral
security for the extension or maintenance by it of any credit provided for in
this Agreement.
SECTION 15.6 COSTS, EXPENSES AND TAXES. The Company agrees to pay on
demand (a) all reasonable out-of-pocket costs and expenses of the Agent
(including the reasonable fees and out-of-pocket expenses of counsel for the
Agent) and (b) all reasonable out-of-pocket costs and expenses (including
reasonable attorneys fees and legal expenses and allocated costs of staff
counsel) incurred by the Agent and each Bank in connection with the
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enforcement of this Agreement, the Instruments or any such other documents.
Each Bank agrees to reimburse the Agent for such Banks pro rata share (based
on its respective Percentage) of any such costs and expenses not paid by the
Company. In addition, the Company agrees to pay, and to save the Agent and
the Banks harmless from all liability for, any stamp or other taxes which may
be payable in connection with the execution and delivery of this Agreement,
the borrowings hereunder, the issuance of the Revolving Notes or the
execution and delivery of any other documents provided for herein or
delivered or to be delivered hereunder or in connection herewith. All
obligations provided for in this SECTION 15.6 shall survive repayment of the
Revolving Loans, cancellation of the Revolving Notes or any termination of
the Commitments or this Agreement.
SECTION 15.7 SUBSIDIARY REFERENCES. The provisions of this Agreement
relating to Subsidiaries shall apply only during such times as the Company has
one or more Subsidiaries.
SECTION 15.8 CAPTIONS. Section captions used in this Agreement are for
convenience only and shall not affect the construction of this Agreement.
SECTION 15.9 INDEMNIFICATION.
(a) The Company hereby agrees to indemnify, exonerate and hold each of the
Agent and each Bank and each of the officers, directors, employees and agents of
each of the Agent and each Bank (collectively herein called the "Bank Parties"
and individually each called a "Bank Party") free and harmless from and against
any and all actions, causes of action, suits, losses, liabilities, damages and
expenses, including, without limitation, reasonable attorneys, fees and
disbursements (collectively herein called the "Indemnified Liabilities"),
incurred by the Banks or any of them as a result of, or arising out of, or
relating to this Agreement, the Revolving Notes, the Letter of Credit
Applications, or any other agreements executed and delivered in connection
therewith, except for any such Indemnified Liabilities arising on account of any
such Bank's gross negligence or willful misconduct. If and to the extent that
the foregoing undertaking may be unenforceable for any reason, the Company
hereby agrees to make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities which is permissible under applicable
law.
(b) The Company agrees to reimburse the Agent and each Bank and each of
their respective directors, officers, employees and agents (each an "Indemnified
Party") against any and all losses, claims, damages, penalties, judgments,
liabilities and expenses (including all reasonable attorneys and consultants
fees) which any Indemnified Party may pay, incur or become subject to arising
out
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of or relating to the use, handling, emission, discharge, transportation,
storage, treatment or disposal of any Hazardous Material at any real property
owned, operated or leased by the Company, except to the extent caused by the
acts or omissions of any Indemnified Party. All obligations provided for in
this SECTION 15.9 shall survive any termination of this Agreement.
SECTION 15.10 GOVERNING LAW. This Agreement and each Revolving Note shall
be a contract made under and governed by the internal laws of the State of
Illinois. Whenever possible each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement. All obligations of the Company
and rights of the Agent, the Banks and any other holder of a Revolving Note
expressed herein or in any Revolving Note shall be in addition to and not in
limitation of those provided by applicable law.
SECTION 15.11 COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the different parties hereto on separate counterparts and
each such counterpart shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same Agreement.
SECTION 15.12 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the Company, the Banks and the Agent and their respective successors and
assigns, and shall inure to the benefit of the Company, the Banks and the Agent
and the successors and assigns of the Banks and the Agent.
SECTION 15.13 WAIVER OF JURY TRIAL. EACH OF THE COMPANY, THE AGENT AND
EACH BANK HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING
TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY REVOLVING NOTE, ANY
LETTER OF CREDIT APPLICATION, AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR
AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION
HEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN WITH THIS
AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY.
SECTION 15.14 SECURITIES LAWS. Each Bank represents that it is the
present intention of such Bank to acquire each Revolving Note drawn to its order
for its own account and not with a view to the distribution or sale thereof,
subject, nevertheless, to the necessity that such Bank remain in control at all
times of the disposition of property held by it for its own account; it being
understood that the foregoing representation shall not affect the
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character of the Revolving Loans as commercial lending transactions.
[SIGNATURE PAGES FOLLOW]
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Delivered to Chicago, Illinois, as of the day and year first above written.
ALLIED PRODUCTS CORPORATION
By: /s/ Kenneth B. Light
-----------------------------------
Kenneth B. Light
Title: Executive Vice President and
Chief Financial Officer
By: /s/ Patrick J. Riley
------------------------------------
Patrick J. Riley
Title: Vice President and Treasurer
10 South Riverside Plaza
Chicago, Illinois 60606
Facsimile No.: (312) 454-9608
Number for confirmation of
facsimiles: ( )
----- ------ ------
Attention:
------------------------
<PAGE>
BANK OF AMERICA ILLINOIS,
as Agent
By: /s/ David A. Johanson
--------------------------------
David A. Johanson
Title: Vice President
Address: 231 South LaSalle Street
Chicago, Illinois 60697
Facsimile No.: (312) 765-2193
Number for confirmation of
facsimiles: (312) 828-1926
Attention:
-------------------------
<PAGE>
BANK OF AMERICA ILLINOIS,
as a Bank
By: /s/ Barbara Hamel
------------------------------
Barbara Hamel
Title: Senior Vice President
Address: 231 South LaSalle Street
Chicago, Illinois 60697
Facsimile No.: (312) 765-2193
Number for confirmation of
facsimiles: (312) 828-1926
Attention:
-------------------------
<PAGE>
LASALLE NATIONAL BANK
By: /s/ David Knapp
---------------------------------
David Knapp
Vice President
Address: 120 South LaSalle Street
Chicago, Illinois 60603
Facsimile No.: (312) 781-8544
Number for confirmation of
facsimiles: (312) 781-8517
Attention: David Knapp
<PAGE>
EXHIBIT A
COMMITMENT LIMITS AND PERCENTAGES
<TABLE>
<CAPTION>
Column I: Column II: Column III: Column IV:
Amount of Amount of Letter Total Amount of
Revolving Loan of Credit Commitments Percentage
Name of Bank Commitment Commitment
<S> <C> <C> <C> <C>>
BANK OF AMERICA $ 70,000,000 $14,000,000 $70,000,000 70%
ILLINOIS
LASALLE NATIONAL BANK $ 30,000,000 $ 6,000,000 $30,000,000 30%
---------- ---------- ---------- --
TOTALS $100,000,000 $20,000,000 $100,000,000 100%
</TABLE>
<PAGE>
EXHIBIT B
FORM OF
REVOLVING NOTE
$ __________________ August __, 1996
Chicago, Illinois
On or before the Revolving Termination Date (as defined in the Credit
Agreement referred to below), the undersigned, for value received, promises to
pay to the order of __________________ at the principal office of BANK OF
AMERICA ILLINOIS (the "Agent"), in Chicago, Illinois _______________ Dollars
($_______) or, if less, the aggregate unpaid amount of all Revolving Loans made
by the payee to the undersigned pursuant to the Credit Agreement (as shown in
the records of the payee or, at the payee's option, on the schedule attached
hereto and any continuation thereof).
The undersigned further promises to pay interest on the unpaid principal
amount of each Revolving Loan evidenced hereby from the date of such Revolving
Loan until such Revolving Loan is paid in full, payable at the rate(s) and at
the time(s) set forth in the Credit Agreement. Payments of both principal and
interest are to be made in lawful money of the United States of America.
This Revolving Note evidence indebtedness incurred under, and is subject to
the terms and provisions of, the Amended and Restated Credit Agreement, dated as
of August 16, 1996 (herein, as further amended or otherwise modified from time
to time, called the "Credit Agreement"), between the undersigned, various banks
(including the payee) and the Agent, to which Credit Agreement reference is
hereby made for a statement of the terms and provisions under which this
Revolving Note may or must be paid prior to its due date or may have its due
date accelerated. Terms used but not otherwise defined herein are used herein
as defined in the Credit Agreement.
In addition to and not in limitation of the foregoing and the provisions of
the Credit Agreement, the undersigned further agrees, subject only to any
limitation imposed by applicable law, to pay all reasonable expenses, including
reasonable attorneys' fees and legal expenses, incurred by the holder of this
Revolving Note in endeavoring to collect any amounts payable hereunder which are
not paid when due, whether by acceleration or otherwise.
This Revolving Note is made under and governed by the internal laws of the
State of Illinois.
<PAGE>
This Note is issued in replacement of a Note issued pursuant to a Credit
Agreement dated as of March 17, 1994, as amended. The indebtedness evidenced by
this Note represents an extension and renewal of indebtedness owing to the
payee.
ALLIED PRODUCTS CORPORATION
By:
---------------------------
Title:
------------------------
<PAGE>
Schedule Attached to Revolving Note dated August 16, 1996 of THE COMPANY payable
to the order of
- --------------------------------------------------------------------------------
Date and Amount Date and Amount
of Revolving of Repayment or
Loan or of of Conversion
Conversion from into another Unpaid Notation Made
another type of type of Interest Principal by
Revolving Loan Revolving Loan Period Balance
1. FLOATING RATE LOANS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. EURODOLLAR LOANS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10B
November 27, 1996
Allied Products Corporation
10 South Riverside Plaza
Chicago, Illinois 60606
Re: CONSENT TO STOCK REPURCHASES
Ladies and Gentlemen:
We make reference to that certain Amended and Restated Credit
Agreement, dated as of August 23, 1996 (as or amended or modified from time to
time, the "Credit Agreement"), among Allied Products Corporation (the
"Borrower"), the banks named therein (the "Banks") and Bank of America Illinois,
as agent for the Banks (the "Administrative Agent"). Capitalized terms used
herein and not otherwise defined shall have the respective meanings provided in
the Credit Agreement.
We understand that the Borrower contemplates repurchasing shares of
its capital stock in an amount not to exceed $35,000,000. As a result, the
Borrower has requested that the undersigned consent to such repurchases of
capital stock.
Each of the undersigned hereby agrees and consents that Section 10.5
of the Credit Agreement shall be deleted in its entirety and replaced with the
following:
"SECTION 10.5 NET WORTH. Not permit the Company's Consolidated Net
Worth at any time to be less than (a) $103,436,000 PLUS (b) fifty percent
(50%) of the Company's positive consolidated net income for each Fiscal
Quarter ended after June 30, 1996, LESS (c) repurchases by the Company of
its capital stock to the extent such repurchases do not exceed $35,000,000
in the aggregate."
Notwithstanding anything contained in the foregoing to the contrary,
the consent granted hereunder will not in any way operate as an amendment or
modification of the Credit Agreement or any other Loan Document or a consent or
waiver with respect to any existing or future Default not specifically
enumerated above.
<PAGE>
If the foregoing is in accordance with your understanding and is acceptable
to you, please so indicate by executing this letter in the space provided below
and returning it to the Administrative Agent for the benefit of the Banks.
Very truly yours,
BANK OF AMERICA ILLINOIS,
as Agent
By: /s/ David A. Johanson
-----------------------------
Name: David A. Johanson
-----------------------------
Title: Vice President
-----------------------------
BANK OF AMERICA ILLINOIS,
as a Bank
By: /s/ Barbara Hamel
---------------------------
Name: Barbara Hamel
-----------------------------
Title: Sr. Vice President
-----------------------------
LASALLE NATIONAL BANK
By: /s/ David Knapp
-----------------------------
Name: David Knapp
-----------------------------
Title: Vice President
-----------------------------
Agreed and Accepted this 27th day
November, 1996:
ALLIED PRODUCTS CORPORATION
By: /s/ Patrick J. Riley
---------------------------------
Name: Patrick J. Riley
---------------------------------
Title: Vice President - Treasurer
---------------------------------
By: /s/ David B. Corwine
------------------------------
Name: David B. Corwine
---------------------------------
Title: Vice President & Secretary
---------------------------------
-2-
<PAGE>
EXHIBIT 11
PAGE 1
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF PRIMARY EARNINGS PER SHARE
(ALL DOLLARS ROUNDED TO THE NEAREST $1,000, EXCEPT PER SHARES AMOUNTS)
<TABLE>
<CAPTION>
INCOME FROM LOSS ON
CONTINUING DISCONTINUED NET
SHARES OPERATIONS OPERATIONS INCOME
------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1996
Income $19,004,000 $ - $19,004,000
Weighted average of outstanding shares of
common stock 9,014,000 - - -
------------ ----------- ------------ -----------
9,014,000 $19,004,000 $ - $19,004,000
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
Earnings per common share $ 2.11 $ - $ 2.11
----------- ------------ -----------
----------- ------------ -----------
FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1995
Income $33,989,000 $ - $33,989,000
Dividend requirements on Series B preferred
stock (268,000) - (268,000)
Dividend requirements on Series C preferred
stock (932,000) - (932,000)
Weighted average of outstanding shares of
common stock 9,126,000 - - -
Effect of assumed exercise of outstanding
stock options 288,000 - - -
------------ ----------- ------------ -----------
9,414,000 $32,789,000 $ - $32,789,000
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
Earnings per common share $3.48 $ - $ 3.48
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
<PAGE>
EXHIBIT 11
PAGE 2
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF PRIMARY EARNINGS PER SHARE
(ALL DOLLARS ROUNDED TO THE NEAREST $1,000, EXCEPT PER SHARES AMOUNTS)
<TABLE>
<CAPTION>
INCOME FROM LOSS ON
CONTINUING DISCONTINUED NET
SHARES OPERATIONS OPERATIONS INCOME
------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1994
Income (loss) $19,687,000 $(5,354,000) $14,333,000
Dividend requirements on Series B
preferred stock (574,000) - (574,000)
Dividend requirements on Series C
preferred stock (1,319,000) - (1,319,000)
Weighted average of outstanding
shares of common stock 9,102,000 - - -
---------- ----------- ------------ -----------
9,102,000 $17,794,000 $ (5,354,000) $12,440,000
---------- ----------- ------------ -----------
---------- ----------- ------------ -----------
Earnings (loss) per common share $ 1.96 $ (.59) $ 1.37
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
<PAGE>
EXHIBIT 11
PAGE 3
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
(ALL DOLLARS ROUNDED TO THE NEAREST $1,000, EXCEPT PER SHARES AMOUNTS)
<TABLE>
<CAPTION>
INCOME FROM LOSS ON
CONTINUING DISCONTINUED NET
SHARES OPERATIONS OPERATIONS INCOME
------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1996
Income $ 19,004,000 $ - $ 19,004,000
Weighted average of outstanding shares of
common stock 9,014,000 - - -
----------- ------------ ------------ ------------
9,014,000 $ 19,004,000 $ - $ 19,004,000
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
Earnings per common share $ 2.11 $ - $ 2.11
------------ ------------ ------------
------------ ------------ ------------
FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1995
Income $ 33,989,000 $ - $33,989,000
Dividend requirements on Series B preferred
stock (268,000) - (268,000)
Dividend requirements on Series C preferred
stock (932,000) - (932,000)
Weighted average of outstanding shares of
common stock 9,126,000 - - -
Effect of assumed exercise of outstanding
stock options 368,000 - - -
----------- ------------ ------------ ------------
9,494,000 $ 32,789,000 $ - $ 32,789,000
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
Earnings per common share $ 3.45 $ - $ 3.45
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<PAGE>
EXHIBIT 11
PAGE 4
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
(ALL DOLLARS ROUNDED TO THE NEAREST $1,000, EXCEPT PER SHARES AMOUNTS)
<TABLE>
<CAPTION>
INCOME FROM LOSS ON
CONTINUING DISCONTINUED NET
SHARES OPERATIONS OPERATIONS INCOME
------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1994
Income (loss) $19,687,000 $ (5,354,000) $14,333,000
Dividend requirements on Series B
preferred stock (574,000) - (574,000)
Dividend requirements on Series C
preferred stock (1,319,000) - (1,319,000)
Weighted average of outstanding
shares of common stock 9,102,000 - - -
---------- ----------- ------------ -----------
9,102,000 $17,794,000 $ (5,354,000) $12,440,000
---------- ----------- ------------ -----------
---------- ----------- ------------ -----------
Earnings (loss) per common share $ 1.96 $ (.59) $ 1.37
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
<PAGE>
EXHIBIT 21
<TABLE>
<CAPTION>
State or Other % Of
Jurisdiction Securities
In Which Owned by
Subsidiaries of Registrant (1) Incorporated Registrant
- ------------------------------------------------------------------------------------
<S> <C> <C>
Allied Products Finance Corporation Delaware 100% (2)
Aurora Corporation of Illinois . . . . . . . . . Illinois 100% (2)
</TABLE>
(1) Unnamed subsidiaries considered in the aggregate do not constitute a
significant subsidiary.
(2) Subsidiary included in consolidated financial statements.
02/27/97
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Allied Products
Corporation registration statement on Form S-8 of our report, dated
February 6 1997, on our audits of the consolidated financial statements and
financial statement schedule of Allied Products Corporation and consolidated
subsidiaries as of December 31, 1996 and 1995 and for the three years in the
period ended December 31, 1996, which report is included in the 1996 Annual
Report of Form 10-K.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 6, 1997
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, ALLIED PRODUCTS CORPORATION, a Delaware corporation (herein
referred to as the "Company"), is about to file with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, as
amended, its annual report on Form 10-K for the year ended December 31, 1996 and
WHEREAS, each of the undersigned holds the office or offices in the Company
hereinbelow set opposite his name, respectively;
NOW THEREFORE, each of the undersigned hereby constitutes and appoints
KENNETH B. LIGHT and DAVID B. CORWINE, and each of them individually, his
attorney, with full power to act for him and in his name, place and stead, to
sign his name in the capacity or capacities set forth below to said Form 10-K
and to any and all amendments thereto, and hereby ratifies and confirms all said
attorney may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands this 12th
day of March, 1997.
Richard A. Drexler, Chairman of
the Board, President and Chief /s/Richard A. Drexler
Executive Officer; Director ---------------------------
Kenneth B. Light, Executive Vice
President and Chief Financial /s/Kenneth B. Light
Officer, Chief Administrative ---------------------------
Officer, Director
Robert J. Fleck, Vice President -
Accounting and Chief Accounting /s/Robert J. Fleck
Officer ---------------------------
Lloyd A. Drexler, Director /s/Lloyd A. Drexler
---------------------------
William D. Fischer, Director /s/William D. Fischer
---------------------------
Stanley J. Goldring, Director /s/Stanley J. Goldring
---------------------------
<PAGE>
John E. Jones, Director /s/John E. Jones
---------------------------
John W. Puth, Director /s/John W. Puth
---------------------------
Mitchell I. Quain, Director /s/Mitchell I. Quain
---------------------------
S. S. Sherman, Director /s/S. S. Sherman
---------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 833
<SECURITIES> 0
<RECEIVABLES> 53,543
<ALLOWANCES> 629
<INVENTORY> 56,790
<CURRENT-ASSETS> 125,260
<PP&E> 89,434
<DEPRECIATION> 51,048
<TOTAL-ASSETS> 171,949
<CURRENT-LIABILITIES> 74,460
<BONDS> 489
0
0
<COMMON> 94
<OTHER-SE> 93,359
<TOTAL-LIABILITY-AND-EQUITY> 171,949
<SALES> 274,414
<TOTAL-REVENUES> 274,414
<CGS> 209,118
<TOTAL-COSTS> 209,118
<OTHER-EXPENSES> 35,588
<LOSS-PROVISION> 214
<INTEREST-EXPENSE> 1,557
<INCOME-PRETAX> 29,708
<INCOME-TAX> 10,704
<INCOME-CONTINUING> 19,004
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,004
<EPS-PRIMARY> 2.11
<EPS-DILUTED> 2.11
</TABLE>
