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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
----- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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
Allied Products Corporation
(Exact name of Registrant as specified in its charter)
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)
Registrant's telephone number, including area code (312) 454-1020
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
COMMON STOCK-$.01 PAR VALUE NEW YORK AND PACIFIC
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 No X
--- ---
As of March 31, 1999, 10,075,413 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 $30,226,239. 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 June 18, 1999 and
Annual Report to security holders for the year ended December 31, 1998 are
incorporated by reference in Part III and Part IV herein.
The Exhibit Index is located on page 45.
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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 are divided into two business segments - the
Agricultural Products Group (which consists of the Bush Hog and Great Bend
divisions) and the Industrial Products Group (which consists of the Verson,
Precision Press Industries and Verson Pressentechnik operations as well as the
Coz division which was sold in the last quarter of 1997). Reference is made to
Note 11 of Notes to Consolidated Financial Statements for an analysis of
operations by industry segment.
Approximately 3%, 6% and 16% of the Company's net sales in 1998, 1997
and 1996, respectively, were exported principally to Canada and Mexico.
AGRICULTURAL PRODUCTS GROUP
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, backhoes,
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 40%) of
rotary cutters sold in North America.
Front end loaders are used by farmers and ranchers for material
handling. Cultivators are used for weed control after crops have been planted.
In April 1998, the Company purchased the assets of Great Bend
Manufacturing Company (Great Bend) located in Great Bend, Kansas. Great Bend is
a manufacturer of front end loaders with significant geographical marketing
emphasis in the Midwest, Southwest and high plains areas of the United States.
Like Bush Hog, Great Bend offers a complete line of quality front end loaders,
with particular emphasis on high lift loaders which adapt to higher horsepower
tractors.
Due to the separation of dealer networks, the Company's plans are to
take advantage of both Bush Hog and Great Bend trade names by maintaining
separate manufacturing and marketing identities. Certain products have been
selected for cross marketing under both name brands and joint engineering
efforts will be utilized in specific new product development.
The Company believes that the combined sales of front end loaders
generated by Bush Hog and Great Bend places it among the top five front end
loader manufacturers in total North America market share.
In addition to the acquisition of Great Bend, the Company also acquired
in April 1998 the assets of Universal Turf Corporation (Universal Turf) located
in Opp, Alabama. Universal Turf is a manufacturer of turf maintenance products
for golf courses, athletic complexes and sod farms. Products manufactured by
Universal Turf include reel mowers, verti-cut mowers, chemical sprayers and reel
grinders.
The acquisition of Universal Turf not only broadened Bush Hog's turf
equipment offering but also provides additional manufacturing capacity for
components utilized in the manufacturing of agricultural implements at Bush
Hog's two facilities in Selma, Alabama.
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 approximately 14% of the
Agricultural Products Group's revenue in 1998.
In order to maintain and expand their market position, the divisions of
the Agricultural Products Group continually update and improve their product
offerings. This is done through a combination of internal development and
external acquisition of technology.
Contributing to Bush Hog's record sales in 1998 were several new
products released during the past twenty-four months. Products of major
significance were a series of five, six, seven and eight-foot rotary cutters,
which received widespread customer acceptance. A new line of backhoes, which
are used by farmers and contractors, was released in 1998, and also gained
widespread customer acceptance. The introduction of the acquired Universal
Turf product line under the Bush Hog-Registered Trademark- name complemented
the revolutionary new mulching mower which Bush Hog introduced to the golf
industry in 1998. A network of forty turf product distributors has been
established to market the broadened line of turf maintenance products.
Other products that were developed in 1998 and are expected to generate
substantial sales in 1999 include an eight-foot mulching mower, a new line of
five, six, and seven-foot economy rotary cutters, and a new line of zero-turn
mowers for use by homeowners and landscape mowing contractors. Zero-turn mowers
were previously outsourced from other manufacturers. The new line of zero-turn
mowers will be manufactured by Bush Hog at its Selfield manufacturing operation
in Selma, Alabama.
In keeping with Bush Hog's philosophy of being among the industry
leaders in new product introductions, currently twenty-eight new product or
product enhancement projects are scheduled for release during the next
twenty-four months.
MARKETING. Bush Hog and Great Bend market their products, except for
commercial turf and golf course mowing equipment, through commissioned
manufacturer's representatives, operating as independent contractors within
defined territories. The Bush Hog sales force consists of fifty-eight
representatives and the Great Bend sales force consists of thirty
representatives. None of the
2
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total eighty-eight representatives market both lines. The manufacturer's
representatives call on dealers located within their territories which have
been approved to carry either Bush Hog-Registered Trademark- or Great Bend
product lines. In all, there are approximately 2,600 Bush Hog-Registered
Trademark- dealers and 1,000 Great Bend dealers. In general, the dealers are
independent, local businessmen who have an established local clientele
developed over the years and represent almost 50% of the total farm equipment
dealerships in the United States and Canada. The Bush Hog-Registered
Trademark- brand name is particularly strong in the southeastern and
southwestern states while the Great Bend name is strong in the southwestern,
high plains, and portions of the Midwestern states.
Bush Hog has also contracted with independent distributors to market
commercial turf and golf course mowing equipment within defined territories.
To balance the seasonal variations in its production cycles, both Bush
Hog and Great Bend provide incentives for off- season purchases, including
extended payment terms to dealers in the form of floor plan financing. A
security interest is maintained on this floor-planned 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 three manufacturing
facilities and eight service parts distribution centers strategically located in
the United States and Canada. Great Bend services its dealer network through its
manufacturing facility in Great Bend, Kansas.
COMPETITION. Competition for the type of equipment sold by Bush Hog and
Great Bend 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. The objective of Bush Hog
and Great Bend is to be a low cost producer of high quality products. To do this
they continue to modernize their facilities to improve efficiency.
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.
INDUSTRIAL PRODUCTS GROUP
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 initial draw 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 stamp. Investment in a
large transfer press can range from $15-$35 million.
Approximately 10-15% of Verson's revenue was generated by customer
special services. Items included in the special services area are: repair parts,
complete remanufacturing of used presses, contract machining and manufacturing,
die consultation and training. In addition to the fabrication and machining of
components, Verson provides complete tooling and engineering services necessary
for turnkey systems.
3
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Complimenting the manufacturing of presses by Verson, a new division of
Allied Products, Precision Press Industries (PPI), began operation in November
1997. PPI is engaged in the fabrication of large components weighing up to
240,000 pounds and is located in a 40,000 square foot facility in Hobart,
Indiana. The Company believes PPI uses some of the most sophisticated welding
machinery and processes available. Supplier agreements, production scheduling
and control methods enable PPI to work in a just-in-time format. Extensive
employee training and ongoing process documentation activities are intended to
provide that PPI operates in accordance with ISO9000 guidelines. The division
currently does work exclusively for the Verson division, but retains the
capability to perform custom fabrication work for third party customers.
During the fourth quarter of 1998, the Company announced that its
Verson division formed a joint venture with Theodor Grabener GmbH & Co. KG of
Germany and Automatic Feed Company of Napoleon, Ohio, that will help the two
American companies more effectively penetrate the European market for large
stamping presses and related systems. The new entity, Verson Pressentechnik
GmbH, is located in Netphen-Werthenbach, Germany, and is expected to benefit
from the resources of the Grabener group of companies.
The joint venture, in which Verson holds a 60% stake, will act as the
main commercial and technical support arm for the activities of both Verson and
Automatic Feed in Europe. Its European staff will have the responsibility of
marketing Verson and Automatic Feed products to customers throughout Europe.
Drawing on the strengths of the Grabener group of companies, the joint venture
also will assist in customizing Verson and Automatic Feed equipment to meet the
requirements of European customers, and it will provide ongoing training and
service support once the equipment is up and running at a customer's plant.
On October 14, 1997, the Company sold its Coz division. Coz provided a
complete line of thermoplastic resins and related services to the plastic
molding and extrusion industry.
MARKETING. Verson's marketing group department is headed by a Vice
President 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 approximately 85% of Verson's annual
revenue. The other major market served by Verson is the appliance industry where
the division's customers include all major brand names.
The Company believes 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-Registered
Trademark- system which further improves production and saves space.
COMPETITION. There are only a few companies in the world 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, 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 Company believes 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 as the major suppliers to the
automakers convert 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. An additional
117,000 square foot expansion of its assembly facilities was completed at the
end of 1998. These additions have and will significantly expand the division's
capacity for manufacturing large transfer presses.
SALES BACKLOG
Sales backlog as of December 31, 1998 was $180,617,000 compared to
$204,988,000 at December 31, 1997. Over 80% of the backlog orders are expected
to be filled prior to the end of 1999.
EMPLOYEES
Allied Products currently employs approximately 1,800 individuals.
Approximately 30% of Allied Products' employees are represented by a union.
RAW MATERIALS AND SOURCES OF SUPPLY
The principal raw materials used by all of the Company's manufacturing
operations include steel and other metals and purchased components. During 1998,
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,"
which is used on its agricultural, landscape, and turf and golf course
equipment, "Verson," which is used on its metal forming presses, and "ETF",
"MultiMode" and "Dynamic Orientation" which are used on the electronically
controlled transfer feeds manufactured by the Verson division. Allied
Products considers each of the above registered trademarks to be 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 operations
of its business.
4
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MAJOR CUSTOMERS
Approximately 26%, 31% and 39% of the Company's net sales in 1998, 1997
and 1996, respectively, were derived from sales by the Industrial Products Group
to the three 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.
FORWARD-LOOKING STATEMENTS
Some of the information contained in the above discussion may contain
forward-looking statements that are subject to certain risks, uncertainties and
assumptions. Such forward-looking statements are intended to be identified in
this document by the words "anticipate," "expect," "estimate," "objective,"
"possible" and similar expressions. Actual results may vary. Reference is made
to the "Safe Harbor Statement" contained under Item 7--Management Discussion and
Analysis of Financial Condition and Results of Operations.
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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 March 31, 1999.
<TABLE>
<CAPTION>
Name Position with Allied Products Age
---- ----------------------------- ---
<S> <C> <C>
Richard A. Drexler............ Chairman, President and Chief Executive Officer 51
Bobby M. Middlebrooks......... Senior Vice President 63
Robert J. Fleck............... Vice President-Accounting, Chief Accounting and Administrative Officer 51
Mark C. Standefer............. Vice President, General Counsel and Secretary 44
</TABLE>
No family relationships exist among the executive officers, however,
Mr. Richard A. Drexler is the son of Lloyd A. Drexler, a director of the
Company. In early 1999, Richard W. Metzger resigned from the Company.
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. Drexler is also acting
Chairman and Chief Executive Officer of the Verson division of the Industrial
Products Group.
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. Fleck has been Vice President-Accounting since 1985, Chief
Accounting Officer since 1986 and Chief Administrative Officer since 1997. 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. Standefer was elected Vice President, General Counsel and Secretary
in 1997. From 1995 to 1997 he was Staff Vice President, Assistant General
Counsel and Assistant Secretary, and from 1986 to 1995 Assistant General Counsel
and Assistant Secretary. Mr. Standefer joined Allied Products in 1984 as Staff
Attorney. Prior to joining Allied Products, he was Staff Attorney for Sun
Electric Corporation.
6
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ITEM 2. PROPERTIES
Allied Products leases one and owns five manufacturing facilities in
four 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 of the Agricultural Products Group are conducted in Selma
and Opp, Alabama and Great Bend, Kansas in three owned facilities and one leased
facility containing approximately 940,000 square feet in total. The group also
maintains several leased facilities in various states and Canada which are used
as warehouses and parts depots. Operations of the Industrial Products Group are
conducted in Chicago, Illinois and Hobart, Indiana in owned facilities
containing approximately 561,000 square feet. In addition, a small office
located in Netphen-Werthenbach, Germany is being leased by Verson
Pressentechnik.
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,
as adjusted for the three-for-two stock split effected on August 15, 1997, is as
follows:
<TABLE>
<CAPTION>
Beginning of
1998 Year End of Year 1998 Qtr High Low Dividend
<S> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------
Common $24 $6 5/16 1 $25 3/16 $20 1/4 $.0400
- - ------------------------------------------------------------------------------------------------------------------------------
2 24 3/4 20 1/16 .0400
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3 22 7/8 6 3/16 .0400
- - ------------------------------------------------------------------------------------------------------------------------------
4 8 7/8 5 7/8 .0400
- - ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Beginning of
1997 Year End of Year 1997 Qtr High Low Dividend
<S> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------
Common $19 13/16 $24 1 $21 13/16 $18 1/2 $.0333
- - ------------------------------------------------------------------------------------------------------------------------------
2 23 5/16 18 9/16 .0333
- - ------------------------------------------------------------------------------------------------------------------------------
3 26 21 3/16 .0400
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4 27 23 1/4 .0400
- - ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
As of March 31, 1999, the approximate number of holders of record of
the Company's common stock ($.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 $.0167 per share to $.0333 per
share. During the third quarter of 1997, the Company increased its quarterly
dividend to $.04 per share. Subsequent to the end of 1998, dividend payments are
limited to $2,000,000 per year under the Second Amended and Restated Credit
Agreement and the First Amendment and Waiver to the Credit Agreement -- see Note
5 of Notes to Consolidated Financial Statements.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Net sales from continuing
operations....................... $273,834,000 $270,562,000 $274,414,000 $260,861,000 $215,529,000
Income (loss) from continuing
operations....................... $(14,113,000) $ 15,646,000(C) $ 16,089,000(C) $ 33,989,000 $ 19,687,000
Earnings (loss) per common share
(diluted) from continuing
operations (A)(B)................ $(1.19) $1.27(C) $1.17(C) $2.34 $1.28
Total assets........................ $275,804,000 $195,064,000(C) $172,509,000(C) $167,303,000(C) $150,555,000
Long-term debt (including
capitalized leases and
redeemable preferred stock)...... $ 2,298,000 $ 670,000 $ 489,000 $ 315,000 $ 12,130,000
Cash dividend declared per
common share (A)................. $.16 $.147 $.133 $.05 $-
- - -----------------------
</TABLE>
(A) Restated prior to 1997 to reflect the effect of a three-for-two stock
split in 1997.
(B) Restated prior to 1997 to reflect the effect of adopting SFAS
128-Earnings per Share - in 1997.
(C) Restated - See Note 1 of Notes to Consolidated Financial Statements
The accompanying Notes to Consolidated Financial Statements
are an integral part of this summary.
8
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Subsequent to the end of 1998, the Company determined that the
accounting for certain stock option exercise transactions during 1996 and
1997 was incorrect. Non-cash compensation expense for certain option
exercises during 1996 and 1997 which was not recognized in previously issued
financial statements is now reflected in the accompanying restated financial
statements. The Company also determined that gross profit margins at the
Verson division of the Industrial Products Group were incorrectly reported in
1997 as noted below. Reference is made to Note 1 of Notes to Consolidated
Financial Statements for a reconciliation of the amounts previously reported
to the amounts currently being reported in the consolidated statements of
income (loss) for the years ended December 31, 1997 and 1996. Reference is
also made to Note 13 of Notes to Consolidated Financial Statements regarding
the reconciliation of amounts previously reported to the amounts currently
being reported in the quarterly consolidated statements of income (loss) for
the years ended December 31, 1998 and 1997. It was further determined that
the Company should have accrued for product liability claims incurred but not
reported prior to 1996. The product liability adjustment ($1,040,000 net of
tax) had no impact on operating results reported on within this report and is
reflected as an adjustment to retained earnings at December 31, 1995.
OPERATING RESULTS
Reference is made to Note 11 of Notes to Consolidated Financial
Statements regarding the disclosure of segmental information with respect to the
Company's operations. The Company's operations consist of two business segments,
the Agricultural Products Group and the Industrial Products Group. The
Agricultural Products Group consists of the Company's Bush Hog division
(including products manufactured by Universal Turf which was acquired in 1998)
and the recently acquired Great Bend division. Since the sale of the Company's
Coz division in 1997, the Industrial Products Group consists of the Company's
Verson, Precision Press Industries (PPI) and Verson Pressentechnik operations.
PPI was established in the fourth quarter of 1997 and is engaged in the
fabrication of large components for the Verson division. In October 1998, the
Company's Verson division formed a joint venture with Theodor Grabener GmbH &
Co. KG of Germany and Automatic Feed Company of Napoleon, Ohio, that will help
the two American companies more effectively penetrate the European market for
large stamping presses and related systems. The new entity, Verson
Pressentechnik GmbH, is located in Netphen-Werthenbach, Germany.
1998 COMPARED TO 1997
Net sales for 1998 were $273,834,000 compared to net sales of
$270,562,000 reported in 1997. Loss before taxes in 1998 was $21,643,000
compared to income before taxes of $24,835,000 in 1997. The net loss in 1998 was
$14,113,000 ($1.19 per diluted share) versus net income of $15,646,000 ($1.27
per diluted share) in 1997.
Within the Agricultural Products Group, net sales in 1998 increased to
$136,814,000 from $119,471,000 in 1997. Approximately half of the increase was
related to the acquisitions of the Great Bend and Universal Turf operations in
the second quarter of 1998. The remainder of the increase was principally
associated with increased cutter sales by the Bush Hog division to cattle
ranchers, particularly in the first half of the year. Cattle ranchers use the
cutters for grazing pasture maintenance. Cutter sales in 1998 were also
favorably affected by new/redesigned products for the turf and landscaping
market for utilization by commercial turf (sod) growers and by golf courses for
maintenance. During the last half of 1998, sales were negatively affected by
lower prices for major crops (corn, wheat, soybeans) and livestock commodities
(cattle and hogs), which reduced farm income. Strong crop yields in the Midwest
and fewer exports are expected to keep crop and livestock prices at a low level
in 1999. Within the Agricultural Products Group, income before taxes decreased
slightly in 1998 compared to the prior year. Gross profit margins decreased
slightly in 1998. Decreases were principally related to increased discounts
offered to dealers and the impact of the mix of products sold. These decreases
were partially offset by favorable manufacturing variances resulting from
increased facility utilization and increased labor efficiencies at the Bush Hog
division in 1998 and the effect of increased sales volume noted above from the
acquisitions of Great Bend and Universal Turf. Selling and administrative
expenses increased in 1998 within the Agricultural Products Group compared to
the prior year. The majority of the increase related to the acquired operations
of Great Bend and Universal Turf. Other increases were associated with increased
commissions (due to increased sales volume) and advertising costs in 1998.
Within the Industrial Products Group, sales decreased in 1998 to
$137,020,000 compared to net sales of $151,091,000 reported in 1997. The entire
decrease was related to the loss of revenue from the Coz division which was sold
in the early part of the fourth quarter of 1997. Revenue and profits are
recognized on a percentage of completion basis at the Verson division. Loss
before taxes for the Industrial Products Group was $23,129,000 in 1998 compared
to income before taxes of $16,584,000 in 1997. Operating results in 1998 and
1997 were favorably affected by the Company's recovery of a claim associated
with prior periods.
During 1996, 1997 and 1998, the Company's Verson division received
three major orders for automated, multi-station stamping presses, each of which
contained significant new features Verson had not previously
1
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manufactured. Two of the major orders were for the design and manufacture of
several automated, multi-station stamping presses incorporating a new
state-of- the art "three-slide" design. Verson believes that it is the first
manufacturer to design and manufacture a stamping press incorporating this
design. These orders were to be completed over a three-year period from 1997
through 1999 and involved projected revenues of approximately $190 million.
When added to Verson's other press business, the orders severely strained
Verson's then existing press manufacturing capacity. While the Company took
steps during 1997 and 1998 to expand Verson's facility, hire more engineering
and manufacturing staff and increase its total capacity, the expansion was
not completed early enough to alleviate production scheduling difficulties.
In addition, Verson experienced significant difficulties during 1998 in the
manufacturing of the presses under these three orders in a timely and cost
effective manner. These manufacturing delays in turn caused delays and
additional costs in the manufacture of presses in 1998. As described below,
difficulties primarily associated with the manufacture of presses under the
three orders described above and the resulting stresses on manufacturing
capacity caused Verson and the Company to incur losses in 1998. These
difficulties are expected to continue to have a negative impact on earnings
in 1999 and to a lesser extent, in 2000.
Verson began work in 1997 on the two presses covered by the first
order. In February 1998, Verson significantly revised its cost estimates on the
presses in view of difficulties experienced in manufacturing the presses during
1997. The revision of the cost estimates made in February 1998 ($5,300,000)
should have been reflected in the Company's 1997 financial statements, which
were restated accordingly. By the third quarter of 1998, the first of these
presses was assembled and was in the final test phase. In the testing process,
the electronic controls furnished by subcontractors proved to be incompatible,
causing the press to physically crash on more than one occasion, resulting in
extensive damage to the press and requiring replacement of many press
components. The crashes caused a significant escalation in Verson's costs and
resulted in a production bottleneck, delaying the work on the presses being
manufactured behind it and requiring Verson to incur overtime and increase the
amount of work subcontracted out rather than done in house.
Also during the third quarter of 1998, while the presses to be
manufactured pursuant to the last two of the three major orders were still in
a preliminary stage, Verson significantly revised its cost estimates on the
presses to be manufactured under two of the three orders. As a consequence,
the Company announced the recognition of a pretax charge of approximately
$16,000,000. Approximately $5,300,000 of this charge was subsequently
recorded in 1997 as noted above. In the fourth quarter of 1998, events of the
third quarter continued to have a significant negative impact on costs to
complete projects. Given these ongoing circumstances and concern over further
escalation of costs, Verson undertook a comprehensive review of the
compilation of costs and revenue recognition associated with each press in
relation to revised delivery schedules, current estimated costs to complete
the presses in production and available manufacturing capacity. Verson
recorded additional changes to cost estimates of approximately $21,000,000 to
reflect the recognition of estimated losses on certain orders in process and
a revision of estimated costs on other orders. The Company restated its
financial statements for the first three quarters of 1998. Reference is made
to Note 13 of Notes to Consolidated Financial Statements.
Verson's backlog as of December 31, 1998, composed of revenues to be
recorded in future years on orders received, included revenues of approximately
$50,000,000 on orders for which estimated losses were recorded in 1998 and on
which no gross margin is expected to be recognized in 1999 and 2000.
Uncertainties associated with these contracts make it reasonably possible that
additional losses could occur. The December 31, 1998 backlog for Verson also
included future revenue of approximately $95,000,000 to be recorded principally
in 1999 for which Verson anticipates gross margins lower than historical levels.
In view of the difficulties in estimating costs encountered by Verson
in 1998, the Company has determined that on press orders where margin levels
could not be reasonably estimated, the Company will not recognize any gross
profit margin until the particular press in process reaches a point in
production where the gross profit margin can be reasonably estimated. Reference
is made to Note 1 of Notes to Consolidated Financial Statements - Revenue
Recognition and Inventories. This method of accounting for gross margins on
presses will be continued until such time as Verson is satisfied that its
methods of estimating costs have been validated.
The backlog of low margin and no margin work in process as of December
31, 1998 will have a substantial negative effect on Verson's earnings in 1999
and, to a lesser extent, in 2000. In addition, the deferral of the recognition
of gross margins until the later stages of the production of a press may result
in fluctuations in quarter-to-quarter results.
Because of the difficulties Verson encountered in 1998, Verson has
failed to meet delivery date requirements provided in several press orders.
Verson incurred penalties of approximately $1.2 million in 1998 as a result of
delays in shipments and expects that it may receive additional claims for
significant penalty payments or damages in 1999 and 2000. Reference is made to
Note 10 of Notes to Consolidated Financial Statements. The Company's
difficulties in completing orders during 1998 could adversely affect its
relationships with one or more of its customers and therefore could have a
negative impact on the Company's ability to obtain future business from such
customers.
Selling and administrative expenses increased within the Industrial
Products Group in 1998 due to staff
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expansions in these areas at the Verson division. During 1997, Verson
established an international sales and marketing department, resulting in
increased salaries and travel costs.
Corporate expenses consisted primarily of administrative charges and
other (income) expense. Administrative expenses decreased due to a reduction in
staffing levels, the subleasing of a portion of the Corporate Office during 1998
and decreased compensation expense related to stock option exercises -- see Note
11 of Notes to Consolidated Financial Statements. Reference is made to Note 12
of Notes to Consolidated Financial Statements for an analysis of other (income)
expense in 1998 and 1997.
Interest expense in 1998 was $6,201,000 compared to interest expense of
$3,306,000 in the prior year. Increased borrowing needs were related to higher
consolidated receivable levels (associated with increases at all manufacturing
operations of the Company) and increased inventory levels (primarily associated
with the Verson division where orders for a total of 9 multi-station transfer
presses are currently in production and shipment and production delays have
occurred). Other borrowing needs include fixed asset additions over the past
year ($38,837,000 including the Verson plant expansion), the acquisitions of
Great Bend and Universal Turf in the second quarter of 1998 and the impact of
the stock buyback program from the prior years. Interest expense in 1998 was
partially offset by the capitalization of $979,000 of interest costs relating to
the Company's building expansion project at the Verson division.
Reference is made to Note 4 of Notes to Consolidated Financial
Statements for an analysis and explanation of the current and deferred provision
(benefit) for income taxes in 1998 and 1997.
1997 COMPARED TO 1996
The Company's net sales in 1997 were $270,562,000 compared to net sales
of $274,414,000 in 1996. The decrease in consolidated net sales in 1997 was
associated with the effects of the sale of the Coz division as noted above. Net
sales of the Coz division for 1997 were $11,000,000 less than net sales of the
prior year. Income before taxes in 1997 was $24,835,000 compared to income
before taxes of $25,223,000 for the prior year. Net income in 1997 was
$15,646,000 ($1.27 per diluted share) compared to net income of $16,089,000
($1.17 per diluted share) in 1996. Earnings per common share and weighted
average shares outstanding for 1996 have been adjusted to reflect the effects of
a three-for-two stock split which occurred during the third quarter of 1997.
Net sales within the Agricultural Products Group increased to
$119,471,000 in 1997 compared to net sales of $108,355,000 in 1996. The majority
of the increase was associated with the cutter and loader product lines. Sales
increases in the cutter and loader product lines were associated with the upturn
in cow/calf prices in the spring of 1997. Cattle ranchers use the cutters and
loaders for grazing pasture and feed lot maintenance, respectively. Cutter sales
were also favorably affected by new/redesigned products introduced in prior
years aimed at the turf and landscaping market for utilization by commercial
turf (sod) growers and for maintenance of golf courses. Service parts sales also
increased in 1997. Gross profits and gross profit margins increased within the
Agricultural Products Group in 1997 compared to the prior year. Approximately
half of the increase in the gross profit was associated with the increased sales
volume discussed above. The improved gross profit margin resulted primarily from
continued improvements in the manufacturing process resulting in greater direct
labor efficiencies and better control of overhead costs. The group also
benefitted from increased facility utilization during 1997. Selling and
administrative expenses decreased within the Agricultural Products Group in
1997. These decreases were associated with a commission rate decrease in 1997
and lower advertising costs.
At the Industrial Products Group, net sales decreased to $151,091,000
in 1997 compared to net sales of $166,059,000 reported in 1996. The decrease in
net sales was associated with the effects of the disposition of the Coz division
in the fourth quarter of 1997 and lower revenue recognized on press production
at the Verson division due to the mix of products in process during each
respective year. Revenue and profits are recognized on a percentage of
completion basis for press production at the Verson division. During the first
quarter of 1997, production was completed on the last press of an order for
three "A" size transfer presses for Chrysler. The first two presses related to
this order were produced and shipped in 1996. Production in 1997 reflected a
smaller portion of production against this order and a larger portion of
production related to smaller presses with lower margins. Production was also
affected in 1997 by a four week strike in the middle of the year. Production
continued on a limited basis during the strike through the use of supervisory
employees. Gross profits and gross profit margins decreased within the
Industrial Products Group in 1997 compared to 1996. The decrease in gross
profits and gross profit margins was primarily associated with decreased
facility utilization at the Verson division in 1997. Production hours decreased
by 14% in 1997 due to the effects of the impact of outsourced production, a four
week strike and the mix of products manufactured as noted above. Also impacting
gross profits and margins were increased overtime costs necessary to meet
delivery schedules following the strike and costs associated with a program
undertaken to identify improvements in the manufacturing process. These cost
increases were offset in part by the recovery of a claim associated with prior
periods and lower warranty costs. Selling and administrative expenses increased
within the Industrial Products Group in 1997. These increases included the
effect of the establishment of an international sales and marketing department
at the Verson division
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during 1997 resulting in personnel and travel cost additions. Administrative
staffing levels were also increased at this operation during 1997. These
increases were partially offset by the effect of the sale of the Coz division
as noted above.
Corporate expenses consisted primarily of administrative charges and
other (income) expense. Administrative expenses decreased due to a reduction in
compensation expenses related to stock option exercises -- see Note 11 of Notes
to Consolidated Financial Statements. Reference is made to Note 12 of Notes to
Consolidated Financial Statements for an analysis of other (income) expense in
1997 and 1996.
Interest expense in 1997 increased to $3,306,000 from $1,557,000 in the
prior year. Increased borrowing needs were associated with the Verson division
where the number of presses in process increased and the division was awaiting
final payment on presses being installed. The Company also purchased over
$21,500,000 of treasury stock during 1997 as a part of a program to purchase up
to 2,250,000 shares of the Company's common stock.
Reference is made to Note 4 of Notes to Consolidated Financial
Statements for an analysis and explanation of the current and deferred
provisions for income taxes in 1997 and 1996.
FINANCIAL CONDITION
1998
Working capital at December 31, 1998 was $(14,955,000) and the current
ratio was .92 to 1.00. Net accounts receivable increased by $14,098,000 since
the end of 1997. Approximately two-thirds of this increase was related to the
Agricultural Products Group. Receivable levels within this group have been
impacted by the overall downturn in the agricultural economy in the United
States brought about by lower commodity prices, excess grain inventory levels
and decreased exports of grain, particularly to the far eastern countries. These
economic factors have led to decreased agricultural equipment sales by dealers
and, in turn increased dealer receivable levels. Other factors leading to
increased receivables within the Agricultural Products Group include record
sales to dealers by the Bush Hog division and the effect of the acquisitions of
the Great Bend and Universal Turf operations during 1998. The remainder of the
net receivable increase was associated with the Industrial Products Group where
a large press order was shipped in the last quarter of 1998. Net inventory
levels increased by $23,421,000 during 1998. Approximately 30% of this increase
was related to the Agricultural Products Group. Cutter sales at the Bush Hog
division decreased in the last half of 1998 beyond production expectations
resulting in increased inventory levels. The previously mentioned acquisitions
in 1998 also contributed to the group's inventory level increase. Within the
Industrial Products Group, inventory levels also increased as a large number of
presses were in production at the end of 1998.
Fixed asset additions ($38,837,000) included construction costs
associated with an assembly building expansion project at the Verson division.
The project approximately doubled the size of Verson's assembly facility and is
expected to increase the division's assembly capacity by approximately 30%. A
new powder paint system was installed at the Bush Hog division during 1998. The
system is expected to result in a higher quality finish on equipment
manufactured and overall reduced paint costs and environmental emissions.
Remaining capital expenditures included improved production machinery and
equipment, which are expected to result in reduced manufacturing costs and
improvements in product quality, and upgrades in computer hardware and software.
Funds to finance these additions include borrowings under the Amended and
Restated Credit Agreement. Other than the sale of the former White-New Idea
facility in Coldwater, Ohio (which had been leased to the purchaser of the
operation since 1994), there were no major asset dispositions in 1998.
The changes in the net deferred tax assets (classified as both
current and other assets) were associated with changes in timing differences
between book and tax income. The Company continued to evaluate the
appropriateness of the net deferred tax asset valuation allowance associated
with net operating loss and tax credit carryforwards, particularly in light
of current operating results. Such evaluation is performed periodically in
conjunction with the Company's periodic financial reporting. Reference is
made to Note 4 of Notes to Consolidated Financial Statements regarding the
Company's current tax position.
Net borrowings under the Amended and Restated Credit Agreement
increased by $68,900,000 since the end of 1997. These borrowings were used to
finance working capital needs and fixed asset additions as described above, the
acquisitions of the Great Bend and Universal Turf operations and the purchase of
approximately 145,000 treasury shares during 1998. During 1998, the Company
completed the purchase of treasury shares under a plan announced in 1996 to
purchase 2,250,000 shares of common stock. During the third quarter of 1998, the
Company announced the authorization to purchase an additional 500,000 shares, of
which approximately 74,000 shares have been purchased through the end of 1998.
Subsequent to the end of 1998, the Company entered into a Second Amended and
Restated Credit Agreement and a subsequent amendment thereto -- see Note 5 of
Notes to Consolidated Financial Statements -- replacing the then current Amended
and Restated Credit Agreement. Under the terms of the new agreement, the
purchase of additional shares of the Company's common stock is not permitted.
1997
Working capital at December 31, 1997 was $46,213,000 and the current
ratio was 1.48 to 1.0. Net accounts receivables increased by $1,815,000 in 1997.
Within the Agricultural Products Group, net receivables increased by
approximately $7,000,000 in 1997. Net sales levels increased to record levels in
1997, including an increase in net sales of over 20% in the fourth quarter,
resulting in increased receivable levels at the end of 1997. Within the
Industrial Products Group, net receivables
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decreased in 1997. The majority of the decrease was related to the sale of the
Coz division as noted above. On a consolidated basis, net inventories increased
by $16,633,000 in 1997. Agricultural Products Group inventories decreased
slightly in 1997. Within the Industrial Products Group, inventories increased by
over $17,000,000 in 1997. The entire increase was associated with the Verson
division. While the level of accumulated costs of presses in process decreased
at the end of 1997, the level of customer deposits and progress payments
decreased by a greater amount (over $36,000,000) at the end of 1997, resulting
in a net increase in the work in process inventory level. The above noted
increase was partially offset by the effects of the sale of the Coz division as
noted above.
Fixed asset additions ($15,334,000) included the purchase of a 40,000
square foot facility for the PPI division (for manufacturing capabilities and
the opportunity to expand the Verson business with the manufacturing of other
related equipment), the upgrade of the Verson engineering area and new machinery
and equipment at the Bush Hog and Verson operations (to reduce manufacturing
costs and improve product quality). During the fourth quarter of 1997, the
Company announced a $28,000,000 capital expansion project as part of a
three-year program to increase production capacity at the Verson division. This
project more than doubled the size of Verson's assembly facility and is expected
to increase the division's capacity by approximately 30%. This expansion was
completed at the end of 1998. Funds to finance these additions include
borrowings under the Amended and Restated Credit Agreement. Other than the sale
of the Coz division (cash proceeds in excess of $14,700,000), there were no
major asset dispositions in 1997.
The changes in the net deferred tax assets (classified as both current
and other assets) were associated with changes in timing differences between
book and tax income. 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.
Net borrowings under the Amended and Restated Credit Agreement
increased by $23,400,000 since the end of 1996. These borrowings, along with the
proceeds from the sale of the Coz division and internally generated cash, were
used to finance working capital needs and fixed asset additions described above
and the purchase of approximately 975,000 treasury shares during 1997. Through
the end of 1997, the Company had purchased approximately 2,182,000 shares of its
common stock under the 1996 authorization to repurchase up to 2,250,000 shares
of the common stock. Some treasury shares purchased have been reissued upon the
exercise of stock options.
During the third quarter of 1997, the Company's Board of Directors
authorized a three-for-two stock split for stockholders of record on August 15,
1997. The Board also authorized a dividend increase of 20% over the second
quarter's dividend.
LIQUIDITY AND CAPITAL RESOURCES
At the end of 1998, the Company's sales backlog was $180,617,000. The
majority of this amount was related to the Industrial Products Group and
consists of orders for new presses as well as revenue not yet recorded
representing the uncompleted portion of presses currently being manufactured.
Production against these orders (and orders received subsequent to the end of
1998) extends out to the middle part of 2000. Accumulated production costs of
these orders are not invoiced until shipment of the related press. Orders for
new presses recorded in 1998 exceeded $100,000,000 and a significant portion of
the new orders were accompanied by deposits and/or progress payments. Cash
requirements for these new press orders will be less dependent on internally
generated cash and borrowings under current loan arrangements. However, the
production and delivery of many press orders currently in process have been
delayed by numerous factors including late delivery of subcontracted and
internally manufactured components, capacity constraints in the assembly area
related to the number of presses in this phase of production and revised
delivery schedules at the request of customers. These situations will result in
delayed invoicing of the presses and final collection of amounts due as well as
the possible cancellations of orders, imposition of penalties or claims for
damages under certain contracts.
Within the Agricultural Products Group, cash collections associated
with machine sales are generally 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 industry. Net farm cash income decreased
in 1998 as prices for major crops (corn, wheat, soybeans) decreased. This
condition was brought about by strong crop yields in the Midwest and a
significant reduction in commodity exports to the Far East. Livestock (cattle
and hogs) prices also decreased during 1998. Extreme weather conditions
(flooding in California, severe drought in Texas and Oklahoma and moderate
drought conditions in the South) also resulted in lower crop yields and loss of
income to farmers during 1998. The Company expects farm income to continue to
decline in 1999 despite a recently enacted emergency government aid package and
anticipates that retail demand for agricultural equipment will decline in 1999.
The Company anticipates that the Agricultural Products Group's financial results
for 1999 will be adversely affected by decreased production of certain product
lines associated with the lower level of demand. These decreases may be
partially offset by expansions within the loader product line and improved sales
in the turf and landscape product lines associated with new products developed
in 1998.
Due to significant losses in the last quarter, no
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current Federal tax provision was recorded in 1998. Reference is made to Note 4
of Notes to Consolidated Financial Statements for an explanation of the
$5,639,000 deferred tax benefit recorded in 1998. The Company projects that
future Federal income tax provisions and payments will be based upon the
Alternative Minimum Tax rate as substantial tax loss carryforwards still exist
for tax reporting purposes.
Reference is made to Note 10 of Note to Consolidated Financial
Statements for a current discussion of outstanding environmental and legal
issues and other contingent liabilities.
Subsequent to the end of 1998, the Company entered into a Second
Amended and Restated Credit Agreement replacing the former Amended and Restated
Credit Agreement. This new agreement was amended in April 1999. Reference is
made to Note 5 of Notes to Consolidated Financial Statements for a description
of the major terms of this agreement. The loan agreement as amended obligates
the Company to repay all outstanding borrowings on expiration of the agreement
on February 28, 2000. Before that date the Company must either negotiate an
extension of the loan with its current lenders, refinance the loan with other
lenders or develop other sources of liquidity to repay the loan. The Company's
ability to achieve any of these three options may depend upon the results of its
operations during 1999.
As of December 31, 1998, the Company had cash and cash equivalents of
$727,000 and additional funds of $23,863,000 available under its Amended and
Restated Credit Agreement. Had the Second Amended and Restated Credit Agreement
and the related amendment been in effect at December 31, 1998, additional funds
of $18,863,000 would have been available under this agreement. The Company
believes that its expected operating cash flow and funds available under the
Second Amended and Restated Credit Agreement and the related amendment are
adequate to finance its operations and capital expenditures in 1999. At the end
of the third and fourth quarters of 1998, the Company was not in compliance with
certain provisions under the Amended and Restated Credit Agreement. Subsequent
to the end of each of these quarters, the lenders waived compliance.
MARKET RISK
The Company manages its ratio of fixed to floating rate debt with the
objective of achieving a mix that management believes is appropriate. To manage
this mix, the Company in 1998 entered into an interest rate swap agreement for a
fixed portion ($50,000,000) of the amount outstanding under the Amended and
Restated Credit Agreement and, subsequent to the end of 1998, the Second Amended
and Restated Credit Agreement. The terms of this swap agreement expires on May
14, 2001. At December 31, 1998, the interest rate under the swap agreement
exceeded the average borrowing rate under the portion of the Amended and
Restated Credit Agreement not covered by the swap agreement by .64%.
The fair value of the Company's fixed rate debt described above is
sensitive to changes in interest rates. Interest rate changes would result in
gains/losses in the market value of this interest rate swap obligation due to
differences between the market interest rates and rates at the inception of
the debt obligation. Based on a hypothetical immediate 100 basis point
increase (decrease) in interest rates at December 31, 1998, the market value
of the Company's interest rate swap obligation would be impacted by a net
decrease (increase) of approximately $1,200,000.
IMPACT FROM NOT YET EFFECTIVE RULES
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 133-Accounting for
Derivative Instruments and Hedging Activities. This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. This statement is effective for all
quarters of fiscal years beginning after June 15, 1999. The Company is in the
process of evaluating the impact of this statement on its financial reporting.
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YEAR 2000 COMPLIANCE
Many older computer software programs refer to years in terms of their
final two digits only. Such programs may interpret the year 2000 to mean the
year 1900 instead. If not corrected, these programs could cause date-related
transaction failures. The Company's program to address this year 2000 compliance
issue is broken down into the following major categories:
1. Financial related hardware/software.
2. Manufacturing/engineering process controls.
3. Equipment manufactured for sale.
4. Outside source suppliers.
The general phases of the year 2000 compliance program common to all of
the above categories are:
1. Identifying items that are not year 2000 complaint.
2. Assigning priorities to identified items, including the assessment
of items material to the operations of the Company.
3. Repairing or replacing material items determined not to be year 2000
complaint.
4. Testing of material items repaired or replaced.
The Company has completed the identification process in relation to the
four categories noted above. Outside service bureau financial software currently
in place has been determined and tested to be year 2000 compliant. The Company
recently purchased and installed financial software which is year 2000
compliant. Divisions not currently using year 2000 compliant software will be
utilizing these new programs during 1999. Payroll services for the Company are
currently being provided by an outside service. Payroll software is not year
2000 compliant. The Company is in the process of having this software upgraded
and anticipates that it will be year 2000 compliant by June 1999. Compliance
certificates have been received for non personal computer systems owned/leased
by the Company. Compliance testing is currently being conducted. The majority of
all personal computers used within the Company (both financial and non financial
applications) have been purchased within the last two years and have been
successfully tested for compliancy. Remaining non compliant personal computers
will be replaced with year 2000 compliant units during 1999 as a part of the
Company's normal upgrade program.
Manufacturing/engineering process controls and equipment includes
equipment to manufacture and design products sold by the Company. Design
equipment used in the engineering of agricultural equipment has been tested and
determined to be year 2000 compliant. At the Verson division, year 2000
compliance certificates have been received on all major purchased hardware and
software applications for designing equipment and programs. While the intent of
the division is to rely on these certificates (due to the quality of the
information received and the reputation of the vendors involved), some testing
will take place in 1999. The Company is giving consideration to the use of
outside experts in the testing of the related software and hardware. The process
will be completed in 1999. The majority of internally developed design software
at Verson has been determined not to contain date fields. Programs which do
contain date fields have been determined to be year 2000 compliant. The Company
does not have a significant amount of manufacturing equipment with embedded
computer chips or hardware/software which would present a problem at the
beginning of the year 2000. Compliancy certificates have been received from the
majority of equipment manufacturers and testing, where necessary, should be
completed by the end of the first half of 1999.
None of the equipment manufactured by the Agricultural Products Group
include hardware/software or embedded computer chips. Stamping presses
manufactured by the Verson division contain software and embedded computer
chips. Compliance certificates have been received on all software included in
the presses sold. Some internal testing has also been performed. The Company
believes that it has little, if any, exposure related to equipment manufactured
by its divisions in relation to the year 2000 issue.
The Company has identified key outside vendors which provide services
which, if not year 2000 compliant, could have an effect on the operations of the
Company. Sources include banking, investment, pension obligations, insurance,
utilities, etc. businesses. During 1999, these service providers will be asked
to update the Company on the status of their year 2000 compliance. The Company
will then need to evaluate these responses and determine if a contingency plan
would be necessary should the vendor not be compliant.
The total cost associated with required modifications to become year
2000 compliant (both incurred to date and to be incurred in the future) is not
expected to be material to the Company's financial position. This total cost
does not include the cost of internal efforts to complete the project. The costs
associated with the replacement of computerized systems, substantially all of
which were capitalized, are not included in the above estimate as such
replacements or upgrades were necessary to operate efficiently and such costs
would have been incurred even if year 2000 compliance was not an issue. The
Company anticipates that additional amounts will be spent in completing the year
2000 compliance project. These costs are being funded through operating cash
flow. The Company's year 2000 compliance program is an ongoing process and the
estimates of costs and completion dates for
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various components of the program described above are subject to change. Other
major system projects have not been deferred due to the year 2000 compliance
project.
The risk to the Company from the failure of suppliers of goods and
services (over which the Company does not have control) to attain year 2000
compliance is the same to other business enterprises generally. Failure of
information systems by financial institutions (banks, service bureaus,
insurance companies, etc.) would disrupt the flow of funds to and from the
Company until systems can be remedied or replaced by these providers. Failure
of delivery of critical components by suppliers and subcontractors resulting
from non year 2000 compliance could result in disruptions of manufacturing
processes with delays in the delivery of our products to our customers until
non-compliant conditions or components can be remedied or replaced. The
Company has identified major suppliers of goods and services and is in the
process of determining their year 2000 compliance status. Alternate suppliers
of critical components are also in the process of being identified. The
Company believes it is taking the necessary steps to resolve year 2000
issues. However, given the possible consequences of failure to resolve
significant year 2000 issues, there can be no assurance that any one or more
such failures would not have a material adverse effect on the Company. The
Company is currently assessing the need for contingency planning. The Company
believes, however, that with the completion of the year 2000 project as
scheduled, the possibility of significant interruptions of normal operations
should be reduced.
SAFE HARBOR STATEMENT
Statements contained within the description of the business of the
Company contained in Item 1, the Management Discussion and Analysis of Financial
Conditions and Results of Operations as well as within the non 10-K portion of
the 1998 Annual Report that relate to future operating periods are subject to
risks and uncertainties that could cause actual results to differ from
management's projections. Operations of the Company include the manufacturing
and sale of agricultural and industrial machinery. In relation to the
Agricultural Products Group, forward-looking statements involve certain factors
that are subject to change. These elements encompass interrelated factors that
affect farmers and cattle ranchers' confidence, including demand for
agricultural products, grain stock levels, commodity prices, weather conditions,
crop and animal diseases, crop yields, farm land values and government farm
programs. Other factors affecting all operations of the Company include actions
of competitors in the industries served by the Company, production difficulties
including capacity and supply constraints, labor relations, interest rates and
other risks and uncertainties. The Company's outlook is based upon assumptions
relating to the factors discussed above.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated herein by
reference to the section entitled, "Market Risk" in the Company's Management's
Discussion and Analysis of Financial Condition and Results of Operations.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of Allied Products Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income (loss), shareholders' investment and cash
flows listed in the index appearing under Part IV of Form 10-K (Item 14(a)1),
present fairly, in all material respects, the consolidated financial position
of Allied Products Corporation and its subsidiaries at December 31, 1998 and
1997, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1998 (1997 and
prior as restated -- see Note 1), in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Part IV of Form 10-K (Item
14(a)2) presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements. These financial statements and the financial statement schedule
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements and the financial statement
schedule based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 1 to the consolidated financial statements, Allied
Products Corporation has restated previously issued consolidated financial
statements to change its accounting for certain stock option exercises,
revisions to contract cost estimates impacting the percentage of completion
gross profit margin computation and unreported product liability claims.
PricewaterhouseCoopers LLP
Chicago, Illinois
April 15, 1999
14
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996
--------------- -------------- --------------
<S> <C> <C> <C>
Net sales........................................... $ 273,834,000 $270,562,000 $274,414,000
Cost of products sold............................... 250,169,000 210,033,000 209,118,000
--------------- -------------- --------------
Gross profit..................................... $ 23,665,000 $ 60,529,000 $ 65,296,000
--------------- -------------- --------------
Other costs and expenses:
Selling and administrative expenses.............. $ 38,145,000 $ 35,499,000 $ 37,885,000
Interest expense................................. 6,201,000 3,306,000 1,557,000
Other (income) expense, net...................... 962,000 (3,111,000) 631,000
--------------- -------------- --------------
$ 45,308,000 $ 35,694,000 $ 40,073,000
--------------- -------------- --------------
Income (loss) before taxes.......................... $ (21,643,000) $ 24,835,000 $ 25,223,000
Provision (benefit) for income taxes:
Current.......................................... 109,000 1,195,000 921,000
Deferred......................................... (7,639,000) 7,994,000 8,213,000
--------------- -------------- --------------
Net income (loss)................................... $ (14,113,000) $ 15,646,000 $ 16,089,000
--------------- -------------- --------------
--------------- -------------- --------------
Earnings (loss) per common share:
Basic............................................ $(1.19) $1.29 $1.19
--------------- -------------- --------------
--------------- -------------- --------------
Diluted.......................................... $(1.19) $1.27 $1.17
--------------- -------------- --------------
--------------- -------------- --------------
Weighted average shares outstanding:
Basic............................................ 11,895,000 12,107,000 13,505,000
--------------- -------------- --------------
--------------- -------------- --------------
Diluted.......................................... 11,895,000 12,353,000 13,718,000
--------------- -------------- --------------
--------------- -------------- --------------
</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,
--------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents.............................. $ 727,000 $ 609,000
-------------- --------------
Notes and accounts receivable, less allowances of
$519,000 and $531,000, respectively.................. $ 68,827,000 $ 54,729,000
-------------- --------------
Inventories:
Raw materials....................................... $ 11,529,000 $ 6,193,000
Work in process..................................... 68,296,000 52,811,000
Finished goods...................................... 17,019,000 14,419,000
-------------- --------------
$ 96,844,000 $ 73,423,000
-------------- --------------
Deferred tax asset..................................... $ 15,060,000 $ 12,773,000
-------------- --------------
Prepaid expenses....................................... $ 406,000 $ 415,000
-------------- --------------
Total current assets.............................. $181,864,000 $141,949,000
-------------- --------------
Plant and Equipment, at cost:
Land................................................... $ 2,430,000 $ 2,243,000
Buildings and improvements............................. 57,022,000 40,750,000
Machinery and equipment................................ 69,196,000 51,339,000
-------------- --------------
$128,648,000 $ 94,332,000
Less-Accumulated depreciation and amortization......... 48,181,000 48,811,000
-------------- --------------
$ 80,467,000 $ 45,521,000
-------------- --------------
Other Assets:
Deferred tax asset..................................... $ 4,165,000 $ 4,631,000
Deferred charges (goodwill), net of amortization....... 6,154,000 1,491,000
Other.................................................. 3,154,000 1,472,000
-------------- --------------
$ 13,473,000 $ 7,594,000
-------------- --------------
$275,804,000 $195,064,000
-------------- --------------
-------------- --------------
</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,
--------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Current Liabilities:
Revolving credit agreement............................. $119,300,000 $ 50,400,000
Current portion of long-term debt...................... 627,000 268,000
Accounts payable....................................... 52,634,000 19,923,000
Accrued expenses....................................... 24,258,000 25,145,000
-------------- -------------
Total current liabilities......................... $196,819,000 $ 95,736,000
-------------- -------------
Long-term debt, less current portion shown above.......... $ 2,298,000 $ 670,000
-------------- -------------
Other long-term liabilities............................... $ 4,957,000 $ 10,105,000
-------------- -------------
Commitments and Contingencies
Shareholders' Investment:
Preferred stock:
Undesignated-authorized 1,500,000 shares at
December 31, 1998 and 1997; none issued............. $ - $ -
Common stock, par value $.01 per share; authorized
25,000,000 shares; issued 14,047,249 shares at
December 31, 1998 and 1997.......................... 140,000 140,000
Additional paid-in capital............................. 98,377,000 98,518,000
Retained earnings...................................... 16,131,000 32,148,000
-------------- --------------
$114,648,000 $130,806,000
Less: Treasury stock, at cost: 2,228,640 and 2,144,263
shares at December 31, 1998 and 1997, respectively.. (42,918,000) (42,253,000)
-------------- --------------
Total shareholders' investment.................... $ 71,730,000 $ 88,553,000
-------------- --------------
$275,804,000 $195,064,000
-------------- --------------
-------------- --------------
</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,
----------------------------------------------------
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)......................................................... $ (14,113,000) $ 15,646,000 $ 16,089,000
Adjustments to reconcile net income (loss) to net cash provided from
(used for) operating activities:
Gains on sales of operating and nonoperating assets.................... (1,936,000) (1,662,000) (106,000)
Depreciation and amortization.......................................... 6,096,000 5,026,000 5,075,000
Amortization of deferred charges....................................... 356,000 177,000 177,000
Deferred income tax provision (benefit)................................ (7,639,000) 7,994,000 7,964,000
Provision for inventory valuation...................................... 8,813,000 - -
Stock option compensation.............................................. 1,119,000 1,375,000 4,485,000
Changes in noncash assets and liabilities, net of effects of
assets/businesses acquired or sold and noncash transactions:
(Increase) in accounts receivable.................................... (11,577,000) (5,976,000) (8,835,000)
(Increase) in inventories............................................ (29,395,000) (20,615,000) (4,384,000)
(Increase) decrease in prepaid expenses.............................. 27,000 (294,000) 132,000
Increase (decrease) in accounts payable and accrued expenses......... 30,635,000 (3,230,000) (6,621,000)
Other, net............................................................. (975,000) (456,000) 478,000
-------------- -------------- ---------------
Net cash provided from (used for) operating activities.................... $ (18,589,000) $ (2,015,000) $ 14,454,000
-------------- -------------- ---------------
Cash Flows from Investing Activities:
Additions to plant and equipment.......................................... $ (38,837,000) $ (15,334,000) $ (4,684,000)
Payment for businesses acquired, net of cash acquired..................... (10,953,000) - -
Proceeds from sales of plant and equipment................................ 3,426,000 504,000 207,000
Proceeds from sales of assets/businesses.................................. - 14,737,000 -
-------------- -------------- ---------------
Net cash used for investing activities.................................... $ (46,364,000) $ (93,000) $ (4,477,000)
-------------- -------------- ---------------
Cash Flows from Financing Activities:
Borrowings under revolving credit agreements.............................. $ 186,000,000 $ 122,000,000 $ 119,650,000
Payments under revolving credit agreements................................ (117,100,000) (98,600,000) (103,850,000)
Payments of short and long-term debt...................................... (392,000) (270,000) (696,000)
Common stock issued....................................................... - - 1,501,000
Purchases of treasury stock............................................... (1,624,000) (21,572,000) (25,993,000)
Dividends paid............................................................ (1,904,000) (1,770,000) (1,808,000)
Stock option transactions................................................. 91,000 2,096,000 1,308,000
-------------- -------------- ---------------
Net cash provided from (used for) financing activities.................... $ 65,071,000 $ 1,884,000 $ (9,888,000)
-------------- -------------- ---------------
Net increase (decrease) in cash and cash equivalents......................... $ 118,000 $ (224,000) $ 89,000
Cash and cash equivalents at beginning of year............................... 609,000 833,000 744,000
-------------- -------------- ---------------
Cash and cash equivalents at end of year..................................... $ 727,000 $ 609,000 $ 833,000
-------------- -------------- ---------------
-------------- -------------- ---------------
</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,
-------------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Supplemental Information:
(A) Noncash investing and financing activities:
1. Assets acquired through the assumption of debt . . . . . . . . . . . $1,559,000 $ 526,000 $ 442,000
---------- ---------- ----------
---------- ---------- ----------
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
---------- ---------- ----------
---------- ---------- ----------
(B) Interest paid during year . . . . . . . . . . . . . . . . . . . . . . $6,033,000 $3,225,000 $1,636,000
---------- ---------- ----------
---------- ---------- ----------
(C) Income/franchise taxes paid during year, net of refunds . . . . . . . $1,072,000 $1,313,000 $1,291,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
19
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
COMMON AND TREASURY STOCK
<TABLE>
<CAPTION>
COMMON ($.01 TREASURY
PAR VALUE STOCK,
PER SHARE) AT COST
-------------- ---------------
<S> <C> <C>
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)
Issuance of 4,682,405 common shares in connection with a three-for-
two stock split...................................................... 46,000 -
Purchase of 974,930 common shares for treasury purposes.................... - (21,572,000)
Treasury shares issued (188,273) in connection with the exercises of stock
options.............................................................. - 2,858,000
----------- -------------
Balance at December 31, 1997.................................................. $ 140,000 $(42,253,000)
Purchase of 144,943 common shares for treasury purposes.................... - (1,624,000)
Treasury shares issued (60,566) in connection with the exercises of stock
options.............................................................. - 959,000
----------- -------------
Balance at December 31, 1998.................................................. $ 140,000 $(42,918,000)
----------- -------------
----------- -------------
</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
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
PAID-IN EARNINGS
CAPITAL (DEFICIT)
---------------- -----------------
<S> <C> <C>
Balance at December 31, 1995, as previously reported........................................ $93,143,000 $ 5,031,000
Restatement for the cumulative effect on prior years related to product liability
reserves, net of tax - (1,040,000)
------------ --------------
Balance at December 31, 1995, as restated................................................... $93,143,000 $ 3,991,000
Net income for the year.................................................................. - 16,089,000
Common dividends declared and paid-$.133 per share....................................... - (1,808,000)
Issuance of 226,500 common shares in connection with the exercises of stock options...... 4,912,000 -
Treasury shares issued in connection with the exercises of stock options................. (597,000) -
Tax benefit associated with stock option exercises....................................... 128,000 -
------------ --------------
Balance at December 31, 1996................................................................ $97,586,000 $ 18,272,000
Net income for the year.................................................................. - 15,646,000
Common dividends declared and paid-$.147 per share....................................... - (1,770,000)
Issuance of 4,682,405 common shares in connection with a three-for-two stock split....... (46,000) -
Treasury shares issued in connection with the exercises of stock options................. 613,000 -
Tax benefit associated with stock option exercises....................................... 365,000 -
------------ --------------
Balance at December 31, 1997................................................................ $98,518,000 $ 32,148,000
Net loss for the year.................................................................... - (14,113,000)
Common dividends declared and paid-$.16 per share........................................ - (1,904,000)
Treasury shares issued in connection with the exercises of stock options................. (141,000) -
------------ --------------
Balance at December 31, 1998................................................................ $98,377,000 $ 16,131,000
------------ --------------
------------ --------------
</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:
RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS --
Subsequent to the end of 1998, the Company determined that the
accounting for certain stock option exercise transactions during 1996 and 1997
was incorrect. Compensation expense for certain stock option exercises during
1996 and 1997 should have been recognized for cashless stock option exercises
and treasury stock transactions involving non-mature stock option shares
acquired by the Company. Compensation expense which was not recognized in
previously issued financial statements is now reflected in the accompanying
restated financial statements. The Company also determined that the percentage
of completion gross profit margins on contracts at the Verson division of the
Industrial Products Group were incorrectly reported in 1997. Certain significant
contract cost estimate revisions should have been recognized at December 31,
1997. Additionally, revisions in contract cost estimates impacting the
percentage of completion gross profit margin computation were not computed
correctly.
The following table reconciles the amounts previously reported to the
amounts currently being reported in the consolidated statement of income (loss)
for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
INCOME TAX
BEFORE PROVISION NET
TAXES (BENEFIT) INCOME
-------------- -------------- -------------
<S> <C> <C> <C>
1997
As previously reported............................. $31,489,000 $11,518,000 $19,971,000
Restatement associated with Verson gross profit
margin............................................. 5,279,000) (1,848,000) (3,431,000)
Restatement associated with stock option
compensation....................................... (1,375,000) (481,000) (894,000)
------------ ------------- ------------
As restated........................................ $24,835,000 $ 9,189,000 $15,646,000
------------ ------------- ------------
------------ ------------- ------------
1996
As previously reported.............................. $29,708,000 $ 10,704,000 $19,004,000
Restatement associated with stock option
compensation........................................ 4,485,000) (1,570,000) (2,915,000)
------------ ------------- ------------
As restated......................................... $25,223,000 $ 9,134,000 $16,089,000
------------ ------------- ------------
------------ ------------- ------------
</TABLE>
It was further determined that the Company should have accrued, prior
to 1996, for product liability claims incurred but not reported. This adjustment
($1,600,000 less a tax benefit of $560,000) had no impact on the operating
results reported on for the years ended December 31, 1998, 1997 and 1996 and is
reflected as an adjustment to retained earnings at December 31, 1995. The impact
of the restatement associated with Verson's gross profit margins in 1997 was
offset in the current year by a like amount resulting in a restatement of
operating results for the first three quarters of 1998 -- see Note 13. Operating
results for the first quarter of 1998 were also restated for compensation
expense not previously recognized in connection with certain stock option
exercises during this period -- see Note 13.
22
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
(through its Industrial Products Group) and implements and machinery used in
agriculture, landscaping and ground maintenance businesses (through its
Agricultural Products Group). The Company's Coz division, which was part of the
Industrial Products Group and supplied thermoplastic compounds and additives,
was sold in the fourth quarter of 1997. All manufacturing operations are within
the United States. Implements and machinery manufactured by the Agricultural
Products Group are primarily sold through dealerships in the United States with
some limited export sales to Canada. Metal stamping presses produced by the
Industrial Products Group 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 85% of the Industrial
Products Group's revenues in 1998. Press sales generally are concentrated in the
United States and Mexico.
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. Due to the
nature of percentage of completion estimates, it is reasonably possible that
cost estimates will be revised in the near term.
REVENUE RECOGNITION-
Sales by the Agricultural Products Group 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.
Revenue and costs related to press manufacturing within the Industrial
Products Group are recognized on the percentage of completion method. Earned
revenue is based on the percentage that incurred costs to date bear to the total
estimated costs after giving effect to the most recent estimates of total costs.
The cumulative impact of revisions in total cost estimates during the
manufacturing process is reflected in the period in which the changes become
known. On press orders where margin levels cannot be reasonably estimated, the
Company does not recognize any gross profit margin until the particular press in
process reaches a point in production where the gross profit margin can be
reasonably estimated. Margins are then recognized over the remaining period of
production. Certain press orders contain penalties for late delivery. Such
penalties are considered part of the cost of the press when late delivery of the
press appears probable. Losses expected to be incurred on jobs in process are
charged to income as soon as such losses are known. The Company has recorded
contract losses of $12,079,000 (including reserves of $8,813,000 for estimated
future losses expected to be incurred on jobs in process) associated with
several jobs in process having a total sales value of $104,734,000 at December
31, 1998. While these contracts contain no penalty provision for late delivery,
other uncertainties associated with these contacts make it reasonably possible
that additional losses could occur in the near term - see Note 10.
23
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ACCOUNTS RECEIVABLE-
Current accounts receivables for the Agricultural Products Group 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
($70,400,000 at December 31, 1998 and $47,256,000 at December 31, 1997)
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 estimated profit ($695,000 at
December 31, 1998 and $13,883,000 at December 31, 1997) recognized in relation
to the sales recorded, less customer payments ($25,902,000 at December 31, 1998
and $7,357,000 at December 31, 1997) 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. Interest costs of $979,000 were capitalized in 1998 (none in
1997 or 1996) in relation to the construction of a building addition at the
Verson division of the Industrial Products Group. 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 1998 acquisition of the
Great Bend Manufacturing Company (approximately $5,019,000) and 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.
STOCK SPLIT-
On July 24, 1997, the Company announced that the Board of Directors
authorized a three-for-two stock split effected by means of a stock dividend to
shareholders of record on August 15, 1997. A total of 4,682,405 additional
common shares were issued in conjunction with the stock split. The Company
distributed cash in lieu of fractional shares resulting from the stock split.
All applicable share and per share data have been adjusted for the stock split.
24
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
EARNINGS (LOSS) PER COMMON SHARE-
During 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 (SFAS 128)-Earnings per
Share. Basic earnings (loss) per common share is based on the average number of
common shares outstanding - 11,895,000, 12,107,000 and 13,505,000 for the years
ended December 31, 1998, 1997 and 1996, respectively. Diluted earnings (loss)
per common share is based on the average number of common shares outstanding, as
noted above, increased by the dilutive effect of outstanding stock options -
246,000 and 213,000 for the years ended December 31, 1997 and 1996,
respectively. For the year ended December 31, 1998, dilutive securities were
excluded from the calculation of diluted loss per share as their effect would
have been antidilutive.
INCOME TAXES-
Income taxes are accounted for under the asset and liability method in
accordance with FASB 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 STANDARDS-
In June 1998, the FASB issued SFAS 133-Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. This statement is effective for all
quarters of fiscal years beginning after June 15, 1999. The Company is in the
process of evaluating the impact of this statement on its financial reporting.
2. ACCRUED EXPENSES:
The Company's accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Salaries and wages..................................... $ 6,573,000 $ 5,560,000
Warranty............................................... 5,794,000 4,938,000
Self insurance accruals................................ 2,905,000 2,858,000
Pensions, including retirees' health................... 4,644,000 6,439,000
Taxes, other than income taxes......................... 888,000 1,158,000
Environmental matters.................................. 1,225,000 1,810,000
Other.................................................. 2,229,000 2,382,000
----------- -----------
$24,258,000 $25,145,000
----------- -----------
----------- -----------
</TABLE>
25
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. ACQUISITIONS AND DISPOSITIONS:
ACQUISITIONS-
In April 1998, the Company acquired for cash substantially all of the
assets and assumed certain liabilities of Great Bend Manufacturing Company
(Great Bend) located in Great Bend, Kansas. Great Bend manufactures and sells
tractor-mounted front end loaders which are used principally in agricultural
applications. The Company also acquired for cash in April 1998 substantially all
of the assets of Universal Turf Equipment Corporation (Universal Turf) located
in Opp, Alabama. Universal Turf manufactures and sells turf maintenance
implements including reel mowers, verti-cut mowers, reel grinders and spraying
equipment. Both operations acquired are part of the Agricultural Products Group.
Total cash purchase price for both of these operations was $10,953,000.
In October 1998, the Company's Verson division formed a joint venture
with Theodor Grabener GmbH & Co. KG of Germany and Automatic Feed Company of
Napoleon, Ohio, that will help the two American companies more effectively
penetrate the European market for large stamping presses and related systems.
The new entity, Verson Pressentechnik GmbH, is located in Netphen-Werthenbach,
Germany. This operation, in which Verson holds a 60% stake, is part of the
Industrial Products Group. These acquisitions, taken individually and in the
aggregate, are not material to the Company's consolidated operations.
DISPOSITIONS-
During the fourth quarter of 1997, the Company sold for cash
(approximately $14,700,000) substantially all of the assets of its Coz division.
The purchaser also assumed certain specified liabilities associated with this
division. The sale resulted in a pretax gain of approximately $1,530,000 and is
included in Other (income) expense under the caption "Net gain on sales of
operating and non-operating assets"-see Note 12.
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 was required to purchase the real
estate located in Coldwater, Ohio upon the issuance of a covenant not to sue and
related no further action letter by the Ohio Environmental Protection Agency.
The Company completed the necessary environmental remediation during 1997 and,
in 1998, the purchaser acquired the real estate for cash resulting in a gain of
approximately $1,947,000, which is included in Other (income) expense under the
caption "Net gain on sales of operating and non-operating assets"- see Note 12.
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 was $748,000.
4. INCOME TAXES:
Provision (benefit) for income taxes in 1998, 1997 and 1996 consists of
the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1998 1997 1996
---------------- -------------- ----------------
<S> <C> <C> <C>
Federal-current.................................. $ - $ 617,000 688,000
Federal-deferred................................. (7,639,000) 7,994,000 8,213,000
State-current.................................... 109,000 578,000 233,000
------------ ----------- -----------
Total provision (benefit)........................ $(7,530,000) $ 9,189,000 $ 9,134,000
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
26
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provision (benefit) for income taxes in 1998, 1997 and 1996 differs
from amounts computed by applying the statutory rate to pretax income as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1998 1997 1996
--------------- -------------- ---------------
<S> <C> <C> <C>
Income tax provision (benefit) at statutory rate........... $(7,575,000) $ 8,692,000 $ 8,828,000
Current net operating loss not benefitted.................. 5,598,000 - -
State income tax, net of federal tax benefit............... 71,000 376,000 151,000
Permanent book over tax differences on acquired assets..... 62,000 62,000 104,000
Reversal of deferred tax liability......................... (5,639,000) - -
Other, net................................................. (47,000) 59,000 51,000
------------ ----------- -----------
Total provision (benefit).................................. $(7,530,000) $ 9,189,000 $ 9,134,000
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
The significant components of net deferred tax assets were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Deferred tax assets:
Net operating loss and tax credit carryforwards.......................... $ 52,052,000 $ 52,845,000
Self-insurance accruals.................................................. 2,507,000 2,424,000
Inventories.............................................................. 4,635,000 2,421,000
Receivables.............................................................. 172,000 417,000
Sale/leaseback transaction............................................... 1,557,000 1,557,000
Employee benefits, including pensions.................................... 4,338,000 4,928,000
Warranty................................................................. 2,096,000 1,803,000
Sales allowances......................................................... 3,107,000 2,616,000
Environmental matters.................................................... 447,000 658,000
Other.................................................................... 366,000 580,000
------------- -------------
Net deferred tax asset before valuation allowance ....................... $ 71,277,000 $ 70,249,000
Valuation allowance ..................................................... (52,052,000) (52,845,000)
------------- -------------
Net deferred tax asset .................................................. $ 19,225,000 $ 17,404,000
------------- -------------
------------- -------------
</TABLE>
The prospects for future earnings of the Company makes it more likely
than not that the Company will utilize the benefits arising from the net
deferred tax asset noted above. During 1998, the Company recorded a deferred tax
benefit of $5,639,000 as a part of the current year's tax provision. This
benefit represents a reversal of a tax liability accumulated in years prior to
1998. The net operating loss carryforwards expire between 1999 and 2013, and
investment tax credit carryforwards of $1,217,000 expire between 1999 and 2004.
The Company provided a valuation allowance in both 1998 and 1997 for
deferred tax assets related to net operating loss and tax credit carryforwards
based upon a determination that current negative evidence out weighs positive
evidence with respect to realization being more likely than not in the future
for this component of the net deferred tax asset. The Company projects that
future Federal income tax provisions and 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 1994 are potentially subject to
audit by the Internal Revenue Service.
27
<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,
-------------------------------
1998 1997
------------- ------------
<S> <C> <C>
Capitalized lease obligations, at interest rates up to 12% (weighted average of
7.8% and 10.4% at December 31, 1998 and 1997, respectively), due in
varying amounts through 2004 (Note 6).................................................... $2,925,000 $938,000
Less current portion................................................................. 627,000 268,000
---------- --------
$2,298,000 $670,000
---------- --------
---------- --------
</TABLE>
Scheduled maturities of the noncurrent portion of long-term debt at
December 31, 1998 are due as follows:
<TABLE>
<S> <C>
2000........................................................................................ $ 628,000
2001........................................................................................ 448,000
2002........................................................................................ 339,000
2003........................................................................................ 321,000
2004........................................................................................ 562,000
----------
$2,298,000
----------
----------
</TABLE>
During 1996, the Company entered into an Amended and Restated Credit
Agreement with two banks. The Amended and Restated Credit Agreement was
subsequently amended during 1997 and 1998. The amended agreement provided for up
to $145,000,000 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 was required to meet certain periodic financial tests, including minimum
net worth, debt coverage and fixed charge coverage ratio and maximum funded
debt/operating cash flow ratio. Beginning in 1998, the Company was required to
reduce revolving loans under this agreement to $60,000,000 or less for thirty
(30) consecutive days during each fiscal year while the agreement remained in
effect. At the end of the third and fourth quarters of 1998, the Company was not
in compliance with certain provisions under the Amended and Restated Credit
Agreement. Subsequent to the end of each of these quarters, the lenders waived
compliance.
During 1998, the Company entered into an interest rate lock in
anticipation of a private debt placement of up to $75,000,000. The Company
anticipated that by entering into a private placement agreement, favorable fixed
interest rates could be obtained on a long-term basis and that exposure to
floating interest rates under the Amended and Restated Credit Agreement would be
reduced. During the fourth quarter of 1998, the Company suspended efforts to
secure financing through a private placement. Hedging losses of $3,005,000 were
incurred in 1998 in the final settlement of the interest rate lock and are
included in Other (income) expense under the caption "Treasury lock settlement"
- - - see Note 12.
Also during 1998, the Company entered into an interest rate swap
agreement for a notional amount of $50,000,000 as part of the Amended and
Restated Credit Agreement. Under the terms of this swap agreement, which expires
on May 14, 2001, the Company has fixed the interest rate on that portion of the
Amended and Restated Credit Agreement. At December 31, 1998, the interest rate
under the swap agreement exceeded the average borrowing rate under the portion
of the Amended and Restated Credit Agreement not covered by the swap agreement
by .64%. This rate differential is being recorded as interest expense on a
monthly basis.
The weighted average interest rate on borrowings outstanding at
December 31, 1998 and 1997 were 7.2% and 6.9%, respectively.
28
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SUBSEQUENT EVENT-
Effective February 1, 1999, the Company entered into a Second Amended
and Restated Credit Agreement ("Credit Agreement") with the same two banks,
replacing the Amended and Restated Credit Agreement. Effective April 15, 1999,
the Company entered into a First Amendment and Waiver to the Credit Agreement
("First Amendment"). The amended agreement provides for up to $140,000,000
(decreasing at specified dates through January 31, 2000 to $110,000,000) of
borrowings and/or letters of credit at either a floating prime or fixed LIBOR
(LIBOR plus 3.5%) rate. The amount available under this agreement is determined
monthly by a borrowing base formula related to receivable, inventory and
machinery and equipment balances plus an over advance allowance of $40,000,000
initially, increasing to $47,600,000 in June 1999 then decreasing over the next
seven months to $27,800,000 in January 2000. Under this agreement, the Company
must, on or before May 15, 1999, grant a lien upon and security interests in all
of the assets (except real estate) of the Company and its subsidiaries to the
lenders and meet certain periodic financial tests, including minimum debt
coverage, operating cash flow and fixed charge coverage ratio. Upon the grant of
the lien and security interests to the lenders, the ratios to be met by the
Company are lowered. Capital expenditures, stock purchases and dividends
(limited to $2,000,000 in 1999) are also limited on an annual basis throughout
the term of the loan. The agreement, which expires on February 28, 2000, permits
the lenders to accelerate the obligations in the event of a material adverse
event and requires prepayment in certain circumstances. The terms of the
interest rate swap agreement described above as a part of the Amended and
Restated Credit Agreement are applicable to the Credit Agreement and First
Amendment. If the Credit Agreement and First Amendment had been in effect as of
December 31, 1998, the Company had the capacity to borrow up to $18,863,000.
6. LEASES:
CAPITAL LEASES-
The Company leases various types of manufacturing, office and
transportation equipment.
Capital leases included in Machinery and equipment in the accompanying
balance sheets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Capitalized cost........................................ $3,622,000 $2,490,000
Less-Accumulated amortization........................... 1,081,000 1,528,000
---------- ----------
$2,541,000 $ 962,000
---------- ----------
---------- ----------
</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,
--------------------------------------------------
1998 1997 1996
-------------- ------------- -------------
<S> <C> <C> <C>
Minimum rentals............................................... $1,215,000 $1,989,000 $1,943,000
Contingent rentals............................................ 87,000 41,000 79,000
---------- ---------- ----------
$1,302,000 $2,030,000 $2,022,000
---------- ---------- ----------
---------- ---------- ----------
</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.
29
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1998, 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>
NET
MINIMUM MINIMUM
ANNUAL SUBLEASE ANNUAL
RENTAL RENTAL RENTAL
PAYMENTS INCOME PAYMENTS
------------- --------------- -------------
<S> <C> <C> <C>
Year ending December 31,
1999..................................................... $1,376,000 $ (728,000) $ 648,000
2000..................................................... 1,424,000 (794,000) 630,000
2001..................................................... 594,000 (64,000) 530,000
2002..................................................... 447,000 (67,000) 380,000
2003..................................................... 403,000 (68,000) 335,000
Later.................................................... 123,000 (22,000) 101,000
---------- ------------ ----------
$4,367,000 $(1,743,000) $2,624,000
---------- ------------ ----------
---------- ------------ ----------
</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.
All shares of the Series B and Series C Preferred Stock have been redeemed. The
remaining 1,500,000 shares of authorized preferred stock are undesignated and
unissued at December 31, 1998.
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 1998, 1997 or 1996. No stock appreciation rights have been granted
to date under this plan. There are 22,065 options outstanding under this plan at
December 31, 1998 and are included in the following table. 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
1,500,000 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 1,436,252 shares (net of
forfeitures) of the Company's Common Stock at prices between $1.00 and $19.00
per share. There are 347,025 options outstanding under this plan at December 31,
1998 and are included in the following table. At December 31, 1998, the Company
has the capacity to issue an additional 63,748 stock incentives under the 1990
plan.
30
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 114,750 shares of the Company's Common Stock at prices
between $8.34 and $19.01 per share. All options issued are outstanding under
this plan at December 31, 1998 and are included in the table below.
In 1997, shareholders approved a new incentive stock plan, the 1997
Incentive Stock Plan (the 1997 plan) to replace the 1990 plan and the 1993 plan
described above. The 1997 plan permits a committee of the Company's Board of
Directors to grant incentive awards in the form of non-qualified stock options,
incentive stock options, stock awards including restricted stock, stock
appreciation rights and performance units to key employees and non-employee
directors. The 1997 plan authorizes the issuance of up to 750,000 shares of the
Company's Common Stock pursuant to the grant or exercise of stock options, stock
appreciation rights, restricted stock and performance units. Non-qualified stock
options issued under this plan were granted at fair market value at date of
grant. Options granted become exercisable over a period of up to three years
from date of grant with no option exercisable prior to one year from date of
grant. Since the inception of the 1997 plan, the Company has issued options to
purchase 576,100 shares (net of forfeitures) of the Company's Common Stock at
prices between $7.9375 and $24.875. All options issued under this plan (net of
forfeitures) are outstanding at December 31, 1998 and are included in the table
below. At December 31, 1998, the Company has the capacity to issue an additional
173,900 stock incentives under the 1997 plan.
Stock option transactions in 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
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............................. 810,360 $ 13.89 931,758 $ 12.15 1,148,025 $ 7.71
Granted.......................... 369,100 8.31 110,000 24.65 413,250 16.18
Exercised........................ (111,520) 12.09 (188,273) 11.14 (627,018) 6.69
Expired.......................... - - (375) 16.09 - -
Forfeited........................ (8,000) 16.41 (42,750) 15.87 (2,499) 9.50
---------- ---------- ----------
Outstanding at end of year........ 1,059,940 $ 12.11 810,360 $ 13.89 931,758 $ 12.15
---------- ---------- ----------
---------- ---------- ----------
Options exercisable at end of
year.............................. 610,340 $ 13.09 523,529 $ 10.93 474,509 $ 9.60
Weighted average fair value of
options granted during the year.. $ 1.89 $ 6.60 $ 3.81
</TABLE>
31
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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,
-----------------------------------------
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Risk free interest rate................................................ 4.29% 6.10% 5.80%
Dividend yield......................................................... 0.97% 0.70% 0.80%
Expected lives......................................................... 4 years 4 years 4 years
Volatility............................................................. 22.50% 23.00% 22.00%
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1998:
<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>
$1.75-3.84 30,525 3.0 years $ 2.62 30,525 $ 2.62
7.9375-12.92 606,850 8.0 years 8.31 252,750 8.83
15.26-24.875 422,565 7.7 years 18.27 327,065 17.37
--------- -------
$1.75-24.875 1,059,940 7.7 years $12.11 610,340 $13.09
--------- -------
--------- -------
</TABLE>
At December 31, 1998, the Company has four stock options plans, which
are described above. The Company applied Accounting Principles Board (APB)
Opinion 25 and related interpretations in accounting for these plans.
Compensation costs recognized in relation to certain stock option exercises
discussed in Note 1 amounted to $1,119,000, $1,375,000 and $4,485,000 for the
years ended December 31, 1998, 1997 and 1996, respectively. No compensation
costs have been recognized for the years ended December 31, 1998, 1997 and 1996
in relation to the issuances of options in each of the respective years. 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 (loss) and earnings (loss) per share would have been
revised to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1998 1997 1996
----------------- -------------- --------------
<S> <C> <C> <C>
Net income (loss) As reported $(14,113,000) $15,646,000 $16,089,000
Pro forma (14,978,000) 15,135,000 15,666,000
Basic earnings (loss) per share As reported $ (1.19) $ 1.29 $ 1.19
Pro forma (1.26) 1.25 1.16
Diluted earnings (loss) per share As reported $ (1.19) $ 1.27 $ 1.17
Pro forma (1.26) 1.23 1.14
</TABLE>
On February 15, 1991, the Company declared a dividend distribution of
one right ("Right") to purchase an additional 1.5 shares of the Company's Common
Stock for $50 on each 1.5 shares 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 1.5 new shares of the Company's Common Stock. If a
32
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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:
In 1998, the Company adopted the revised disclosure requirements of
SFAS 132 -- Employers' Disclosures about Pensions and Other Postretirement
Benefits. SFAS 132 standardized the disclosures of pensions and other
postretirement benefits into a combined format, but did not change the
accounting for these benefits. Prior years' information has been reclassified to
conform to the 1998 disclosure format.
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.
The following tables provide a reconciliation of the changes in the
plans' benefit obligations and fair value of assets over the two-year period
ending December 31, 1998, and a statement of the financial status as of December
31, 1998 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year.................... $38,606,000 $33,762,000
Service cost............................................... 718,000 758,000
Interest cost.............................................. 2,684,000 2,717,000
Amendments................................................. 56,000 -
Actuarial losses........................................... 2,227,000 3,797,000
Benefits paid.............................................. (3,690,000) (2,428,000)
------------ ------------
Benefit obligation at end of year.......................... $40,601,000 $38,606,000
------------ ------------
------------ ------------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year............. $46,162,000 $41,270,000
Actual return on plan assets............................... (6,849,000) 7,320,000
Employer contributions..................................... 1,145,000 -
Benefits paid.............................................. (3,690,000) (2,428,000)
------------ ------------
Fair value of plan assets at end of year................... $36,768,000 $46,162,000
------------ ------------
------------ ------------
FUNDED STATUS:
Funded status at end of year............................... $(3,833,000) $ 7,556,000
Unrecognized transition obligation......................... (482,000) (954,000)
Unrecognized prior service cost............................ 1,927,000 2,147,000
Adjustment for minimum liability........................... - (289,000)
Unrecognized net actuarial (loss).......................... (772,000) (13,196,000)
------------ ------------
Accrued pension cost at end of year........................ $(3,160,000) $(4,736,000)
------------ ------------
------------ ------------
</TABLE>
33
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The projected benefit obligation and accumulated benefit obligation for
pension plans with accumulated benefit obligations in excess of plan assets were
$1,484,000 and $802,000, respectively, as of December 31, 1998 and $2,200,000
and $1,815,000, respectively, as of December 31, 1997. There were no assets
associated with these related plans.
The expected long-term rate of return used in determining the net
periodic pension cost in all years was 7.5%. The actuarial present value of the
benefit obligation was determined using a discount rate of 6.75% in 1998, 7.5%
in 1997 and 7.75% in 1996. The rate of compensation increase used to measure the
benefit obligation in three plans was 5%. All other plans are based on current
compensation levels.
The plans' assets include common stocks, fixed income securities,
short-term investments and cash. Common stock investments include approximately
281,810 and 246,000 shares of the Company's Common Stock at December 31, 1998
and 1997.
The following table provides the amounts recognized in the balance
sheet as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1998 1997
--------------- ----------------
<S> <C> <C>
Accrued benefit liability.................................... $(3,299,000) $(5,026,000)
Intangible asset............................................. 139,000 290,000
------------ ------------
Accrued pension cost at end of year.......................... $(3,160,000) $(4,736,000)
------------ ------------
------------ ------------
</TABLE>
Net periodic pension costs as they relate to defined benefit plans were
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1998 1997 1996
--------------- --------------- --------------
<S> <C> <C> <C>
Service cost...................................... $ 718,000 $ 758,000 $ 658,000
Interest cost..................................... 2,684,000 2,717,000 2,438,000
Expected return on plan assets.................... (2,938,000) (2,678,000) (2,274,000)
Amortization of transition obligation............. (472,000) (473,000) (473,000)
Amortization of prior service costs............... 277,000 328,000 153,000
Amortization of actuarial (gain) loss............. (409,000) (327,000) 123,000
-------------- ------------- -------------
Net periodic pension cost (income)................ $ (140,000) $ 325,000 $ 625,000
Curtailment loss.................................. - 210,000 -
-------------- ------------- -------------
Net periodic pension cost (income) after
curtailment................................. $ (140,000) $ 535,000 $ 625,000
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
Curtailment loss in 1997 was related to the retirement of certain
Corporate executives.
Certain employees of the Company are also eligible to become
participants in the Save Money and Reduce Taxes (SMART) 401(k) 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, 1998 and 1997, assets
of the SMART plan include approximately 434,000 and 511,000 shares,
respectively, of the Company's Common Stock.
34
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Effective October 1, 1998, the Company instituted the Allied Products
Corporation Savings Incentive 401(k) Plan for Bush Hog salaried employees.
Except for supplemental contributions that are payable under the SMART Plan,
terms of the plan are identical to those of the SMART plan. Employees eligible
under the new plan are not eligible for the SMART plan.
Also effective October 1, 1998, the Company instituted a matching
provision for voluntary deposits by employees (up to 6% of their salaries) on
the basis of $1 for every $2 deposited. This matching feature is available to
participants in the SMART plan and the Allied Products Corporation Savings
Incentive Plan. Matching funds are allocated by the employee to the investment
alternatives noted above. The Company's total contribution into these plans
amounted to $205,000 in 1998.
Effective January 1, 1998, the Company instituted a supplemental
contribution feature to the SMART plan described above. This discretionary
noncontributory feature replaces the Target Benefit Plan and a defined
contribution plan - see below. Currently, all employees eligible for the SMART
plan receive an allocation which is based upon a percentage of the earnings of
the employees. This supplemental contribution is allocated by the employee to
the same investment alternatives as the SMART plan. The Company's total
supplemental contribution amounted to $680,000 in 1998.
Effective January 1, 1995, the Company instituted a noncontributory
defined contribution retirement plan called the Target Benefit Plan. All non
union employees not covered by pension plans were covered under the Target
Benefit Plan. Under the terms of the Target Benefit Plan, the Company made 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.
Provisions for the contribution to this plan in 1997 and 1996 were $664,000 and
$773,000, respectively. Effective January 1, 1998, this plan was terminated. On
this date, all employees previously receiving benefits under this plan now
receive benefits under the SMART plan described above. Benefits earned under the
Target Benefit Plan were transferred to the SMART plan.
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 were $222,000 in 1997 and
$217,000 in 1996. Benefits under this plan were frozen effective January 1,
1998. On this date, all employees previously receiving benefits under this plan
now receive benefits under the SMART plan described above.
The Company provides medical benefits for retirees and their spouses at
one operating division and certain other former employees of 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 7.4% for retirees under age 65 (7% for retirees age 65 and older)
in 1999 to 5.5% over 22 years. The effect of a 1% annual increase (decrease) in
these assumed cost trend rates would increase the accumulated postretirement
benefit obligation by approximately $68,000 and $74,000 for the years ended
December 31, 1998 and 1997, respectively. The annual service and interest costs
would not be materially affected.
35
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table provides a reconciliation of the changes in the
plans' benefit obligations over the two year period ending December 31, 1998 and
a statement of the financial status as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1998 1997
---------------- -----------------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year......................................... $ 799,000 $ 767,000
Service cost.................................................................... 55,000 50,000
Interest cost................................................................... 56,000 56,000
Actuarial (gains) losses........................................................ 50,000 15,000
Benefits paid................................................................... (96,000) (89,000)
-------------- --------------
Benefit obligation at end of year............................................... $ 864,000 $ 799,000
-------------- --------------
-------------- --------------
FUNDED STATUS:
Funded status at end of year.................................................... $ (864,000) $ (799,000)
Unrecognized prior service cost................................................. 10,000 11,000
Unrecognized net actuarial (loss)............................................... (175,000) (241,000)
-------------- --------------
Accrued postretirement benefit cost at end of year.............................. $ (1,029,000) $ (1,029,000)
-------------- --------------
-------------- --------------
</TABLE>
Net periodic postretirement benefit costs include the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996
------------- ----------- -------------
<S> <C> <C> <C>
Service cost........................................................ $ 55,000 $ 50,000 $ 50,000
Interest cost....................................................... 56,000 56,000 53,000
Amortization of unrecognized net (gains) losses..................... (10,000) (11,000) (4,000)
Amortization of prior plan amendments............................... 1,000 1,000 1,000
---------- ---------- ----------
Net periodic postretirement benefit cost............................ $102,000 $96,000 $100,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
36
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Measurement of the postretirement benefit obligation was based on a
discount rate of 6.75% in 1998, 7.5% in 1997 and 7.75% in 1996.
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 closed and remediated a landfill leased
by the Company and formerly used for the disposal of spent foundry sands. 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.
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 $4,000,000, including attorney fees, from the Company and other
defendants. The Company has denied liability and asserted cross-claims against
the co-defendants. The Company has also filed claims against its insurers.
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, was sold to the purchaser of the
White-New Idea business. That sale was contingent on the issuance of a covenant
not to sue and related no further action letter by the State of Ohio under the
Ohio Voluntary Action Program. The Company completed all necessary investigation
and remediation, and expended approximately $1,300,000 in this effort. Upon
submission of the final report, a covenant not to sue and no further action
letter was issued by the Ohio Environmental Protection Agency. While this
project was underway, the Company entered into a series of agreements for
financial contribution with both the prior owner and the purchaser of the
facility, and recovered approximately 50% of the $1,300,000 spent.
37
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
During 1998, 1997 and 1996, the Company recorded credits of
approximately $151,000, $1,181,000 and $418,000, respectively, toward various
environmental matters discussed above. At December 31, 1998, the Company has
accruals on a non-discounted basis, including those discussed above, of
$1,225,000 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 of approximately $7,300,000 due May 22, 1996. The purchaser's
payment obligation was secured by the technology license and was 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. During 1997, the Company entered into a settlement agreement with
the purchaser of the business. Under the terms of the agreement, the purchaser
agreed to pay the Company $3,000,000 and all parties agreed to the
dismissal/release of certain actions, claims and security interests. All amounts
due under this agreement were collected in 1998 ($610,000) and 1997
($2,390,000).
In 1998, an adversary proceeding was filed against the Company by a
debtor in a bankruptcy proceeding. The transactions and occurrences on which the
adversary proceeding is based are the Company's sale of the assets of a former
division and certain financial transactions related thereto. Causes of action
described in the adversary proceeding include accounting, turnover, fraudulent
transfers, "alter ego," economic duress, unjust enrichment and restitution. The
amount claimed by the plantiff is not specified in the pleadings. The Company is
vigorously contesting all claims against it in this adversary proceeding. One
case pending against the Company is a race discrimination class action lawsuit
brought by seven plaintiffs who are current or former employees. The complaint
alleges discrimination with respect to compensation, promotions, job
assignments, discipline and other terms and conditions of employment. The
potential class identified by plaintiffs could include several hundred current
or former employees. No class certification hearing has been held and no order
has been entered. The Company denies the allegations of the plaintiffs and is
vigorously defending this claim. No estimate can currently be made as to the
ultimate outcome of these two claims, therefore changes in the estimate in the
near term are reasonably possible.
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 and estimated unreported product liability
claims, with necessary reserves ($4,674,000 and $4,200,000 at December 31, 1998
and 1997, 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. For all matters excluding one recently asserted
claim, 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. For one recently asserted product liability
claim, the amount of damages claimed against all defendants exceeds the
Company's liability insurance limits. No estimate can currently be made as to
whether the ultimate outcome of this claim against the Company could exceed such
limits, therefore changes in the estimate in the near term could be material to
the financial position and results of operations if an unfavorable outcome were
to occur.
As described in Note 1, the Verson division may not be able to meet
delivery schedules for certain presses currently on order or in production.
Certain customers of this division have advised the Company that they will seek
to recover damages for late delivery, which could include downtime, lost sales
and lost profit. The Company cannot at this time determine the amount of any
potential claim that may be asserted due to late delivery, however, such claims
could have a material adverse effect on the financial position and results of
operations in the near term, if an unfavorable outcome were to occur.
38
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1998, the Company was contingently liable for
approximately $1,632,000 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 of up to approximately three years' compensation.
11. OPERATIONS BY INDUSTRY SEGMENT:
During 1998, the Company adopted SFAS 131 -- Disclosures about Segments
of a Business Enterprise and Related Information. The determination of business
segments is based upon the nature of the products manufactured and current
management and internal financial reporting. The prior years' segment
information has been restated to reflect its business segments noted below.
The Company's operations are divided into two business segments - the
Agricultural Products Group (which consists of the Bush Hog and Great Bend
divisions) and the Industrial Products Group (which consists of the Verson,
Precision Press Industries and Verson Pressentechnik operations) as well as the
Coz division (net sales and pretax income of $22,887,000 and $1,093,000,
respectively, for the year ended December 31, 1997 and net sales and pretax
income of $33,892,000 and $2,419,000, respectively, for the year ended December
31, 1996) which was sold in the last quarter of 1997. The nature of the products
offered by the Company's operations is described elsewhere in this Annual
Report.
Approximately 3%, 6% and 16% of the Company's net sales in 1998, 1997
and 1996, respectively, were exported principally to Canada (48%, 46% and 15% of
export sales in 1998, 1997 and 1996, respectively) and Mexico (48%, 43% and 84%
of export sales in 1998, 1997 and 1996, respectively).
Approximately 26%, 31% and 39% of the Company's total net sales in
1998, 1997 and 1996, respectively, were derived from sales by the Industrial
Products Group to the three major U.S. automobile manufacturers.
Information relating to operations by industry segment follows (in
thousands of dollars):
<TABLE>
<CAPTION>
AGRICULTURAL INDUSTRIAL
PRODUCTS PRODUCTS CORPORATE CONSOLIDATED
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
1998
Net sales to unaffiliated customers.......... $136,814 $137,020 $ - $273,834
Income (loss) before taxes (a).............. 18,570(c) (23,129) (17,084)(d) (21,643)
Depreciation and amortization................ 2,780 2,988 328 6,096
Capital expenditures ........................ 9,603 30,438 355 40,396
Total assets................................. 102,069 149,911 21,824 (b) 273,804
1997
Net sales to unaffiliated customers.......... $119,471 $151,091 $ - $270,562
Income (loss) before taxes (a).............. 19,735(c) 16,584 (11,484)(d) 24,835
Depreciation and amortization................ 2,159 2,254 613 5,026
Capital expenditures ........................ 4,902 10,709 249 15,860
Total assets................................. 71,700 101,061 22,303 (b) 195,064
1996
Net sales to unaffiliated customers.......... $108,355 $166,059 $ - $274,414
Income (loss) before taxes (a).............. 12,256(c) 29,382 (16,415)(d) 25,223
Depreciation and amortization................ 2,048 2,249 778 5,075
Capital expenditures ........................ 1,055 3,898 173 5,126
Total assets................................. 62,256 83,457 26,796 (b) 172,509
</TABLE>
39
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(a) Segment income (loss) before taxes does not reflect an allocation or
charge for general corporate income or expenses, or interest expense.
(b) Corporate assets consist principally of cash, deferred income taxes,
other assets, properties not used in operations and investment in a
unconsolidated joint venture.
(c) Includes interest income of $111,000 in 1998, $77,000 in 1997 and
$108,000 in 1996.
(d) Corporate income (loss) before taxes consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- --------
<S> <C> <C> <C>
General corporate income and expense................ $(6,845) $ (6,853) $(10,377)
Treasury lock settlement (Note 5)................... (3,005) - -
Stock option compensation (Note 1).................. (1,119) (1,375) (4,485)
Interest expense.................................... (6,201) (3,306) (1,557)
Interest income..................................... 86 50 4
---------- --------- --------
Total............................................... $(17,084) $(11,484) $(16,415)
---------- --------- --------
---------- --------- --------
</TABLE>
12. SUMMARY OF OTHER (INCOME) EXPENSE:
Other (income) expense consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Interest income.......................................... $ (197,000) $ (127,000) $ (112,000)
Goodwill amortization.................................... 355,000 177,000 177,000
Loan cost expenses/amortization.......................... 284,000 - 333,000
Environmental related expenses (credits)................. (151,000) (1,181,000) (418,000)
Net gain on sales of operating and non-operating assets.. (1,936,000) (1,662,000) (106,000)
Provision (credit) for collectability (recovery) of
long-term note receivable (Note 10).................... (610,000) (2,390,000) (534,000)
Idle facility income..................................... (183,000) (368,000) (147,000)
Litigation settlements/insurance provisions.............. - 2,125,000 1,512,000
Treasury lock settlement................................. 3,005,000 - -
Other miscellaneous...................................... 395,000 315,000 (74,000)
----------- ------------ -----------
$ 962,000 $(3,111,000) $ 631,000
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
40
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized restated quarterly financial data for 1998 and 1997 are as
follows (in thousands of dollars, except per share data):
<TABLE>
<CAPTION>
QUARTER ENDING
---------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
1998
Net sales.......................................... $62,831 $88,985 $77,184 $44,834
Gross profit (loss)................................ 19,155 19,215 956 (15,661)
Net income (loss).................................. 5,330 7,101 (7,148) (19,396)
Net income (loss) per common share-diluted......... .44 .59 (.60) (1.64)
1997
Net sales.......................................... $72,881 $76,902 $63,714 $57,065
Gross profit....................................... 18,258 18,337 16,621 7,313
Net income (loss).................................. 5,506 5,399 5,287 (546)
Net income (loss) per common share-diluted ........ .44 .44 .43 (.05)
</TABLE>
Subsequent to the end of 1998 and as discussed in Note 1, the Company
determined that the accounting for certain stock option exercise transactions
during 1997 and 1998 was incorrect. Compensation expense for certain option
exercises during each of these periods should have been recognized. The Company
also determined that gross profit margins at the Verson division were incorrect
in all quarters of 1997 and the first three quarters of 1998. The following
table reconciles the quarterly operating results as previously reported to the
restated amounts presented above:
41
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
Quarter Ending
---------------------------------------------------
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
1998
Gross profit (loss):
As previously reported.................................... $18,857 $19,077 $ (3,887) (1)
Net change associated with Verson gross profit margins.... 298 138 4,843 (1)
-------- ------- ----------
Restated ................................................. $19,155 $19,215 $ 956 (1)
-------- ------- ----------
-------- ------- ----------
Net income (loss):
As previously reported................................... $ 5,865 $ 7,010 $ (10,296) (1)
Net change associated with Verson gross profit margins... 298 138 4,843 (1)
Net change associated with stock option compensation..... (1,119) - - (1)
Tax impact of above changes.............................. 286 (47) (1695) (1)
-------- -------- ----------
Restated ................................................ $ 5,330 $ 7,101 $ (7,148) (1)
-------- -------- ----------
-------- -------- ----------
1997
Gross profit:
As previously reported................................. $17,655 $ 19,579 $ 16,199 $12,375
Net change associated with Verson gross profit margins. 603 (1,242) 422 (5,062)
-------- -------- --------- -------
Restated .............................................. $18,258 $ 18,337 $ 16,621 $ 7,313
-------- -------- --------- -------
-------- -------- --------- -------
Net income (loss):
As previously reported................................. $ 5,171 $ 6,206 $ 5,013 $ 3,581
Net change associated with Verson gross profit margins. 603 (1,242) 422 (5,062)
Net change associated with stock option
compensation........................................ (87) - - (1,288)
Tax impact of above changes......................... (181) 435 (148) 2,223
-------- -------- ---------- -------
Restated ........................................... $ 5,506 $ 5,399 $ 5,287 $ (546)
-------- -------- ---------- -------
-------- -------- ---------- -------
</TABLE>
(1) No restatements occurred during this quarter.
Operating results in the fourth quarter of 1998 included the effects of
charges to cost of sales for increased estimated costs on contracts of
$9,324,000, reduced estimated gross profit margins on contracts to reflect the
lower end of the range of margin of $3,516,000 and an additional contract loss
estimate of $8,538,000. It also included a $3,005,000 charge to other (income)
expense related to hedging losses associated with an interest rate lock -- see
Note 5.
42
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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 Common 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.
43
<PAGE>
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 (loss) for the years ended
December 31, 1998, 1997 and 1996
Consolidated balance sheets as of December 31, 1998 and 1997
Consolidated statements of cash flows for the years ended
December 31, 1998, 1997 and 1996
Consolidated statements of shareholders' investment for the
years ended December 31, 1998, 1997 and 1996
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, 1998, 1997 and 1996
(a) 3. EXHIBITS
The following exhibits are incorporated by reference as noted below:
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 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).
44
<PAGE>
10(f) 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(g) 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(h) 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(i) 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(j) 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).
10(k) The Registrant's 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 is
incorporated by reference to Exhibit 10A of the Company's 1996
Annual Report on Form 10-K (File No. 1-5530).
10(l) The Registrant's Consent to Stock Repurchases dated as of November
27, 1996 is incorporated by reference to Exhibit 10B of the
Company's 1996 Annual Report on Form 10-K (File No. 1-5530).
10(m) The Registrant's 1997 Incentive Stock Plan is incorporated by
reference to Exhibit 10 of the Company's June 30, 1997 Quarterly
Report on Form 10-Q (File No. 1-5530).
10(n) The Registrant's Amendment No. 2 to the Registrant's Amended and
Restated Credit Agreement dated as of August 23, 1996 among Allied
Products Corporation, the banks named herein and Bank of America
National Trust and Savings Association (as successor by merger to
Bank of America Illinois) individually and as Agent is incorporated
by reference to Exhibit 10A of the Company's 1997 Annual Report on
Form 10-K (File No. 1-5530).
10(o) The Registrant's Amendment No. 3 to the Registrant's Amended and
Restated Credit Agreement dated as of August 23, 1996 among Allied
Products Corporation, the banks named herein and Bank of America
National Trust and Savings Association (as successor by merger to
Bank of America Illinois) individually and as Agent is incorporated
by reference to Exhibit 10 of the Company's quarterly report on Form
10-Q dated August 13, 1998 (File No. 1-5530).
10(p) The Registrant's Amendment No. 4 to the Registrant's Amended and
Restated Credit Agreement dated as of August 23, 1996 among Allied
Products Corporation, the banks named herein and Bank of America
National Trust and Savings Association (as successor by merger to
Bank of America Illinois) individually and as Agent is incorporated
by reference to Exhibit 10 of the Company's quarterly report on Form
10-Q dated November 13, 1998 (File No. 1-5530).
The following exhibits are attached only to the copies of this report
filed with the Securities and Exchange Commission:
EXHIBIT NO. NAME OF EXHIBIT
----------- ---------------
3 By-Laws of Allied Products Corporation.
10A Material Contract-Second Amended and Restated Credit Agreement.
10B First Amendment and Waiver to Credit Agreement.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
24 Power of Attorney.
27 Financial Data Schedules.
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.
45
<PAGE>
(b) REPORTS ON FORM 8-K
On October 6, 1998, the Company filed a report under Item 5-Other
Events. This report was filed in connection with a press release dated September
24, 1998, reporting that the Registrant would record a pretax charge of
approximately $16 million in the third quarter of 1998. No financial statements
were filed with this report.
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Allowance for doubtful accounts-
Current receivables:
Balance at beginning of year................................. $ 531,000 $ 629,000 $ 948,000
Add (deduct)-
Provision charged to income............................... 129,000 114,000 214,000
Allowance applicable to receivables acquired.............. 47,000 - -
Receivables charged off as bad debts, net of recoveries... (188,000) (212,000) (533,000)
------------ ------------ -----------
Balance at end of year....................................... $ 519,000 $ 531,000 $ 629,000
------------ ------------ -----------
------------ ------------ -----------
Long-term receivables:
Balance at beginning of year................................. $ 610,000 $ 7,165,000 $7,699,000
Add (deduct)-
Provision charged to income............................... - - -
Receivables charged off as bad debts, net of recoveries... (610,000) (6,555,000) (534,000)
------------ ------------ -----------
Balance at end of year....................................... $ - $ 610,000 $7,165,000
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
46
<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
April 25, 1999
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>
* /s/ [RICHARD A. DREXLER]
-----------------------------------------------------------------------
Richard A. Drexler, CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER;
DIRECTOR
April 25, 1999 * /s/ [ROBERT J. FLECK]
-----------------------------------------------------------------------
Robert J. Fleck, VICE PRESIDENT-ACCOUNTING, CHIEF
ACCOUNTING AND ADMINISTRATIVE OFFICER
* /s/ [LLOYD DREXLER]
-----------------------------------------------------------------------
Lloyd Drexler,
Director
* /s/ [William D. Fisher]
-----------------------------------------------------------------------
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
* /s/ [S. S. SHERMAN]
-----------------------------------------------------------------------
S. S. Sherman,
DIRECTOR
* By: /s/ [MARK C. STANDEFER]
-----------------------------------------------------------------------
Mark C. Standefer,
ATTORNEY-IN-FACT
</TABLE>
47
<PAGE>
EXHIBIT 3
(As amended on October 21, 1998)
BY-LAWS
OF
ALLIED PRODUCTS CORPORATION
(a Delaware corporation)
ARTICLE I
Offices
The registered office of the corporation in the State of Delaware shall be
located at 100 West Tenth Street, Wilmington, Delaware. The corporation may
have such other offices either within or without the State of Delaware as the
business of the corporation may require from time to time.
ARTICLE II
Shareholders
SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders
shall be held on the last Wednesday in April in each year beginning 1968 at the
hour of 10:30 A.M., Eastern Standard Time, or on such other date or at such
other time as the board of directors may designate, for the purpose of electing
directors and for the transaction of any other proper business. If the day
fixed for the annual meeting shall be a legal holiday, such meeting shall be
held on the next succeeding business day. If the election of directors shall
not be held on the day designated herein for any annual meeting, or at any
adjournment thereof, the board of directors shall cause the election to be held
at a special meeting of the shareholders as soon thereafter as conveniently may
be.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders
may be called by the president or by the board of directors.
SECTION 3. PLACE OF MEETING. The board of directors may designate
any place either within or without the State of Delaware as the place of meeting
for any annual meeting or for any special meeting called by the board of
directors. If no designation is made or if a special meeting be called
otherwise than by the board of directors, the place of meeting shall be the
registered office of the corporation in the State of Delaware.
SECTION 4. NOTICE OF MEETINGS. Written or printed notice stating
the place, date and hour of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten nor more than sixty days before the date of the
<PAGE>
meeting, by mail, by or at the direction of the president or the secretary,
to each shareholder of record entitled to vote at such meeting. If mailed,
such notice shall be deemed to be given when deposited in the United States
mail addressed to the shareholder at his address as it appears on the records
of the corporation, with postage thereon prepaid. Business transacted at any
special meeting of shareholders shall be limited to the purposes stated in
the notice.
SECTION 5. FIXING OF RECORD DATE. The board of directors of the
corporation in order to determine the shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof, or to express
consent to corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock or for the purpose of any other lawful action, may fix, in advance, a
record date, which shall not be more than sixty days nor less than ten days
prior to the date of such meeting, nor more than sixty days prior to any other
action.
SECTION 6. VOTING LISTS. It shall be the duty of the officer or
agent who shall have charge of the stock ledger of the corporation to prepare
and make or cause to be prepared and made, at least ten days before every
meeting of shareholders, a complete list of the shareholders entitled to vote at
said meeting, arranged in alphabetical order, showing the address of each
shareholder and the number of shares registered in the name of each shareholder.
Such list shall be open at the place where said election is to be held for at
least ten days before such meeting, for examination by any shareholder, for any
purpose germane to the meeting, during ordinary business hours, and shall be
produced and kept at the time and place of the meeting during the whole time
thereof, and shall be subject to the inspection of any shareholder who is
present. The stock ledger shall be the only evidence as to who are shareholders
entitled to examine such ledger, the list described above, or the books of the
corporation, or to vote in person or by proxy at such meeting of shareholders.
SECTION 7. QUORUM. A majority of the outstanding shares of the
corporation, represented in person or by proxy, shall constitute a quorum at any
meeting of shareholders; provided, that if less than a majority of the
outstanding shares are represented at said meeting, the president may adjourn
the meeting from time to time without further notice.
SECTION 8. PROXIES. At all meetings of shareholders, a
shareholder may vote by proxy executed in writing by the shareholder or by his
duly authorized attorney-in-fact. Such proxy shall be filed with the secretary
of the corporation before or at the time of the meeting. No proxy shall be
valid after three years from the date of its execution, unless otherwise
provided in the proxy.
SECTION 9. VOTING OF SHARES. Unless otherwise provided in the
Certificate of Incorporation and subject to the provisions of Section 213 of the
General Corporation Laws of the State of Delaware, each outstanding share,
regardless of class, shall be entitled to one vote upon each matter submitted to
a vote at a meeting of shareholders.
-2-
<PAGE>
SECTION 10. NOTICE OF SHAREHOLDER PROPOSALS.
(a) At an annual meeting, only such business shall be conducted,
and only such proposals shall be acted upon, as shall have been brought
before the annual meeting (i) by, or at the direction of, the board of
directors, or (ii) by any shareholder of the corporation who complies with
the notice procedures set forth in this section of these By-Laws. For a
proposal to be properly brought before an annual meeting by a shareholder,
the shareholder must have given timely notice thereof in writing to the
secretary of the corporation. To be timely, a shareholder's notice must be
delivered to, or mailed and received at, the principal executive offices of
the corporation not less than thirty days nor more than sixty days prior to
the scheduled annual meeting, regardless of any postponements, deferrals or
adjournments of that meeting to a later date; provided, however, that if
less than forty days' notice or prior public disclosure of the date of the
scheduled annual meeting is given or made, notice by the shareholder to be
timely must be so delivered or received not later than the close of
business on the tenth day following the earlier of the day on which such
notice of the date of the scheduled annual meeting was mailed or the day on
which such public disclosure was made. A shareholder's notice to the
secretary shall set forth as to each matter the shareholder proposes to
bring before the annual meeting (i) a brief description of the proposal
desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and address,
as they appear on the corporation's books, of the shareholder proposing
such business and any other shareholders known by such shareholder to be
supporting such proposal, (iii) the class and number of shares of the
corporation's stock which are beneficially owned by the shareholder on the
date of such shareholder notice and by any other shareholders known by such
shareholder to be supporting such proposal on the date of such shareholder
notice, and (iv) any financial interest of the shareholder in such
proposal.
(b) If the presiding officer of the annual meeting determines
that a shareholder proposal was not made in accordance with the terms of
this section, he shall so declare at the annual meeting and any such
proposal shall not be acted upon at the annual meeting.
(c) This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers,
directors and committees of the board of directors, but, in connection with
such reports, no business shall be acted upon at such annual meeting unless
stated, filed and received as herein provided.
ARTICLE III
Directors
SECTION 1. GENERAL POWERS. The business and affairs of the
corporation shall be managed by its board of directors.
SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of
directors of the
-3-
<PAGE>
corporation shall be no fewer than five nor more than fifteen, the exact
number of which shall be fixed by the board of directors. Each director
shall hold office for the term for which he is named or elected and/or until
his successor shall have been elected.
SECTION 3. REGULAR MEETINGS. Until otherwise determined by
majority of the board of directors, the regular meetings of the board of
directors of this corporation shall not be held and, in lieu thereof, special
meetings of this corporation's board of directors shall be held at such time and
place as may be appropriately designated, either by this board of directors or
pursuant to Article III, Section 4, of the by-laws of this corporation.
SECTION 4. SPECIAL MEETINGS. Special meetings of the board of
directors may be called by or at the request of the president or a majority of
the directors. Such meeting may be held at such place whether within the State
of Delaware or elsewhere as the president or as a majority of the board of
directors may from time to time determine.
SECTION 5. NOTICE. Notice of any special meeting of directors
shall be given at least two days previously thereto by written notice delivered
personally or mailed to each director at his business address, or by telegram or
facsimile. If mailed, such notice shall be deemed to be given when deposited in
the United States mail in a sealed envelope so addressed, with postage thereon
prepaid. Any director may waive notice of any meeting. The attendance of a
director at any meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the board of directors need be specified in the
notice or waiver of notice of such meeting.
SECTION 6. QUORUM. A majority of the board of directors then in
office shall constitute a quorum for the transaction of business at any meeting
of the board of directors, provided, that if less than a majority of the
directors are present at said meeting, a majority of the directors present may
adjourn the meeting from time to time without further notice.
SECTION 7. MANNER OF ACTING. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the board of directors.
SECTION 8. VACANCIES AND NEW DIRECTORSHIPS. If the office of any
director becomes vacant at any time by reason of death, resignation, retirement,
disqualification, removal from office or otherwise, or if any new directorship
is created by any increase in the authorized number of directors, a majority of
the directors then in office, although less than a quorum, or the sole remaining
director, may choose a successor or fill the newly created directorship, and the
director so chosen shall hold office, subject to the provisions of these
By-Laws, until the expiration of the term of the class to which he has been
chosen. This Section 8 may not be amended or rescinded except by the
affirmative vote of the holders of at least 75% of the stock of the corporation
entitled to vote, considered for the purpose as one class.
-4-
<PAGE>
SECTION 9. COMPENSATION. Directors shall receive such reasonable
compensation for their service as such, whether in the form of salary or a fixed
fee for attendance at meetings, with expenses, if any, as the board of directors
may from time to time determine. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor.
SECTION 10. EXECUTIVE COMMITTEE. The board of directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, each committee to consist of two or more of the directors as well as
one or more directors designated as alternate members of any committee who may
replace any absent or disqualified member at any meeting of the committee. Any
such committee shall have and exercise the powers of the board of directors in
the management of the business and affairs of the corporation and may authorize
the seal of the corporation to be affixed to all papers which may require it.
In the absence or disqualification of any member of such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they shall constitute a quorum,
may unanimously appoint another member of the board of directors to act at the
meeting in place of such absent or disqualified member.
SECTION 11. CLASSES. The directors of the corporation shall be
divided into three classes with the number of directors fixed by or in
accordance with the By-Laws divided equally so far as possible among the three
classes. At the 1975 Annual Meeting of Stockholders:
(a) One-third of the number of directors shall be elected to
serve until the 1976 Annual Meeting of Stockholders;
(b) One-third of the number of directors shall be elected to
serve until the 1977 Annual Meeting of Stockholders; and
(c) One-third of the number of directors shall be elected to
serve until the 1978 Annual Meeting of Stockholders.
At each annual election of directors after the 1975 Annual Meeting of
Stockholders, the successors to the directors of each class whose term shall
expire in that year shall be elected to hold office for a term of three years
from the date of their election. In case of any increase or decrease in the
number of directors, the increase or decrease shall be distributed among the
several classes as nearly equally as possible, as shall be determined by the
affirmative vote of a majority of the whole board at the time of such increase
or decrease. This Section 11 may not be amended or rescinded except by the
affirmative vote of the holders of at least 75% of the stock of the corporation
entitled to vote, considered for the purpose as one class.
SECTION 12. TELEPHONE MEETINGS. Members of the board of directors,
or any committee designated by the board of directors, may participate in a
meeting of the board of directors, or any committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can be heard, and
-5-
<PAGE>
communicate with, each other, and such participation in a meeting shall
constitute presence in person at the meeting.
ARTICLE IV
Officers
SECTION 1. NUMBER. The board of directors shall elect a
president, a vice president and a secretary and may select the chairman of the
board, a vice chairman of the board, the chairman of the Executive Committee,
one or more executive vice presidents and one or more additional vice
presidents. It may appoint a treasurer, assistant secretaries and assistant
treasurer, and such officers and agents as it may deem necessary or desirable
for the transaction of the business of the corporation. No one of said
officers, except the president, the chairman of the board, the vice chairman of
the board and the chairman of the Executive Committee need be directors. Any
executive vice president or vice president who is not a director cannot succeed
to or fill the office of president. Any two of the above offices may be held by
the same person, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity.
SECTION 2. ELECTION AND TERM OF OFFICE. The elective officers of
the corporation shall be elected annually by the board of directors at the first
meeting of the board of directors held after each annual meeting of
shareholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as conveniently may be.
Vacancies may be filled or new offices created and filled at any meeting of the
board of directors. Each officer shall hold office until his successor shall
have been duly chosen and shall have qualified or until his death or until he
shall resign or shall have been removed in the manner hereinafter provided.
SECTION 3. REMOVAL. Any officer or agent may be removed by the
board of directors whenever in their judgment the business interests of the
corporation will be served thereby.
SECTION 4. VACANCIES. The board of directors shall have the power
to fill any vacancies in any office occurring for whatever reason.
SECTION 5. (a) CHAIRMAN OF THE BOARD, VICE CHAIRMAN OF THE BOARD. The
chairman of the board, when present, shall preside at all meetings of the
directors and shall perform such other duties as may be designated or assigned
to him by the board of directors. The vice chairman of the board shall, in the
absence of the chairman of the board, preside at meetings of the board of
directors and shall perform such other duties as the board of directors shall
from time to time designate.
SECTION 5. (b) CHAIRMAN OF THE EXECUTIVE COMMITTEE. The chairman of
the Executive Committee shall preside as chairman of meetings of the Executive
Committee and in the absence of the chairman of the board and vice chairman of
the board, if any, shall preside at meetings of the directors.
SECTION 5. (c) PRESIDENT. The president shall be the chief executive
officer of the
-6-
<PAGE>
corporation and in the absence of the chairman of the board and vice chairman
of the board, if any, and chairman of the Executive Committee shall preside
at meetings of the directors. Subject to the direction and supervision of
the board of directors and/or the Executive Committee, the president shall
have general management of the business of the corporation and general
supervision of the other officers, shall see that all resolutions of the
board of directors are carried into effect, subject, however, to the right of
the board to delegate to any other officer or officers of the corporation any
specific powers other than those that may be by law conferred only upon the
president and shall have the general powers and duties of supervision and
management usually vested in the office of president of a corporation. The
president shall execute in the name of the corporation all deeds, bonds,
mortgages, contracts and other documents authorized by the board of
directors, except in cases where the execution thereof shall be expressly
delegated by the board or these By-Laws to some other officer or agent of the
corporation.
SECTION 6. VICE PRESIDENTS. Unless and to the extent specified by
resolution of the board of directors, no vice president of the corporation
(executive or otherwise) who is not a member of the board shall by reason of his
election or selection as such perform the duties or exercise the powers of the
president in case of the president's sickness, disability or temporary absence
from the office of the corporation nor, save by virtue of a specific enabling
resolution, shall any vice president (executive or otherwise) who is not a
member of the board be authorized to sign any deed, contract, or other
instrument in writing purporting to be the act of the corporation and authorized
by the board. Any vice president (executive or otherwise) who is a member of
the board of directors may perform the duties and exercise the powers of the
president in case of the president's sickness, disability or temporary absence
from the office of the corporation and the signature of the corporation by any
such vice president (executive or otherwise) who is a member of the board to any
deed, contract, or other instrument in writing purporting to be the act of the
corporation and authorized by the board of directors shall be and may be taken,
received and accepted as the authorized and binding act of the corporation with
like effect as if made by the president. The respective vice presidents
(executive or otherwise) whether or not members of the board of directors shall
have such further powers and perform such further duties as may from time to
time be prescribed by the board.
SECTION 7. SECRETARY. The secretary shall attend all meetings of
the board and all meetings of the shareholders and record all proceedings of the
meetings of shareholders and directors in a book to be kept for that purpose,
and record all votes. He shall perform like duties for any standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the shareholders and of the board of directors. He shall have custody of and
attest the seal of the corporation and see that the seal is affixed to all
authorized documents requiring a seal. He shall cause a stock ledger of the
corporation to be kept at the corporation's transfer office and such other
place, if any, as the board of directors may from time to time determine. In
general, he shall perform the duties usually incident to the office of secretary
and such further duties as shall from time to time be prescribed by the board of
directors or the president. At any meeting of the shareholders or board of
directors at which the secretary is not present, a secretary pro tempore or
clerk of the meeting may be appointed by the meeting.
SECTION 8. ASSISTANT SECRETARY. In case of the secretary's
absence, sickness, disability,
-7-
<PAGE>
or temporary absence from the office of the corporation, an assistant
secretary shall perform his duties. He shall perform such further duties as
may from time to time be prescribed by the board of directors or the
president or the secretary.
SECTION 9. TREASURER. The treasurer shall, subject to the
direction of the board of directors, have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation. He shall deposit all
moneys and other valuable effects in the name of and to the credit of the
corporation, in such depositaries as may be designated by the board of
directors, and, in general, he shall perform the duties usually incident to the
office of treasurer and such other duties as may be prescribed by the board of
directors or the president. If required by the board of directors, the
treasurer shall furnish the corporation with a proper bond, in a sum and with
one or more sureties satisfactory to the board of directors, for the faithful
performance of the duties of his office, and for the restoration to the
corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control and belonging to the corporation.
SECTION 10. ASSISTANT TREASURER. In the case of the treasurer's
sickness, disability, or temporary absence from the office of the corporation,
an assistant treasurer shall perform his duties. He shall perform such further
duties as from time to time shall be prescribed by the board of directors or the
president or the treasurer.
SECTION 11. SALARIES. The salaries of the officers shall be fixed
from time to time by the board of directors and no officer shall be prevented
from receiving such salary by reason of the fact that he is also a director of
the corporation.
ARTICLE V
Contracts, Loans, Checks, Deposits, Etc.
SECTION 1. CONTRACTS. The board of directors may authorize any
officer or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation and such
authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the board of directors. Such authority may be
general or confined to specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts, or other
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the corporation, shall be signed by such officer, officers,
agent, or agents of the corporation and in such manner as shall from time to
time be determined by resolution of the board of directors.
SECTION 4. DEPOSITS. All funds of the corporation not otherwise
employed shall be
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<PAGE>
deposited from time to time to the credit of the corporation in such banks,
trust companies or other depositaries as the board of directors may select.
ARTICLE VI
Certificates for Shares and Their Transfer
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing
shares of the corporation shall be in such form as may be determined by the
board of directors. Every shareholder shall be entitled to have a certificate
signed by or in the name of the corporation by the chairman or the vice chairman
of the board of directors, or the president or the vice president, and by the
treasurer or an assistant treasurer, or the secretary or an assistant secretary
of such corporation, certifying the number of shares owned by him in such
corporation. If such certificate is countersigned (1) by a transfer agent other
than the corporation or its employee, or (2) by a registrar other than the
corporation or its employee, the signatures of the officers of the corporation
may be facsimiles. In case any officer who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer before such certificate is issued, it may be issued by the corporation
with the same effect as if he were such officer at the date of issuance.
All certificates for shares of each class or series within a class shall be
consecutively numbered. The name of the person owning the shares represented
thereby with the number of shares and the date of issue shall be entered on the
books of the corporation. All certificates surrendered to the corporation for
transfer shall be canceled and no new certificate shall be issued until the
former certificate for a like number of shares shall have been surrendered and
canceled.
Notwithstanding the foregoing, if a certificate of stock be lost, stolen,
or destroyed, a new certificate of the identical tenor of the one alleged to be
lost, stolen, or destroyed may be issued by special order of the board of
directors upon satisfactory proof of such loss, theft, or destruction, and the
giving of a bond of indemnity against loss by reason thereof in form and amount
to be approved by the board. If the corporation shall voluntarily and in good
faith issue a new certificate in lieu of one believed to have been lost, stolen,
or destroyed, it may recognize the person in whose name the new certificate or
any certificate thereafter issued in exchange or substitution therefor is issued
as the owner of the shares described therein for all purposes, including the
right to vote and the right to receive payment of the dividends, distribution or
redemption price, until the owner of the original certificate or a transferee
thereof without notice and for value shall enjoin the corporation and the holder
of any new certificate or any certificate issued in exchange or substitution
therefor from so acting.
SECTION 2. TRANSFER OF SHARES. Transfers of shares of the
corporation shall be made only on the books of the corporation by the registered
holder thereof or by his attorney thereunto authorized by power of attorney duly
executed and filed with the secretary of the corporation, and on surrender for
cancellation of the certificate for such shares. The person in whose name
shares stand on the books of the corporation shall be deemed the owner thereof
for all purposes as regards the corporation.
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<PAGE>
SECTION 3. REGULATIONS. The board of directors may make such
rules and regulations as it may deem expedient concerning the issue, transfer
and registration of the certificates for shares of capital stock. It may
appoint one or more transfer agents or registrars, or both, and may require all
certificates of stock to bear the signature of either or both.
ARTICLE VII
Fiscal Year
The fiscal year of the corporation shall begin on the first day of January
in each year and end on the thirty-first day of December in each year.
ARTICLE VIII
Dividends
The board of directors may from time to time declare, and the corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and its Articles of Incorporation and in
accordance with the laws of the State of Delaware.
ARTICLE IX
Seal
The corporate seal of this corporation shall be the design impressed herein
which is hereby adopted as the corporate seal of the corporation.
ARTICLE X
Waiver of Notice
Whenever any notice whatever is required to be given under the provisions
of these By-Laws or under the provisions of the Articles of Incorporation or
under the provisions of the General Corporation Laws of the State of Delaware,
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
ARTICLE XI
Amendments
These By-Laws may be altered or new By-Laws may be made and adopted by an
affirmative vote of the majority of the directors of the corporation at any
meeting of the board of directors, or by an affirmative vote or a majority of
the shareholders of the corporation at any annual or any special meeting called
for that purpose.
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<PAGE>
EXHIBIT 10 A
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF FEBRUARY 1, 1999
AMONG
ALLIED PRODUCTS CORPORATION,
THE BANKS NAMED HEREIN
AND
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
INDIVIDUALLY AND AS AGENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
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SECTION 1 COMMITMENTS OF THE BANKS; TYPES OF LOANS; LETTER OF CREDIT,
BORROWING AND CONVERSION PROCEDURES.. . . . . . . . . . . . . 1
SECTION 1.1 Commitments . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1.1 Revolving Loan Commitment . . . . . . . . . . . . . . . . . . 2
SECTION 1.1.2 Letter of Credit Commitments. . . . . . . . . . . . . . . . . 2
SECTION 1.1.3 Commitment Limits . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.2 Various Types of Loans. . . . . . . . . . . . . . . . . . . . 3
SECTION 1.3 Borrowing Procedures. . . . . . . . . . . . . . . . . . . . . 3
SECTION 1.4 Conversion Procedures . . . . . . . . . . . . . . . . . . . . 4
SECTION 1.5 Pro Rata Treatment. . . . . . . . . . . . . . . . . . . . . . 4
SECTION 1.6 Letter of Credit Procedures . . . . . . . . . . . . . . . . . 4
SECTION 1.7 Participation in Letters of Credit. . . . . . . . . . . . . . 4
SECTION 1.8 Reimbursement Obligations . . . . . . . . . . . . . . . . . . 5
SECTION 1.9 Limitation on Bank of America's Obligations . . . . . . . . . 5
SECTION 1.10 Funding by Banks to Bank of America . . . . . . . . . . . . . 5
SECTION 1.11 Cash Collateral . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 1.12 Warranty. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 1.13 Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2 NOTES EVIDENCING LOANS. . . . . . . . . . . . . . . . . . . . 6
SECTION 2.1 Revolving Notes . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.2 Recordation of Loans. . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.3 Replacement Notes . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3 INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3.1 Interest Rates. . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3.2 Interest Payment Dates. . . . . . . . . . . . . . . . . . . . 7
SECTION 3.3 Interest Periods. . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3.4 Setting and Notice of Eurodollar Rates. . . . . . . . . . . . 8
SECTION 3.5 Computation of Interest . . . . . . . . . . . . . . . . . . . 8
SECTION 4 RESERVED. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
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SECTION 5 FEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 5.1 Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . 8
SECTION 5.2 Facility Fee. . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 5.3 Agent's Fees. . . . . . . . . . . . . . . . . . . . . . . . .10
SECTION 6 REDUCTION OR TERMINATION OF THE COMMITMENTS; VOLUNTARY
PREPAYMENTS.. . . . . . . . . . . . . . . . . . . . . . . . .10
SECTION 6.1 Reduction or Termination of the Commitments . . . . . . . . .10
SECTION 6.2 Voluntary Prepayments . . . . . . . . . . . . . . . . . . . .10
SECTION 6.3 Mandatory Prepayment. . . . . . . . . . . . . . . . . . . . .11
SECTION 6.4 Certain Prepayment Mechanics. . . . . . . . . . . . . . . . .11
SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF. . . . . . . . . . .11
SECTION 7.1 Making of Payments. . . . . . . . . . . . . . . . . . . . . .11
SECTION 7.2 Application of Certain Payments . . . . . . . . . . . . . . .12
SECTION 7.3 Due Date Extension. . . . . . . . . . . . . . . . . . . . . .12
SECTION 7.4 Setoff. . . . . . . . . . . . . . . . . . . . . . . . . . . .12
SECTION 7.5 Proration of Payments . . . . . . . . . . . . . . . . . . . .12
SECTION 7.6 Withholding Tax . . . . . . . . . . . . . . . . . . . . . . .12
SECTION 8 INCREASED COSTS; SPECIAL PROVISIONS FOR EURODOLLAR LOANS. . .14
SECTION 8.1 Increased Costs . . . . . . . . . . . . . . . . . . . . . . .14
SECTION 8.2 Basis for Determining Interest Rate Inadequate or Unfair. . .15
SECTION 8.3 Changes in Law Rendering Certain Loans Unlawful . . . . . . .15
SECTION 8.4 Funding Losses. . . . . . . . . . . . . . . . . . . . . . . .16
SECTION 8.5 Right of Banks to Fund through Other Offices. . . . . . . . .16
SECTION 8.6 Discretion of Banks as to Manner of Funding . . . . . . . . .16
SECTION 8.7 Mitigation. . . . . . . . . . . . . . . . . . . . . . . . . .17
SECTION 8. Conclusiveness of Statements; Survival of Provisions. . . . .17
SECTION 9 WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . .17
SECTION 9.1 Organization and Qualification. . . . . . . . . . . . . . . .17
SECTION 9.2 Authorization: No Conflict and Validity of Obligations. . . .17
SECTION 9.3 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . .17
SECTION 9.4 Financial Statements. . . . . . . . . . . . . . . . . . . . .17
SECTION 9.5 No Material Adverse Change. . . . . . . . . . . . . . . . . .18
</TABLE>
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SECTION 9.6 Litigation and Contingent Liabilities . . . . . . . . . . . .18
SECTION 9.7 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
SECTION 9.8 Pension and Welfare Plans . . . . . . . . . . . . . . . . . .18
SECTION 9.9 Investment Company Act. . . . . . . . . . . . . . . . . . . .18
SECTION 9.10 Regulation U. . . . . . . . . . . . . . . . . . . . . . . . .18
SECTION 9.11 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . .19
SECTION 9.12 Company's Material Agreements . . . . . . . . . . . . . . . .19
SECTION 9.13 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
SECTION 9.14 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . .19
SECTION 9.15 Business Locations. . . . . . . . . . . . . . . . . . . . . .19
SECTION 9.16 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . .19
SECTION 9.17 Environmental Matters . . . . . . . . . . . . . . . . . . . .19
SECTION 9.18 Treatment and Storage . . . . . . . . . . . . . . . . . . . .19
SECTION 9.19 Compliance With Laws. . . . . . . . . . . . . . . . . . . . .20
SECTION 9.20 Information . . . . . . . . . . . . . . . . . . . . . . . . .20
SECTION 9.21 Year 2000 Problem . . . . . . . . . . . . . . . . . . . . . .20
SECTION 10 COVENANTS.. . . . . . . . . . . . . . . . . . . . . . . . . .20
SECTION 10.1 Reports, Certificates and Other Information . . . . . . . . .20
SECTION 10.1.1 Audit Report. . . . . . . . . . . . . . . . . . . . . . . . .20
SECTION 10.1.2 Quarterly Reports . . . . . . . . . . . . . . . . . . . . . .21
SECTION 10.1.3 Monthly Reports . . . . . . . . . . . . . . . . . . . . . . .21
SECTION 10.1.4 Compliance Certificates . . . . . . . . . . . . . . . . . . .21
SECTION 10.1.5 Reports to SEC and to Shareholders. . . . . . . . . . . . . .21
SECTION 10.1.6 Notice of Default, Litigation and ERISA Matters . . . . . . .21
SECTION 10.1.7 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . .22
SECTION 10.1.8 Projections . . . . . . . . . . . . . . . . . . . . . . . . .22
SECTION 10.1.9 Other Information . . . . . . . . . . . . . . . . . . . . . .22
SECTION 10.2 Books, Records and Inspections. . . . . . . . . . . . . . . .22
SECTION 10.3 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . .22
SECTION 10.5.1 Capital Expenditures. . . . . . . . . . . . . . . . . . . . .22
SECTION 10.5.2 Minimum Consolidated Operating Cash Flow. . . . . . . . . . .22
SECTION 10.5.3 Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . .23
</TABLE>
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SECTION 10.6 Funded Debt/Operating Cash Flow Ratio . . . . . . . . . . . .23
SECTION 10.7 Consolidated Fixed Charge Coverage. . . . . . . . . . . . . .23
SECTION 10.8 Minimum Debt Coverage . . . . . . . . . . . . . . . . . . . .23
SECTION 10.9 Purchase or Redemption of Company's Securities; Dividend
Restrictions. . . . . . . . . . . . . . . . . . . . . . . . .24
SECTION 10.10 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . .24
SECTION 10.11 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
SECTION 10.12 Guaranties, Loans or Advances . . . . . . . . . . . . . . . .25
SECTION 10.13 Mergers, Consolidations, Sales. . . . . . . . . . . . . . . .25
SECTION 10.14 Investments . . . . . . . . . . . . . . . . . . . . . . . . .26
SECTION 10.15 Environmental Covenants.. . . . . . . . . . . . . . . . . . .27
SECTION 10.15.1 Environmental Response Obligation . . . . . . . . . . . . . .27
SECTION 10.15.2 Environmental Liabilities . . . . . . . . . . . . . . . . . .27
SECTION 10.16 Unconditional Purchase Obligations. . . . . . . . . . . . . .27
SECTION 10.17 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . .27
SECTION 10.18 Regulation U. . . . . . . . . . . . . . . . . . . . . . . . .27
SECTION 10.19 Significant Subsidiary. . . . . . . . . . . . . . . . . . . .27
SECTION 10.20 Other Agreements. . . . . . . . . . . . . . . . . . . . . . .28
SECTION 10.21 Compliance With Laws. . . . . . . . . . . . . . . . . . . . .28
SECTION 11 EFFECTIVENESS; CONDITIONS OF LENDING. . . . . . . . . . . . .28
SECTION 11.1 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . .28
SECTION 11.1.1 Revolving Notes . . . . . . . . . . . . . . . . . . . . . . .28
SECTION 11.1.2 Certificate . . . . . . . . . . . . . . . . . . . . . . . . .28
SECTION 11.1.3 Resolutions . . . . . . . . . . . . . . . . . . . . . . . . .28
SECTION 11.1.4 Consents and Approvals. . . . . . . . . . . . . . . . . . . .28
SECTION 11.1.5 Incumbency and Signatures . . . . . . . . . . . . . . . . . .29
SECTION 11.1.6 Opinions of Counsel for the Company . . . . . . . . . . . . .29
SECTION 11.1.7 Other Documents . . . . . . . . . . . . . . . . . . . . . . .29
SECTION 11.2 All Loans and Letters of Credit . . . . . . . . . . . . . . .29
SECTION 11.2.1 No Default. . . . . . . . . . . . . . . . . . . . . . . . . .29
SECTION 11.2.2 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . .29
SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT. . . . . . . . . . . . . .30
</TABLE>
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SECTION 12.1 Events of Default . . . . . . . . . . . . . . . . . . . . . .30
SECTION 12.1.1 Non-Payment of Notes, etc . . . . . . . . . . . . . . . . . .30
SECTION 12.1.2 Non-Payment of Other Indebtedness for Borrowed Money. . . . .30
SECTION 12.1.3 Other Material Obligations. . . . . . . . . . . . . . . . . .30
SECTION 12.1.4 Bankruptcy, Insolvency. . . . . . . . . . . . . . . . . . . .30
SECTION 12.1.5 Non-Compliance with This Agreement. . . . . . . . . . . . . .30
SECTION 12.1.6 Warranties. . . . . . . . . . . . . . . . . . . . . . . . . .31
SECTION 12.1.7 Pension Plans . . . . . . . . . . . . . . . . . . . . . . . .31
SECTION 12.1.8 Material Adverse Change . . . . . . . . . . . . . . . . . . .31
SECTION 12.1.9 Change of Control . . . . . . . . . . . . . . . . . . . . . .31
SECTION 12.2 Effect of Event of Default. . . . . . . . . . . . . . . . . .31
SECTION 13 CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . .32
SECTION 14 THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . .48
SECTION 14.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . .48
SECTION 14.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . .49
SECTION 14.3 Exculpation . . . . . . . . . . . . . . . . . . . . . . . . .49
SECTION 14.4 Credit Investigation. . . . . . . . . . . . . . . . . . . . .49
SECTION 14.5 Agent and Affiliates. . . . . . . . . . . . . . . . . . . . .49
SECTION 14.6 Resignation . . . . . . . . . . . . . . . . . . . . . . . . .50
SECTION 14.7 Letters of Credit . . . . . . . . . . . . . . . . . . . . . .50
SECTION 15 GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . .50
SECTION 15.1 Waiver; Amendments. . . . . . . . . . . . . . . . . . . . . .50
SECTION 15.2 Confirmations . . . . . . . . . . . . . . . . . . . . . . . .51
SECTION 15.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . .51
SECTION 15.4 Computations. . . . . . . . . . . . . . . . . . . . . . . . .51
SECTION 15.5 Regulation U. . . . . . . . . . . . . . . . . . . . . . . . .51
SECTION 15.6 Costs, Expenses and Taxes . . . . . . . . . . . . . . . . . .51
SECTION 15.7 Subsidiary References . . . . . . . . . . . . . . . . . . . .52
SECTION 15.8 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . .52
SECTION 15.9 Indemnification . . . . . . . . . . . . . . . . . . . . . . .52
SECTION 15.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . .52
SECTION 15.11 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . .52
</TABLE>
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SECTION 15.12 Successors and Assigns. . . . . . . . . . . . . . . . . . . .53
SECTION 15.13 Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . .53
SECTION 15.14 Securities Laws . . . . . . . . . . . . . . . . . . . . . . .53
SECTION 15.15 Confidentiality . . . . . . . . . . . . . . . . . . . . . . .53
SECTION 15.16 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . .54
SECTION 15.17 Assignments and Participations. . . . . . . . . . . . . . . .54
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
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<S> <C>
Exhibit A Commitment Limits and Percentages
Exhibit B Revolving Note
Exhibit C Opinion of Counsel
Exhibit D Borrowing Base Report
Exhibit E Assignment And Acceptance Agreement
</TABLE>
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<TABLE>
<CAPTION>
SCHEDULES
- - ---------
<S> <C>
I. Existing Letters of Credit
9.1 Foreign Jurisdictions
9.3 Subsidiaries
9.4 Financial Statements
9.5 Adverse Change
9.6 Litigation
9.8 Pension and Welfare
9.14 Insurance
9.15 Business Locations
9.17 Environmental Matters
9.18 Treatment and Storage
10.1.3 Monthly Reports
10.10 Indebtedness
10.11 Liens
10.14 Investments
13. Verson Division Special Expenses
</TABLE>
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<PAGE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of February 1, 1999
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of February 1,
1999 (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
Bank of America herein collectively called the "Banks" and individually each
called a "Bank"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (as
successor to Bank of America Illinois) (herein, in its individual capacity,
called "Bank of America"), 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 an Amended and Restated
Credit Agreement, dated as of August 23, 1996 as amended or modified (as so
amended or modified to date, the "Existing Credit Agreement"), whereby the Banks
have agreed to make loans and certain other financial accommodations to the
Company;
WHEREAS, pursuant to the Existing Credit Agreement, Bank of America has
issued, and the Banks have acquired participations in, the letters of credit
listed in Schedule I hereto (the "Existing Letters of Credit");
WHEREAS, effective as of the Effective Date, the Company desires that the
Banks waive for the Fiscal Quarter ending December 31, 1998 (but not any period
thereafter), non-compliance by the Company with the financial covenants
contained in SECTIONS 10.5, 10.6 AND 10.7 of the Existing Credit Agreement; 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:
-1-
<PAGE>
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.
SECTION 1.1.2 LETTER OF CREDIT COMMITMENTS. (a) Bank of America and the
Banks agree that Bank of America 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 Bank of America (herein, together
with the Existing Letters of Credit, 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 together with the Stated Amount
of all Letters of Credit then outstanding shall not at any one time exceed the
lesser of (i) the Borrowing Base or (ii) the following amounts (less in each
case any reductions made pursuant to SECTION 6.1 or SECTION 6.3) during the
following period:
<TABLE>
<CAPTION>
<S> <C>
PERIOD AMOUNT
------ ------
December 31, 1998 $145,000,000
February 1, 1999 $140,000,000
February 28, 1999 $140,000,000
March 31, 1999 $140,000,000
April 30, 1999 $135,000,000
May 31, 1999 $135,000,000
June 30, 1999 $135,000,000
July 31, 1999 $110,000,000
August 31, 1999 $105,000,000
September 30, 1999 $ 95,000,000
October 31, 1999 $ 95,000,000
November 30, 1999 $ 90,000,000
December 31, 1999 $ 80,000,000
</TABLE>
(b) the aggregate Stated Amount of all Letters of Credit shall not at any time,
exceed $20,000,000; (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 (less such Bank's Percentage
of any reductions made pursuant to SECTION 1.1.3(a)(ii), SECTION 6.1 or SECTION
6.3), and (d) the aggregate principal amount of each Bank's participation in all
Letters of Credit shall not exceed such Bank's Percentage of the amounts set
forth above for the applicable period (less such Bank's Percentage of any
reductions made pursuant to SECTION 1.1.3(a)(ii), SECTION 6.1 or SECTION 6.3).
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
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<PAGE>
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 eight 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 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 Floating
Rate Loan borrowing shall be on a Business Day and shall be in an aggregate
amount of at least $100,000 and an integral multiple of $100,000. Each
Eurodollar Loan 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 Commitment 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.
-3-
<PAGE>
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 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 Bank of America 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
Bank of America, together with such other documentation as Bank of America 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, Bank of America 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 Bank of America 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 Bank of America, without recourse or warranty, an
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 purposes hereof, all Existing Letters of Credit
shall be deemed to have been issued under this Agreement and each Bank hereby
acknowledges its participation therein. For the purpose of this Agreement, the
unparticipated portion of each Letter of Credit shall be deemed to be Bank of
America's "participation" therein. Bank of America 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.
-4-
<PAGE>
SECTION 1.8 REIMBURSEMENT OBLIGATIONS. The Company hereby unconditionally
and irrevocably agrees to reimburse Bank of America for each payment or
disbursement made by Bank of America 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 Bank of America 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 Bank of America) PLUS 2% per annum. Bank of America 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
Bank of America to so notify the Company shall not affect the rights of Bank of
America or the Banks in any manner whatsoever.
SECTION 1.9 LIMITATION ON BANK OF AMERICA'S OBLIGATIONS. In determining
whether to pay under any Letter of Credit, Bank of America 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 Bank of
America 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
Bank of America 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 BANK OF AMERICA. In the event that Bank
of America makes any payment or disbursement under any Letter of Credit and the
Company shall not have reimbursed Bank of America 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 Bank of America
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 Bank of America, in full or 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 Bank of America'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 Bank of America'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
-5-
<PAGE>
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 Required 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 in
all material respects 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.
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 Bank of America 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" or
"Note", and collectively for all Banks called the "Revolving Notes" or "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). Each
Revolving Note (including all Revolving Loans) shall be due and payable on the
Revolving Termination Date.
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
-6-
<PAGE>
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 (and each Bank agrees to add a legend to such effect
to its Existing Note). 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 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, plus the applicable Margin in effect from time to time;
(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 applicable Margin in effect from time to
time; 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
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<PAGE>
(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 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. After giving effect to any Revolving Loan, there shall not be
more than eight (8) different Interest Periods in effect for all Revolving Loans
then outstanding.
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 and/or the applicable Margin.
SECTION 4 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 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 Bank of America such fees and expenses as Bank of America shall
customarily require in connection with the issuance, negotiation, processing
and/or administration of letters of credit in
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<PAGE>
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 Commitments (whether used or unused)
(as the same may be reduced by SECTION 6.1 or SECTION 6.3). 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. Prior to the date (the "3Q1999
Compliance Certificate Delivery Date") which is five business days after the
date by which the Company is required to furnish the compliance certificate to
the Banks pursuant to Section 10.1.4 for the quarter ended September 30, 1999,
the facility fee shall be computed at the rate of 0.50% per annum. On and after
the 3Q1999 Compliance Certificate Delivery Date, the facility fee shall be
computed for any period at the applicable facility fee rate set forth below. In
all cases the facility fee rate shall be computed for the actual number of days
elapsed on the basis of a year of 360 days. The facility fee shall be
determined without regard to any Borrowing Base limitation or any Event of
Default or Unmatured Event of Default.
<TABLE>
<CAPTION>
Funded Debt/Operating
CASH FLOW RATIO FACILITY FEE RATE
<S> <C> <C>
FDOCFR less than 1.0 0.225%
FDOCFR greater than 1.0 but less than or equal to 1.5 0.250%
FDOCFR greater than 1.5 but less than or equal to 2.0 0.300%
FDOCFR greater than 2.0 but less than or equal to 2.5 0.325%
FDOCFR greater than 2.5 but less than or equal to 3.0 0.350%
FDOCFR greater than 3.0 but less than or equal to 3.5 0.375%
FDOCFR greater than 3.5 but less than or equal to 3.75 0.400%
FDOCFR greater than 3.75 0.400%
</TABLE>
For purposes of the foregoing, FDOCFR means the Funded Debt/Operations Cash
Flow Ratio. 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 0.500% per annum until such certificate is delivered.
SECTION 5.3 AGENT'S FEES. The Company agrees to pay to the Agent for its
own account such fees as are provided for pursuant to the terms of a letter
agreement between the Company and the Agent.
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SECTION 6 REDUCTION OR TERMINATION OF THE COMMITMENTS; VOLUNTARY
PREPAYMENTS.
SECTION 6.1 REDUCTION OR TERMINATION OF THE COMMITMENTS. (a) 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.
(b) Concurrent with each reduction of the Commitments pursuant to SECTION
1.1.3(a)(ii), the Company shall make a mandatory prepayment so that after giving
effect thereto the aggregate unpaid principal amount of the Revolving Loans PLUS
the aggregate Stated Amount of all Letters of Credit shall not exceed the
aggregate Commitments as so reduced.
(c) On any date that the aggregate unpaid principal amount of the
Revolving Loans, PLUS the aggregate Stated Amount of all Letters of Credit
exceeds the aggregate Commitments of the Banks, the Company shall immediately
repay the Revolving Loans or, in the case of the Letters of Credit, furnish to
the Agent cash collateral, in an amount equal to such excess.
(d) Concurrent with each prepayment pursuant to SECTION 6.3, the
Commitments shall be reduced by the amount of such prepayment, such reduction to
be pro rata among the Banks according to their respective Percentages and to be
applied first to the Revolving Loan Commitments prior to the Letter of Credit
Commitments.
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 amount of at least $100,000 and an integral multiple of $100,000,
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.
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SECTION 6.3 MANDATORY PREPAYMENT. If the Company shall issue new common
or preferred equity or any Indebtedness for borrowed money, the Company shall
promptly notify the Agent of the estimated Net Issuance Proceeds of such
issuance to be received by the Company in respect thereof. Promptly upon, and
in no event later than 5 Business Days after, receipt by the Company of Net
Issuance Proceeds of such issuance, the Company shall prepay the Revolving Loans
in an aggregate amount equal to 100% of the amount of such Net Issuance
Proceeds. Net Issuance Proceeds which arise from the incurrence of purchase
money Indebtedness or Capital Lease Obligations shall not be required to be
applied as a prepayment pursuant to this Section 6.3.
SECTION 6.4 CERTAIN PREPAYMENT MECHANICS. Except to the extent otherwise
specified by the Company in a prepayment notice to the Agent, but subject to
Sections 6.2, 6.3 and 8.4, any prepayment pursuant to Sections 6.2 or 6.3 shall
be applied first to any Floating Rate Loan then outstanding and then to
Eurodollar Loans with the shortest Interest Periods remaining. The Company
shall pay, together with each prepayment under this Section 6.3, accrued
interest on the amount prepaid and any amounts required pursuant to Section 8.4.
SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF.
SECTION 7.1 MAKING OF PAYMENTS. All payments to be made by the Company
shall be made without set-off, recoupment or counterclaim. 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 Bank of America. 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 Bank of America 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 Bank of
America; 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
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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 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 Bank of America 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 Bank of
America 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 Bank of America, LaSalle or any Bank or (ii)
any Event of Default or Event of Default described in SECTION 12.1.4 exists, the
Agent, Bank of America, 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, Bank of America, LaSalle or any such Bank.
The Agent, Bank of America, LaSalle and each remaining Bank shall undertake to
notify the Company following the exercise by the Agent, Bank of America, LaSalle
and each such Bank of any of the rights described in this SECTION 7.4; provided
that the failure by the Agent, Bank of America, LaSalle, or any other Bank to so
notify the Company shall not affect the rights of the Agent, Bank of America,
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 7.6 WITHHOLDING TAX.
(a) If any Bank is a "foreign corporation, partnership or trust"
within the meaning of the Code and such Bank claims exemption from, or a
reduction of, U.S. withholding tax under Sections 1441 or 1442 of the Code, such
Bank agrees with and in favor of the Agent, to deliver to the Agent:
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(i) if such Bank claims an exemption from, or a reduction of,
withholding tax under a United States tax treaty, two properly completed
and executed copies of IRS Form 1001 before the payment of any interest in
the first calendar year and before the payment of any interest in each
third succeeding calendar year during which interest may be paid under this
Agreement;
(ii) if such Bank claims that interest paid under this Agreement
is exempt from United States withholding tax because it is effectively
connected with a United States trade or business of such Bank, two properly
completed and executed copies of IRS Form 4224 before the payment of any
interest is due in the first taxable year of such Bank and in each
succeeding taxable year of such Bank during which interest may be paid
under this Agreement; and
(iii) such other form or forms as may be required under the
Code or other laws of the United States as a condition to exemption from,
or reduction of, United States withholding tax.
Such Bank agrees to promptly notify the Agent of any change in circumstances
which would modify or render invalid any claimed exemption or reduction.
(b) If any Bank claims exemption from, or reduction of,
withholding tax under a United States tax treaty by providing IRS Form 1001
and such Bank sells, assigns, grants a participation in, or otherwise
transfers all or part of the obligations of the Company under this Agreement
to such Bank, such Bank agrees to notify the Agent of the percentage amount
in which it is no longer the beneficial owner of obligations of the Company
under this Agreement to such Bank. To the extent of such percentage amount,
the Agent will treat such Bank's IRS Form 1001 as no longer valid.
(c) If any Bank claiming exemption from United States withholding tax
by filing IRS Form 4224 with the Agent sells, assigns, grants a participation
in, or otherwise transfers all or part of the obligations of the Company under
this Agreement to such Bank, such Bank agrees to undertake sole responsibility
for complying with the withholding tax requirements imposed by Sections 1441 and
1442 of the Code.
(d) If any Bank is entitled to a reduction in the applicable
withholding tax, the Agent may withhold from any interest payment to such Bank
an amount equivalent to the applicable withholding tax after taking into account
such reduction. However, if the forms or other documentation required by
subsection (a) of this Section are not delivered to the Agent, then the Agent
may withhold from any interest payment to such Bank not providing such forms or
other documentation an amount equivalent to the applicable withholding tax
imposed by Sections 1441 and 1442 of the Code, without reduction.
(e) If the IRS or any other governmental authority of the United
States or other jurisdiction asserts a claim that the Agent did not properly
withhold tax from amounts paid to or for the account of any Bank (because the
appropriate form was not delivered or was not properly executed, or because such
Bank failed to notify the Agent of a change in circumstances which rendered the
exemption from, or reduction of, withholding tax ineffective, or for any other
reason)
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such Bank shall indemnify the Agent fully for all amounts paid, directly or
indirectly, by the Agent as tax or otherwise, including penalties and
interest, and including any taxes imposed by any jurisdiction on the amounts
payable to the Agent under this Section, together with all costs and expenses
(including attorney fees and expenses). The obligation of the Banks under
this subsection shall survive the payment of all obligations of the Company
under this Agreement and the resignation or replacement of the Agent.
SECTION 8 INCREASED COSTS; SPECIAL PROVISIONS FOR EURODOLLAR LOANS.
SECTION 8.1 INCREASED COSTS.
(a) If (i) Regulation D of the Board of Governors of the Federal Reserve
System, or (ii) after the Effective 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, its
Revolving Note 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 after the Effective Date
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 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
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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 Bank's 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.
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 MITIGATION. Any Bank claiming any additional amounts payable
pursuant to Section 8.1 shall use its best efforts (consistent with its internal
policy and legal and regulatory restrictions) to change its lending branch or
Affiliate (as applicable) if the making of such change would avoid the need for,
or reduce the amount of, any such additional amounts which may
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thereafter accrue and would not, in the reasonable judgment of such Bank, be
otherwise disadvantageous to such Bank.
SECTION 8.8 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 financial condition, operations, or business
prospects of the Company and its Subsidiaries on a consolidated basis. SCHEDULE
9.1 lists the foreign jurisdictions of the Company.
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, 1997 and, except as disclosed on SCHEDULE
9.4, its unaudited consolidated financial statements as at September 30, 1998
and November 30, 1998, 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 fairly present in all material respects the
consolidated financial condition of the Company and its Subsidiaries as at such
dates and the results of their operations for the periods then ended.
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SECTION 9.5 NO MATERIAL ADVERSE CHANGE. Except as disclosed in the SEC
Reports or on SCHEDULE 9.5, since the dates of the financial statements referred
to in SECTION 9.4 there has been no material adverse change in the condition
(financial or otherwise), operations or business prospects of the Company and
its Subsidiaries taken as a whole.
SECTION 9.6 LITIGATION AND CONTINGENT LIABILITIES. Except as disclosed in
the SEC Reports or 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 and its Subsidiaries taken as a
whole, 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, 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. Except as disclosed in Schedule
9.8, 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 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
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or consent from any other Person is necessary in connection with the valid
execution, delivery or performance by the Company of the Loan Documents.
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.
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).
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, except those that would not have a Material
Adverse Effect, (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 which might have a Material Adverse Effect, 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.
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.
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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 applicable
thereto.
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 9.21 YEAR 2000 PROBLEM. The Company and its Subsidiaries have
reviewed or are reviewing the areas within their business and operations (which
are within their control) which could be adversely affected by, and have
developed or are developing a program to address on a timely basis, the "Year
2000 Problem" (that is, the risk that computer applications used by the Company
and its Subsidiaries may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999). Based on such review and program, the Company reasonably
believes that the "Year 2000 Problem" will not have a Material Adverse Effect.
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, 1997, 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 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
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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 Accounting
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
Accounting 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. In addition, within ten
(10) days after the end of each calendar month, the Company shall deliver to
Agent an updated Borrowing Base Report and a receivables aging certificate in a
form reasonably acceptable to the Agent.
SECTION 10.1.4 COMPLIANCE CERTIFICATES. Within 45 days after the end of
each Fiscal Quarter (or, in the case of the last Fiscal Quarter of any fiscal
year, within 90 days), a certificate signed by the President or the Chief
Accounting 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
covenants set forth in Sections 10.5 through 10.8 and the other restrictions
contained in 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 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
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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 semiannual 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.
SECTION 10.5.1 CAPITAL EXPENDITURES. Not permit the consolidated capital
expenditures of the Company and its Subsidiaries (including Capital Lease
Obligations) in any fiscal year to exceed the amount applicable to such fiscal
year as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING AMOUNT
------------------ ------
<S> <C>
December 31, 1999 $10,000,000
December 31, 2000 $15,000,000
December 31, 2001 $20,000,000
</TABLE>
provided; however, that the amount applicable to fiscal year 1999 shall exclude
Capital Expenditures of up to $5,000,000 related to the Verson Division's
facility expansion project as reflected in the Company's accounts payable as of
December 31, 1998.
SECTION 10.5.2 MINIMUM CONSOLIDATED OPERATING CASH FLOW. Not permit its
Consolidated Operating Cash Flow in respect of any Fiscal Quarter, to be less
than the amount applicable to such Fiscal Quarter, as follows:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING AMOUNT
--------------------- ------
<S> <C>
March 31, 1999 $4,000,000
June 30, 1999 $4,000,000
</TABLE>
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<TABLE>
<CAPTION>
FISCAL QUARTER ENDING AMOUNT
--------------------- ------
<S> <C>
September 30, 1999 $4,000,000
December 31, 1999 $3,150,000
March 31, 2000 $7,750,000
June 30, 2000 $8,500,000
</TABLE>
SECTION 10.5.3 NET WORTH. Not permit the Company's Consolidated Net Worth
at any time to be less than (a) $95,000,000, PLUS (b) twenty five percent (25%)
of the Company's positive consolidated net income for each Fiscal Quarter ended
after December 31, 1998, LESS (c) the amount of any cash dividends paid or
declared after December 31, 1998 in an amount not to exceed $7,500,000, LESS (d)
Verson Division Special Expenses up to but not exceeding $18,000,000 in the
aggregate.
SECTION 10.6 FUNDED DEBT/OPERATING CASH FLOW RATIO. Not permit the ratio
("Consolidated Funded Debt/Operating Cash Flow Ratio") of (x) Consolidated Total
Funded Debt to (y) Consolidated Operating Cash Flow to exceed 3.75:1:00 from and
after July 1, 2000 through December 30, 2000, and 3.50:1.00 thereafter.
SECTION 10.7 CONSOLIDATED FIXED CHARGE COVERAGE. Not permit for any
Fiscal Quarter the ratio ("Consolidated Fixed Charge Ratio") of (a) Consolidated
Adjusted Operating Cash Flow 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 the
ratio applicable to such Fiscal Quarter, as follows:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING RATIO
--------------------- -----
<S> <C>
March 31, 1999 0.80:1
June 30, 1999 0.80:1
September 30, 1999 1.00:1
December 31, 1999 1.00:1
March 31, 2000 1.75:1
June 30, 2000 1.75:1
</TABLE>
provided, however, that on and after July 1, 2000, the Company shall not permit
for any period consisting of 4 consecutive Fiscal Quarters, the Consolidated
Fixed Charge Ratio to be less than 2.00:1.
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 1:1.00 during the period from September 30, 1998
through September 30, 2000 or less than 1.25:1 thereafter.
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SECTION 10.9 PURCHASE OR REDEMPTION OF COMPANY'S SECURITIES; DIVIDEND
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 pay or declare cash dividends
to the holders of 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, 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, (xi)
Indebtedness evidenced by the 1999 Senior Notes, and (xii) 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, (vi) liens
arising in the ordinary course of business and consistent with past practices
not to exceed $1,000,000 in the aggregate, (vii) liens on Verson work in
progress inventory securing obligations arising from progress payments to
Verson, provided that the obligations so secured shall be limited to such
progress payments and that the security therefore shall be limited to the
related Verson work in progress inventory, (viii) liens listed in SCHEDULE
10.11, (ix) liens representing the interests of the lessor under a Capital
Lease, or (x) extensions or renewals of the forgoing.
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
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<PAGE>
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 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 acquisitions of any Person (including any acquisition of
all or substantially all of the assets of any Person or the stock or partnership
interest or other ownership interest in any Person) which is in a line of
business substantially similar to the businesses of the Company and its
Subsidiaries, provided that (i) the written consent or approval of the Board of
Directors or equivalent governing body of the Person to be acquired shall have
been obtained prior to consummation and acquisition; (ii) the total
consideration paid or given for all such acquisitions during any consecutive
twelve month period shall not exceed $25,000,000 exclusive of (x) consideration
given in respect of acquisitions consummated prior to August 1, 1998 and (y)
exclusive of the value of common stock of the Company used as consideration in
connection with any such acquisition); (iii) the pro-forma 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 3.25:1; (iv)
no Event of Default or Unmatured Event of Default shall exist before or after
giving effect to such acquisition; (v) any acquisition of stock of a Person
shall not be less than 80% of the issued and outstanding capital stock of such
Person; and (vi) 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 (v).
(c) 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
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<PAGE>
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 or a
Subsidiary, PLUS the amount, if any, by which the liabilities of the acquired
Person assumed by the Company or a Subsidiary (exclusive of the amount of the
indebtedness for borrowed money assumed by the Company or a Subsidiary) 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;
(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;
(h) Investments permitted under Sections, 10.10, 10.12 and 10.13; and
(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
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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 Investor Service,
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 material 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 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 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 10.20 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
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performance of its obligations hereunder or under any instrument or document
delivered or to be delivered by it hereunder or in 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 Company, or (d) prohibits or restricts the ability of the
Company or any Subsidiary to amend or otherwise modify this Agreement or any
other document executed in connection herewith.
SECTION 10.21 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 as of
February 1, 1999 (herein called the "Effective Date") provided that each of the
following conditions shall have been satisfied (it being understood that until
satisfaction such conditions in the Existing Agreement shall remain in full
force and effect): (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 later 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 CERTIFICATE. A certificate of the Chief Accounting Officer
of the Company to the effect that on the Effective Date, (i) the aggregate
principal amount of the Revolving Loans together with the stated amount of all
Letters of Credit does not exceed $145,000,000, and (ii) the conditions set
forth in SECTION 11.2.1 are satisfied as of the Effective Date with the same
effect as if a Revolving Loan were made on such date.
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 such
certificate until formally advised by a like certificate of any changes
therein).
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<PAGE>
SECTION 11.1.6 OPINIONS OF COUNSEL FOR THE COMPANY. The opinions of
Gardner, Carton & Douglas, and Mark Standefer, 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 prospects or continued operations of
the Company and its Subsidiary on a consolidated basis 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.
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.
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SECTION 12.1.2 NON-PAYMENT OF OTHER INDEBTEDNESS FOR BORROWED MONEY.
Default in the payment when due (subject to any 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 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
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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 and
its Subsidiaries taken as a whole.
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 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):
ACCEPTANCE AND ASSIGNMENT - see EXHIBIT E.
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,
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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.
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.
ASSIGNEE - see SECTION 15.17.
BANK - see PREAMBLE.
BANK OF AMERICA - see PREAMBLE.
BORROWING BASE shall mean at any date an amount equal to the sum of the
following:
RECEIVABLES:
(A) 80% of the Net Bush Hog 0 - 90 days Eligible Receivables;
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(B) 75% of the Net Bush Hog 91 - 180 Days Eligible Receivables;
(C) 65% of the Net Bush Hog 181 - 240 Days Eligible Receivables;
(D) 50% of the Net Bush Hog Over 240 Days Eligible Receivables;
(E) 85% of the Net Verson Eligible Receivables;
(F) 80% of the Net Great Bend 0 -90 days Eligible Receivables;
(G) 75% of the Net Great Bend 91-180 days Eligible Receivables;
(H) 65% of the Net Great Bend 181-240 Days Eligible Receivables;
(I) 50% of the Net Great Bend Over 240 Days Eligible Receivables;
(J) 80% of the Net Precision Press Eligible Receivables;
INVENTORY:
(K) 45% of the Net Bush Hog Eligible Raw Material Inventory;
(L) 45% of the Net Great Bend Eligible Raw Material Inventory;
(M) 45% of the Net Bush Hog Purchased Parts Inventory;
(N) 45% of the Net Great Bend Purchased Parts Inventory;
(O) 55% of the Net Bush Hog Eligible Finished Goods Inventory;
(P) 55% of the Net Great Bend Eligible Finished Goods Inventory;
(Q) 50% of the Net Verson Eligible Raw Material Inventory;
(R) 50% of the Net Precision Press Industries Eligible Raw Material
Inventory;
(S) 20% of the Net Verson Eligible Work-In-Process Inventory;
(T) 20% of the Net Precision Press Industries Eligible Work-In-Process;
EQUIPMENT:
(U) 35% of the consolidated gross (undepreciated) value of the machinery
and equipment of the Company and its Subsidiaries; and
(V) the Borrowing Base Overadvance.
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Measurement of the Borrowing Base shall be as of the close of the Company's
business on the last day of each month.
BORROWING BASE OVERADVANCE shall for each month set forth below mean an
amount as follows:
<TABLE>
<CAPTION>
MONTH OVERADVANCE AMOUNT
----- ------------------
<S> <C>
January 1999 $40,000,000
February 1999 $40,000,000
March 1999 $40,000,000
April 1999 $35,000,000
May 1999 $35,000,000
June 1999 $35,000,000
July 1999 $10,000,000
August 1999 $ 5,000,000
</TABLE>
On and after September 1, 1999 the Borrowing Base Overadvance shall be zero.
BORROWING BASE REPORT shall mean the report, together with the supporting
calculations attached thereto, executed on behalf of the Company by its chief
accounting officer or treasurer substantially in the form of EXHIBIT D.
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 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.
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CODE shall mean the Internal Revenue Code of 1986, and regulations
promulgated thereunder.
COMMITMENT shall mean the Revolving Loan Commitment and the Letter of
Credit Commitment of each Bank.
COMMITMENTS shall mean the Revolving Loan Commitments and the Letter of
Credit Commitments of all Banks.
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 (iv) 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 FIXED CHARGE RATIO-see SECTION 10.7.
CONSOLIDATED FUNDED DEBT/OPERATING CASH FLOW RATIO - see SECTION 10.6.
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 (iv) 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.
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.
DEFAULTED RECEIVABLE shall mean at any time, a Receivable: (a) on which any
amount (i) to the Bush Hog Division or the Great Bend Division remains unpaid
sixty-one days or more, or (ii) to the Verson Division or the Precision Press
Industries Division remains unpaid ninety-one days or
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more, in each instance, after the scheduled maturity of such amount; (b) as
to which any of the Related Equipment has been repossessed or returned, or
the related Obligor is subject to any Insolvency Event; (c) which should
have been written off in accordance with the Company's practice as of the
Effective Date; or (d) in respect of which payments have been extended or
rewritten (i) for a purpose other than enhancing the ultimate collectability
thereof, or (ii) more than once or for an additional period longer than
thirty days, it being understood that if payments are extended or rewritten
by the Company, such new terms shall govern for the purpose of subsection (a)
above.
DIRECTORS STATEMENT shall mean the report prepared by the Company in the
form of SCHEDULE 10.1.3.
DIVISION as to Bush Hog, Great Bend, Precision Press Industries and/or
Verson shall mean a division of the Company.
DOLLAR and the sign "$" shall mean lawful money of the United States of
America.
EFFECTIVE DATE - see SECTION 11.1.
ELIGIBLE ASSIGNEE shall mean (a) a commercial bank organized under the laws
of the United States, or any state thereof, and having a combined capital and
surplus of at least $100,000,000; (b) a commercial bank organized under the laws
of any other country which is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of any such
country, and having a combined capital and surplus of at least $100,000,000,
provided that such bank is acting through a branch or agency located in the
country in which it is organized or in the United States; and (c) a Person that
is primarily engaged in the business of commercial banking and that is (i) a
Subsidiary of a Bank, (ii) a Subsidiary of a Person of which a Bank is a
Subsidiary, or (iii) a Person of which a Bank is a Subsidiary.
ELIGIBLE PROGRESS BILLING RECEIVABLE shall mean a Progress Billing
Receivable which meets each of the requirements set forth in the definition of
"Eligible Receivable" other than the requirement that it not be a Progress
Billing Receivable. Any Progress Billing Receivable which is at any time an
Eligible Progress Billing Receivable, but which subsequently fails to meet any
of the foregoing requirements, shall forthwith cease to be an Eligible Progress
Billing Receivable until such time as it once again meets all of the foregoing
requirements. For purposes of determining the Borrowing Base, the "amount" of
each Eligible Progress Billing Receivable at any time shall be the book value
thereof at such time.
ELIGIBLE RAW MATERIAL INVENTORY shall mean any Inventory which meets each
of the following requirements; (a) it consists of raw materials; (b) it is in
good condition; and (c) it is owned by the Company or a Subsidiary and is not
subject to any lien or security interest whatsoever other than any security
interest in favor of the Banks under the Loan Documents. Any Inventory which is
at any time Eligible Raw Material Inventory, but which subsequently fails to
meet any of the foregoing requirements, shall forthwith cease to be Eligible Raw
Material Inventory until such time as it once again meets all of the foregoing
requirements. For purposes of determining the
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Borrowing Base, the "amount" of Eligible Raw Material Inventory at any time
shall be the book value thereof at such time.
ELIGIBLE RECEIVABLE shall mean each Receivable of the Company and/ or a
Subsidiary:
(a) which complies with all applicable legal requirements, including,
without limitation, to the extent applicable, all state and federal usury
laws;
(b) which constitutes a legal, valid and binding payment obligation
(not (i) evidencing "consumer credit" within the meaning of 12 C.F.R.
226.2(p), as amended or replaced from time to time after the Effective Date
or (ii) secured by Related Equipment deemed by the Company to be "consumer
use equipment") of the related obligator, enforceable in accordance with
its terms;
(c) with respect to which, if such Receivable arose from the sale of
goods, such goods were free of any liens or encumbrances at the time of
sale, and if such Receivable is secured by a security interest in the
Related Equipment, such equipment has been delivered to the related Obligor
and is located in one of the 50 States, the District of Columbia, Canada,
Mexico, or Russia; provided that with respect to a Receivable which arises
from an Obligor located in Mexico or Russia, the payment thereof is secured
by a letter of credit acceptable to Agent;
(d) which provides for payment by the related Obligor (other than an
Obligor obligated with regard to such Receivable solely on account of a
guaranty or a recourse obligation), which is a Person (which, if a
corporation, the principal place of business of which is) located in one of
the 50 States or the District of Columbia or Canada and is not the Company
or an Affiliate of the Company, in United States dollars with terms (of
payment or otherwise) which do not vary materially from industry practice
for similar receivables.
(e) which was originated in conformity with credit standards which
were not materially lower than the standards of the Company in effect on
the Effective Date;
(f) which is not a Defaulted Receivable, a Progress Billing
Receivable or an Unbilled Receivable; and
(g) which has not been owed by any entity as to which an Insolvency
Event has occurred.
Notwithstanding the foregoing, if a standby or commercial letter of credit has
been issued in form and substance (including amount) satisfactory to the Agent
in its sole discretion to support an account receivable of the Company, such
account receivable shall be deemed to meet the requirements in clause (d) above
as to the location of the related Obligor. A Receivable which is at any time an
Eligible Receivable, but which subsequently fails to meet any of the foregoing
requirements, shall forthwith cease to be an Eligible Receivable until such time
as it once again meets all of the foregoing requirements. For purposes of
determining the Borrowing Base, the "amount" of each Eligible Receivable at any
time shall be the net amount of such Eligible
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Receivable (reduced by the amount of any refund, rebate, allowance, discount,
or other concession to the Obligor in connection therewith) at such time.
ELIGIBLE UNBILLED RECEIVABLE shall mean an Unbilled Receivable which arises
in the ordinary course of business of the Company and which meets each of the
requirements set forth in the definition of "Eligible Receivable" other than
the requirement that it not be an Unbilled Receivable. Any Unbilled
Receivable which is at any time an Eligible Unbilled Receivable, but which
subsequently fails to meet any of the foregoing requirements, shall forthwith
cease to be an Eligible Unbilled Receivable until such time as it once
against meets all of the foregoing requirements. For purposes of determining
the Borrowing Base, the "amount" of each Eligible Unbilled Receivable shall
be the book value thereof at such time.
ELIGIBLE WORK-IN-PROCESS INVENTORY shall mean any Inventory which meets
each of the following requirements; (a) it consists of work-in-process; (b) it
is in good condition; and (c) it is owned by the Company and is not subject to
any lien or security interest whatsoever other than a security interest in favor
of the Banks under the Loan Documents. Any Inventory which is at any time
Eligible Work-In-Process Inventory, but which subsequently fails to meet any of
the foregoing requirements, shall forthwith cease to be Eligible Work-In-Process
Inventory until such time as it once again meets all of the foregoing
requirements. For purposes of determining the Borrowing Base, the "amount" of
Eligible Work-In-Process Inventory at any time shall be the book value thereof
at such time (after giving effect to related contra asset accounts, including
without limitation, such accounts for customer down payments).
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.
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.
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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 Bank of
America two Business Days prior to the beginning of such Interest Period by
major banks in the interbank 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 Bank of America 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 1%) determined pursuant to the following
formula:
Eurodollar Rate = EURODOLLAR RATE
(Reserve Adjusted) 1-Eurocurrency
Reserve Percentage
EVENT OF DEFAULT shall mean any of the events described in SECTION 12.1.
EXISTING LETTERS OF CREDIT-see RECITALS.
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
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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 without duplication, the Revolving Loans from time to time
outstanding.
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.
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
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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, (i) 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 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.
INVENTORY shall mean any and all now owned or hereafter acquired inventory,
goods, merchandise, and other tangible personal property intended for sale or
lease, in the custody or possession, actual or constructive, of the Company or
any of its Subsidiaries, or in transit to the Company or any of its
Subsidiaries, including such inventory as is on consignment to third parties,
leased to customers of the Company or any of its Subsidiaries, or otherwise
temporarily out of the custody or possession of the Company or any of its
Subsidiaries.
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. The term Investment shall include any joint
venture investment.
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"ISSUE" shall mean, with respect to any Letter of Credit, to issue or to
extend the expiry of, or to renew or increase the amount of, such Letter of
Credit; and the terms "ISSUED," "ISSUING" and "ISSUANCE" shall have
corresponding meanings.
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 Bank of America 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 Bank of America
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.
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:
<TABLE>
<CAPTION>
FUNDED DEBT/OPERATING EURODOLLAR LOAN FLOATING RATE
CASH FLOW RATIO (AND LETTERS OF CREDIT) LOAN
- - --------------------- ----------------------- -------------
<S> <C> <C> <C>
FDOCFR less than 1.0 0.500% 0.000%
FDOCFR greater than 1.0 but less than or equal to 1.5 0.625% 0.000%
FDOCFR greater than 1.5 but less than or equal to 2.0 0.750% 0.000%
FDOCFR greater than 2.0 but less than or equal to 2.5 1.000% 0.000%
FDOCFR greater than 2.5 but less than or equal to 3.0 1.250% 0.250%
FDOCFR greater than 3.0 but less than or equal to 3.5 1.500% 0.500%
FDOCFR greater than 3.5 but less than or equal to 3.75 1.750% 0.750%
FDOCFR greater than 3.75 2.000% 0.750%
</TABLE>
For purposes of the foregoing, FDOCFR means the Funded Debt/Operations Cash Flow
Ratio. 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 2.0% per annum until such
certificate is delivered. Notwithstanding the foregoing, prior to the 3Q1999
Compliance Certificate Delivery Date, the Margin applicable to Eurodollar Loans
and Letters of Credit shall be 2.5%, and the Margin applicable to Floating Rate
Loans shall be 1.00%, and (b) on and after November 1, 1999, and only for so
long as, if the 1999 Debt/Equity Issuance has not occurred, the
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Margin applicable to the portion of the aggregate principal amount of
Revolving Loans outstanding which is equal to $50,000,000 shall be increased
by 0.25% over the margin then otherwise in effect.
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.
MATERIAL ADVERSE EFFECT means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties, condition
(financial or otherwise) or prospects of the Company or the Company and its
Subsidiaries taken as a whole; (b) a material impairment of the ability of the
Company to perform under this Agreement and to avoid any Event of Default; or
(c) a material adverse effect upon the legality, validity, binding effect or
enforceability against the Company under this Agreement.
NET BUSH HOG ELIGIBLE FINISHED GOODS INVENTORY shall mean the finished
goods inventory carried on the books and records of the Bush Hog Division less:
(i) reserves for excess and/or obsolete inventory; (ii) component parts
manufactured by Bush Hog Division; (iii) inventory held by sales representatives
for demonstration purposes; and (iv) inventory not included on the perpetual
inventory records.
NET BUSH HOG ELIGIBLE PURCHASED PARTS INVENTORY shall mean the book value
of the purchased parts included in the Bush Hog Raw Material Inventory, less any
reserves for obsolete and/or excess purchased parts.
NET BUSH HOG ELIGIBLE RAW MATERIAL INVENTORY shall mean the book value of
the steel in the Bush Hog Raw Material Inventory.
NET BUSH HOG ELIGIBLE RECEIVABLES shall mean the Eligible Receivables of
the Bush Hog Division reduced by all of the following: (i) the Eligible
Receivables of any Obligors at least fifty percent (50%) of whose total
Receivables are more than sixty (60) days past due; (ii) Eligible Receivables
the Obligors of which are Bush Hog sales representatives or salesmen; (iii)
Eligible Receivables representing interest charges and/or chargebacks to
Obligors for disallowed deductions from payments; (iv) all reserves for foreign
exchange, service parts, warranties, and customer deposits, (v) all Obligor
prepayments not already deducted from Receivables; (vi) cash received by the
Bush Hog Division but not yet applied to the reduction of Receivables; (vii)
Eligible Receivables with respect to Kewanee Service Parts sales; and (viii)
Eligible Receivables with extended terms beyond original date.
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NET BUSH HOG 0 - 90 DAYS ELIGIBLE RECEIVABLES shall mean those Net Bush Hog
Eligible Receivables on which the number of days elapsed from the invoice date
is no more than ninety (90) days.
NET BUSH HOG 91 - 180 DAYS ELIGIBLE RECEIVABLES shall mean those Net Bush
Hog Eligible Receivables on which the number of days elapsed from the invoice
date is between ninety-one (91) and one hundred eighty-one (181) days.
NET BUSH HOG 181 - 240 DAYS ELIGIBLE RECEIVABLES shall mean those Net Bush
Hog Eligible Receivables on which the number of days elapsed from the invoice
date is between one hundred eighty-one (181) and two hundred forty (240) days.
NET BUSH HOG OVER 240 DAYS ELIGIBLE RECEIVABLES shall mean those Net Bush
Hog Eligible Receivables on which the number of days elapsed from the invoice
date is more than two hundred forty (240) days.
NET GREAT BEND ELIGIBLE FINISHED GOODS INVENTORY shall mean the finished
goods inventory carried on the books and records of the Great Bend Division
less: (i) reserves for excess and/or obsolete inventory; (ii) component parts
manufactured by Great Bend Division; (iii) inventory held by sales
representatives for demonstration purposes; and (iv) inventory not included on
the perpetual inventory records.
NET GREAT BEND ELIGIBLE PURCHASED PARTS INVENTORY shall mean the book value
of the purchased parts included in the Great Bend Raw Material Inventory, less
any reserves for obsolete and/or excess purchased parts.
NET GREAT BEND ELIGIBLE RAW MATERIAL INVENTORY shall mean the book value of
the steel in the Great Bend Raw Material Inventory.
NET GREAT BEND ELIGIBLE RECEIVABLES shall mean the Eligible Receivables of
the Great Bend Division reduced by all of the following: (i) the Eligible
Receivables of any Obligors at least fifty percent (50%) of whose total
Receivables are more than sixty (60) days past due; (ii) Eligible Receivables
the Obligors of which are Great Bend sales representatives or salesmen; (iii)
Eligible Receivables representing interest charges and/or chargebacks to
Obligors for disallowed deductions from payments; (iv) all reserves for foreign
exchange, service parts, warranties, and customer deposits, (v) all Obligor
prepayments not already deducted from Receivables; (vi) cash received by the
Great Bend Division but not yet applied to the reduction of Receivables; (vii)
[reserved]; and (viii) Eligible Receivables with extended terms beyond original
date.
NET GREAT BEND 0 - 90 DAYS ELIGIBLE RECEIVABLES shall means those Net
Great Bend Eligible Receivables on which the number of days elapsed from the
invoice date is no more than ninety (90) days.
NET GREAT BEND 91 - 180 DAYS ELIGIBLE RECEIVABLES shall mean those Net
Great Bend Eligible Receivables on which the number of days elapsed from the
invoice date is between ninety-one (91) and one hundred eighty-one (181) days.
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NET GREAT BEND 181 - 240 DAYS ELIGIBLE RECEIVABLES shall mean those Net
Great Bend Eligible Receivables on which the number of days elapsed from the
invoice date is between one hundred eighty-one (181) and two hundred forty (240)
days.
NET GREAT BEND OVER 240 DAYS ELIGIBLE RECEIVABLES shall mean those Net
Great Bend Eligible Receivables on which the number of days elapsed from the
invoice date is more than two hundred forty (240) days.
NET ISSUANCE PROCEEDS shall mean, as to any issuance of debt or equity by
any Person, cash proceeds and non-cash proceeds received or receivable by such
Person in connection therewith, net of reasonable out-of-pocket costs and
expenses paid or incurred in connection therewith in favor of any Person, such
costs and expenses not to exceed 7% of the gross proceeds of such issuance or
such other amounts permitted by law which are reasonable under then current
market conditions.
NET PRECISION PRESS INDUSTRIES ELIGIBLE RAW MATERIAL INVENTORY shall mean
the book value of the Eligible Raw material Inventory of the Precision Press
Industries Division less the values of the castings and forgings, reserves for
excess raw material, other raw material valuation reserves and customer rework.
NET PRECISION PRESS INDUSTRIES ELIGIBLE RECEIVABLES shall mean the Eligible
Receivables of the Precision Press Industries Division less any credit balances
aged past ninety (90) days and less any Eligible Receivables of any Obligor
fifty percent (50%) or more of whose total Receivables are more than ninety (90)
days past due and less all contra advance payments.
NET PRECISION PRESS INDUSTRIES ELIGIBLE WORK-IN-PROGRESS INVENTORY shall
mean the Eligible Work-In-Progress Inventory of the Precision Press Industries
Division.
NET VERSON ELIGIBLE RAW MATERIAL INVENTORY shall mean the book value of the
Eligible Raw material Inventory of the Verson Division less the values of the
castings and forgings, reserves for excess raw material, other raw material
valuation reserves and customer rework.
NET VERSON ELIGIBLE RECEIVABLES shall mean the Eligible Receivables of the
Verson Division less any credit balances aged past ninety (90) days and less any
Eligible Receivables of any Obligor fifty percent (50%) or more of whose total
Receivables are more than ninety (90) days past due and less all contra advance
payments.
NET VERSON ELIGIBLE WORK-IN-PROGRESS INVENTORY shall mean the Eligible
Work-In-Progress Inventory of the Verson Division.
1999 DEBT/EQUITY ISSUANCE shall mean receipt by the Company of Net Issuance
Proceeds of at least $50,000,000 arising from the issuance by the Company of
(i) 1999 Senior Notes or (ii) common or preferred equity stock of the Company.
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1999 SENIOR NOTES shall mean the senior notes proposed to be issued by the
Company, in the original aggregate amount of at least $50,000,000 on or before
September 1, 1999, provided, that the terms and provisions thereof (including,
without limitation, the terms and provisions as to amount, pricing, maturity,
covenants, and intercreditor issues) shall be in form and substance satisfactory
to the Required Banks.
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.
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. Upon any assignment pursuant to
SECTION 15.17, the Agent shall appropriately revise each Bank's Percentage and
EXHIBIT A so as to give effect to such assignment.
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.
PROGRESS BILLING RECEIVABLE shall mean a Receivable which arose from the
obligation of the related Obligor to make progress payments or similar payments.
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.
RECEIVABLES shall mean and include all of the present and future rights of
the Company and its Subsidiaries to payment for goods, merchandise or Inventory
sold or leased or for services rendered (including, without limitation, those
which are not evidenced by instruments or chattel paper), whether or not they
have been earned by performance, and all accounts, proceeds of any letters of
credit on which the Company is named as beneficiary, contract rights, chattel
paper, instruments, documents, insurance proceeds (to the extent payable to the
Agent as its interest may
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appear), and all other such obligations whatsoever, owing to the Company or
its subsidiaries, together with all instruments and all documents of title
representing any of the foregoing, all rights in any goods, merchandise or
inventory which any of the same may represent, all rights in any returned or
repossessed goods, merchandise and Inventory, and all rights, title, security
and guaranties with respect to each of the foregoing, including, without
limitation, any right of stoppage in transit.
REFERENCE RATE shall mean at any time the rate of interest then most
recently announced by Bank of America at Chicago, Illinois as its reference
rate.
RELATED EQUIPMENT shall mean with respect to any Receivable the equipment,
the sale of which gave rise to such Receivable, and any other property which
secures such Receivable.
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 Bank of America 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.
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, 2001; provided that such
date may be extended in writing by the Banks, in their sole and absolute
discretion, until September 30, 2002 upon the written request by the Company to
the Agent no later than June 30, 2001. Nothing contained herein shall be deemed
to require the Banks to extend the Revolving Termination Date.
SEC REPORT shall mean (i) the Company's 10-K report as filed with the
Securities and Exchange Committee for its fiscal year ended December 31, 1997
and (ii) all of the Company's forms 10-Q and 8-K filed with the Securities and
Exchange Commission since December 31, 1997.
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
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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.
3Q1999 COMPLIANCE CERTIFICATE DELIVERY DATE - see SECTION 5.2.
TYPE OF LOAN OR BORROWING means either Floating Rate Loans or borrowings or
Eurodollar Loans or borrowings.
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.
VERSON DIVISION SPECIAL EXPENSES shall mean all of the expenses identified
in relation to the Verson Division, as specified in Schedule 13 hereto.
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
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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, 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 Bank of
America 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
$400,000,000. Upon the acceptance of
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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 14.7 LETTERS OF CREDIT. The provisions of SECTION 14 hereof shall
apply to Bank of America as the issuer of the Letters of Credit with the same
effect as if Bank of America as issuer were the Agent.
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 Commitment 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 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
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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) in connection with the preparation, administration, amendment or waiver
of this Agreement and the other Loan Documents 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 enforcement of this Agreement, or any other Loan
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 Loan 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.
-51-
<PAGE>
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 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. Subject to SECTION 15.17, this
Agreement shall be binding upon the Company, the Banks and the Agent and their
respective permitted successors and assigns, and shall inure to the benefit of
the Company, the Banks and the Agent and the permitted successors and assigns of
the Banks and the Agent.
-52-
<PAGE>
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 character of
the Revolving Loans as commercial lending transactions.
SECTION 15.15 CONFIDENTIALITY. Each Bank agrees to take and to cause its
Affiliates to take normal and reasonable precautions and exercise due care to
maintain the confidentiality of all information identified as "confidential" or
"secret" by the Company and provided to it by the Company or any Subsidiary, or
by the Agent on the Company's or such Subsidiary's behalf, under this Agreement
or any other Loan Document, and neither it nor any of its Affiliates shall use
any such information other than in connection with or in enforcement of this
Agreement and the other Loan Documents or in connection with other business now
or hereafter existing or contemplated with the Company or any Subsidiary; except
to the extent such information (i) was or becomes generally available to the
public other than as a result of disclosure by the Bank, or (ii) was or becomes
available on a non-confidential basis from a source other than the Company,
provided that such source is not bound by a confidentiality agreement with the
Company known to the Bank; PROVIDED, HOWEVER, that any Bank may disclose such
information (A) at the request or pursuant to any requirement of any
governmental authority to which the Bank is subject or in connection with an
examination of such Bank by any such authority; (B) pursuant to subpoena or
other court process; (C) when required to do so in accordance with the
provisions of any applicable requirement of law; (D) to the extent reasonably
required in connection with any litigation or proceeding to which the Agent, any
Bank or their respective Affiliates may be party; (E) to the extent reasonably
required in connection with the exercise of any remedy hereunder or under any
other Loan Document; (F) to such Bank's independent auditors and other
professional advisors; (G) to any participant or assignee, actual or potential,
provided that such Person agrees in writing to keep such information
confidential to the same extent required of the Banks hereunder; (H) as to any
Bank or its Affiliate, as expressly permitted under the terms of any other
document or agreement regarding confidentiality to which the Company or any
Subsidiary is party or is deemed party with such Bank or such Affiliate; and (I)
to its Affiliates, provided that each Affiliate agrees to keep such information
confidential to the same extent required of the Banks herewith.
SECTION 15.16 WAIVER. Effective as of the Effective Date, the Banks hereby
waive for the Fiscal Quarter ending December 31, 1998 (but not for any period
thereafter), non-compliance by the
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<PAGE>
Company, with the financial covenants contained in SECTIONS 10.5, 10.6 AND
10.7 of the Existing Credit Agreement.
SECTION 15.17 ASSIGNMENTS AND PARTICIPATIONS.
(a) Any Bank may, with the written consent of the Company (at all
times other than during the existence of an Event of Default) and the
Agent, which consent of the Company shall not be unreasonably withheld, at
any time assign and delegate to one or more Eligible Assignees (provided
that no written consent of the Company or the Agent shall be required in
connection with any assignment and delegation by a Bank to an Eligible
Assignee that is an Affiliate of such Bank) (each an "ASSIGNEE") all, or
any ratable part of all, of the Revolving Loans, the Commitment and the
other rights and obligations of such Bank hereunder, in a minimum amount of
$5,000,000; PROVIDED, HOWEVER, that the Company and the Agent may continue
to deal solely and directly with such Bank in connection with the interest
so assigned to an Assignee until (i) written notice of such assignment,
together with payment instructions, addresses and related information with
respect to the Assignee, shall have been given to the Company and the Agent
by such Bank and the Assignee; (ii) such Bank and its Assignee shall have
delivered to the Company and the Agent an Assignment and Acceptance in the
form of EXHIBIT E ("ASSIGNMENT AND ACCEPTANCE") together with any Revolving
Note or Revolving Notes subject to such assignment and (iii) the assignor
Bank or Assignee has paid to the Agent a processing fee in the amount of
$3,000.
(b) From and after the date that the Agent notifies the assignor Bank
that it has received (and provided its consent with respect to) an executed
Assignment and Acceptance (accompanied by any written consent of the
Company to the extent required) and payment of the above-referenced
processing fee, (i) the Assignee thereunder shall be a party hereto and, to
the extent that rights and obligations hereunder have been assigned to it
pursuant to such Assignment and Acceptance, shall have the rights and
obligations of a Bank under the Loan Documents, and (ii) the assignor Bank
shall, to the extent that rights and obligations hereunder and under the
other Loan Documents have been assigned by it pursuant to such Assignment
and Acceptance, relinquish its rights and be released from its obligations
under the Loan Documents.
(c) Within five Business Days after its receipt of notice by the
Agent that it has received an executed Assignment and Acceptance
(accompanied by any written consent of the Company to the extent required)
and payment of the processing fee, (and provided that it consents to such
assignment in accordance with subsection 15.7(a)), the Company shall
execute and deliver to the Agent, new Revolving Notes evidencing such
Assignee's assigned Revolving Loans and Commitment and, if the assignor
Bank has retained a portion of its Revolving Loans and its Commitment,
replacement Revolving Notes in the principal amount of the Revolving Loans
retained by the assignor Bank (such Revolving Notes to be in exchange for,
but not in payment of, the Revolving Notes held by such Bank). Immediately
upon each Assignee's making its processing fee payment under the Assignment
and Acceptance, this Agreement shall be deemed to be amended to the extent,
but only to the extent, necessary to reflect the addition of the Assignee
and the resulting adjustment of the Commitments (and the related Percentage
of each Bank) arising
-54-
<PAGE>
therefrom. The Commitment allocated to each Assignee shall reduce such
Commitment(s) of the assigning Bank PRO TANTO.
(d) Any Bank may at any time sell to one or more commercial banks or
other Persons not Affiliates of the Company (a "PARTICIPANT") participating
interests in any Revolving Loans, the Commitment of that Bank and the other
interests of that Bank (the "originating Bank") hereunder and under the
other Loan Documents; PROVIDED, HOWEVER, that (i) the originating Bank's
obligations under this Agreement shall remain unchanged, (ii) the
originating Bank shall remain solely responsible for the performance of
such obligations, (iii) the Company and the Agent shall continue to deal
solely and directly with the originating Bank in connection with the
originating Bank's rights and obligations under this Agreement and the
other Loan Documents, and (iv) no Bank shall transfer or grant any
participating interest under which the Participant has rights to approve
any amendment to, or any consent or waiver with respect to, this Agreement
or any other Loan Document, except to the extent such amendment, consent or
waiver would require unanimous consent of the Banks as described in the
PROVISO to Section 15.1. In the case of any such participation, the
Participant shall be entitled to the benefit of SECTION 15.9 as though it
were also a Bank hereunder, and if amounts outstanding under this Agreement
are due and unpaid, or shall have been declared or shall have become due
and payable upon the occurrence of an Event of Default, each Participant
shall be deemed to have the right of set-off in respect of its
participating interest in amounts owing under this Agreement to the same
extent as if the amount of its participating interest were owing directly
to it as a Bank under this Agreement.
Notwithstanding any other provision in this Agreement, any Bank may at any time
create a security interest in, or pledge, all or any portion of its rights under
and interest in this Agreement and the Note held by it in favor of any Federal
Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury
Regulation 31 CFR Section 203.14, and such Federal Reserve Bank may enforce such
pledge or security interest in any manner permitted under applicable law.
-55-
<PAGE>
[SIGNATURE PAGES FOLLOW]
-56-
<PAGE>
Delivered to Chicago, Illinois, as of the day and year first above written.
ALLIED PRODUCTS CORPORATION
By: /s/ RICHARD DREXLER
---------------------------
Name: Richard Drexler
Title: President
10 South Riverside Plaza
Chicago, Illinois 60606
Facsimile No.: (312) 454-1511
Number for confirmation of
facsimiles: (312) 441-5228
Attention: Gerri Lohbrandt
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By: /s/ DAVID JOHANSON
---------------------------
Title: Vice President
231 South LaSalle Street
Chicago, Illinois 60697
Facsimile No.: (312) 974-9102
Number for confirmation of
facsimiles: (312) 828-7933
Attention: David Johanson
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as a Bank
By: /s/ BARABARA HAMEL
---------------------------
Title: Senior Vice President
231 South LaSalle Street
Chicago, Illinois 60697
Facsimile No.: (312) 828-1409
Number for confirmation of
facsimiles: (312) 828-1974
Attention: Barbara Hamel
<PAGE>
LASALLE NATIONAL BANK
By: /s/ MARY LOU BARTLETT
---------------------------
Mary Lou Bartlett
Vice President
120 South LaSalle Street
Chicago, Illinois 60603
Facsimile No.: (312) 904-0432
Number for confirmation of
facsimiles: (312) 904-0433
Attention: Mary Lou Bartlett
<PAGE>
EXHIBIT A
COMMITMENT LIMITS AND PERCENTAGES
<TABLE>
<CAPTION>
Column I: Column II: Column III: Column IV:
Amount of Revolving Amount of Letter of Total Amount of
Name of Bank Loan Commitment Credit Commitment Commitments Percentage
<S> <C> <C> <C> <C>
BANK OF AMERICA $ 101,500,000* $14,000,000 $ 101,500,000* 70%
NATIONAL TRUST AND
SAVINGS ASSOCIATION
LASALLE NATIONAL BANK $ 43,500,000* $ 6,000,000 $ 43,500,000* 30%
------------- ----------- ------------ ---
TOTALS $ 145,000,000* $20,000,000 $145,000,000* 100%
</TABLE>
* Subject to reductions pursuant to Sections 1.1.3(a)(ii) and 6.1.
<PAGE>
EXHIBIT B
FORM OF
RESTATED REVOLVING NOTE
$ __________________ February 1, 1999
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 __________________ _______________ Dollars ($_______) or,
if less, the aggregate unpaid amount of all Revolving Loans made by the payee to
the undersigned pursuant to the Credit Agreement referred to below, (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 Restated Revolving Note evidences indebtedness incurred under, and is
subject to the terms and provisions of, the Second Amended and Restated Credit
Agreement, dated as of February 1, 1999, as amended (herein, as further amended
or otherwise modified from time to time, called the "Credit Agreement"), between
the undersigned, various banks (including the payee) and BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION, as agent for the Banks, to which Credit
Agreement reference is hereby made for a statement of the terms and provisions
under which this Restated 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
Restated Revolving Note in endeavoring to collect any amounts payable hereunder
which are not paid when due, whether by acceleration or otherwise.
This Restated Revolving Note is made under and governed by the internal
laws of the State of Illinois.
This Restated Revolving Note is issued in replacement of a Revolving Note
issued pursuant to the Credit Agreement on August 21, 1998. 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 Restated Revolving Note dated February 1, 1999 of THE
COMPANY PAYABLE TO THE ORDER OF
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Date and Amount of Date and Amount
Revolving Loan or of of Repayment or of
Conversion from Conversion into Unpaid
another type of another type of Principal
Revolving Loan Revolving Loan Interest Period Balance Notation Made by
</TABLE>
1. FLOATING RATE LOANS
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
2. EURODOLLAR LOANS
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
<PAGE>
EXHIBIT C
[GARDNER, CARTON & DOUGLAS Letterhead]
____________, 1999
Bank of America National Trust
and Savings Association,
individually and as Agent
231 South LaSalle Street
Chicago, Illinois 60697
LaSalle National Bank
120 South LaSalle Street
Suite 220
Chicago, Illinois 60603
Ladies and Gentlemen:
We have acted as counsel to Allied Products Corporation, a Delaware
corporation ("Borrower"), in connection with the transactions effected and to be
effected pursuant to the following agreements and documents:
(i) that certain Second Amended and Restated Credit Agreement, dated
as of February 1, 1999 (the "Credit Agreement"), between the Borrower and each
of you;
(ii) those certain Revolving Notes evidencing loans under the
Credit Agreement (the "Notes").
The Credit Agreement and the Notes are collectively referred to herein
as the "Transaction Documents."
All capitalized terms used herein but not defined herein shall have
the meanings assigned to them in the Credit Agreement.
For purposes of this opinion, we have relied as to factual matters on
the representations and warranties contained in the Transaction Documents and we
have assumed the completeness and accuracy of all such representations and
warranties as to factual matters. Although we have made inquiries with respect
to such matters, and relied upon representations of officers and employees of
the Borrower, we have not, except as specifically noted herein, made any
independent review or investigation of facts in connection with this opinion.
Without limiting the generality of the foregoing, we have not made any
independent review or investigation of any decree, order, judgment, writ or
injunction to which Borrower may be a party or be subject or by which any of its
properties or assets may be bound or of any court or agency docket, nor have we
made any independent investigation as to the existence of any actions, suits,
investigations or proceedings, if any, pending or threatened against the
Borrower. While our firm represents the Borrower on a regular basis, our
engagement is limited to specific matters as to which we are consulted by the
Borrower from time to time. We have examined originals or copies, certified to
<PAGE>
our satisfaction, of such (i) certificates of public officials, (ii)
certificates of officers and representatives of the Borrower and (iii) other
documents, records, financial statements and papers, and we have made such
inquiries of officers and representatives of the Borrower, as we have deemed
relevant or necessary for purposes of this opinion. We have assumed the
genuineness of all signatures (other than those of officers of the Borrower) and
the authenticity of all documents submitted to us as originals and the
conformity to original documents of all documents submitted to us as certified
or photostatic copies. As to the good standing of the Borrower, we have relied
exclusively upon a certificate of good standing as of recent date issued by the
Secretary of State of the State of Delaware. Based upon an subject to our
examination as aforesaid and subject to the qualifications hereinafter set
forth, we are of the opinion that:
1. The Borrower is a corporation validly existing and in good standing
under the General Corporation Law of the State of Delaware and has the requisite
corporate power and authority to conduct its business and to enter into and
consummate the transactions contemplated by, and perform all of its obligations
under, each of the Transaction Documents to which it is a party.
2. The execution, delivery and performance by the Borrower of each of the
Transaction Documents to which it is a party and the consummation by the
Borrower of each of the transactions on its part contemplated by the Transaction
Documents: (i) are within the corporate power of the Borrower; (ii) have been
duly authorized by all necessary corporate action on the part of the Borrower
and (iii) are not in contravention of any provision of the Certificate of
Incorporation or by-laws of the Borrower.
3. The respective Transaction Documents to which the Borrower is a party
have each been duly executed and delivered by the Borrower and, assuming due
authorization, execution and delivery thereof by the Agent and the Lenders,
constitute valid and binding obligations of the Borrower, enforceable in
accordance with their respective terms, except to the extent that enforcement of
the Transaction Documents may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or similar laws of general
application relating to or affecting the enforcement of the rights of creditors
or secured parties, the application of general principles of equity or by the
availability of equitable remedies and further subject to the qualifications set
forth in the next succeeding sentence. We express no opinion herein as to the
validity or enforceability of any provision of the Transaction Documents to the
extent that such provision purports to require the Borrower to indemnify or to
hold harmless you or any other person or entity from the consequences of any
negligent or other wrongful act or omission of you or such other person or
entity.
The foregoing opinions are limited to the laws of the United States, the
State of Illinois and the General Corporation Law of the State of Delaware and
we have not considered and express no opinion on the laws of any other
jurisdiction.
This opinion is furnished by us solely for your benefit and it may not be
relied upon, quoted from or delivered to any person other than counsel to you,
your agents, employees, successors, assigns and participants.
Very truly yours,
<PAGE>
[ALLIED PRODUCTS CORPORATION LETTERHEAD]
__________, 1999
Bank of America National Trust
and Savings Association,
individually and as Agent
231 South LaSalle Street
Chicago, Illinois 60697
LaSalle National Bank
120 South LaSalle Street
Suite 220
Chicago, Illinois 60603
Ladies and Gentlemen:
I am General Counsel of Allied Products Corporation, a Delaware
corporation ("Borrower"), and have represented the Borrower in connection
with the transactions effected and to be effected pursuant to the following
agreements and documents:
(i) that certain Second Amended and Restated Credit Agreement, dated
as of February 1, 1999 (the "Credit Agreement"), between the Borrower and each
of you; and
(ii) the Revolving Notes evidencing loans under the Credit
Agreement (the "Notes").
The Credit Agreement and the Notes are collectively referred to herein
as the "Transaction Documents."
All capitalized terms used herein but not defined herein have the
meanings assigned to them in the Credit Agreement.
I have examined originals or copies, certified to my satisfaction, of
such (i) certificates of public officials, (ii) certificates of officers and
representatives of the Borrower and (iii) other documents, records, financial
statements and papers, and I have made such inquiries of officers and
representatives of the Borrower, as I have deemed relevant or necessary for
purposes of this opinion. I have relied upon, and assumed the accuracy of, such
certificates and other statements, documents, records, financial statements and
papers with respect to the factual matters set forth therein and I have assumed
the genuineness of all signatures, other than those of representatives therein
and I have assumed the genuineness of all signatures, other than those of
representatives of the Borrower, and the authenticity of all documents submitted
to me as originals and the conformity to original documents of all documents
submitted to me as certified or photostatic copies.
1. The Borrower (i) is a corporation organized, validly existing and in
good standing under the General Corporation Law of Delaware; (ii) is
qualified to do business in each jurisdiction in which it owns or leases real
property or in which it conducts any business, except for those jurisdictions
in which the failure to do so qualify would not have a Material Adverse
Effect; (iii) has
<PAGE>
the requisite corporate power and authority to own, pledge, mortgage and
operate its properties, to lease any properties it operates under lease, to
conduct its business and to enter into, consummate all of the transactions
contemplated by, and perform all of its obligations under, each of the
Transaction Documents; and (iv) has all licenses, permits, consents or
approvals from or by, has made all filings with, and has given all notices
to, all governmental authorities having jurisdiction, which are required for
such ownership, operation and conduct and where a failure to have such
license, permit, consent or approval would have a Material Adverse Effect.
2. Each active Subsidiary incorporated in the United States is a
corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation and is duly qualified to do business in
each jurisdiction in which it owns or leases real property or in which it
conducts any business, except for those jurisdictions in which the failure to
qualify would not have a Material Adverse Effect.
3. The execution, delivery and performance by the Borrower of each of
the Transaction Documents, and the consummation by the Borrower of each of
the transactions contemplated by such Transaction Documents, are within the
corporate power of the Borrower; have been duly authorized by all necessary
or proper action on the part of the Borrower; are not in contravention of any
provision of the Certificate of Incorporation or by-laws of the Borrower;
will not violate any law or regulation (including any order or decree of any
court or governmental instrumentality) to which Borrower is subject; will not
result in the breach of, or constitute a default under, any indenture,
license, mortgage, deed of trust, lease or sublease agreement or other
instrument of which I have knowledge after due inquiry and to which the
Borrower is a party or by which any of the Borrower's properties are bound;
will not result in the creation or imposition of any lien upon any of the
property of the Borrower; and do not require the consent or approval of, or
any filing with, any governmental body, agency, authority or any other person
(other than those which have been delivered on or prior to the date hereof to
you and except for any filings required to be made with the Securities and
Exchange Commission).
4. To the best of my knowledge after due inquiry, except as disclosed
on Schedule 9.6 of the Credit Agreement, there are no judgments outstanding
against the Borrower, nor is there now pending or threatened, any action,
suit or proceeding before any court or any governmental or regulatory
authority, by, against or involving the Borrower, which, individually or in
the aggregate, would have a Material Adverse Effect. To the best of my
knowledge after due inquiry, the Borrower is not in default with respect to
any order, writ, injunction or decree of any court nor is the Borrower in
default under or in violation of any applicable law, order, regulation or
demand of any governmental agency or instrumentality where such default or
violation would result in a Material Adverse Effect.
5. To the best of my knowledge after due inquiry, there is no default
by the Borrower or any Subsidiary under any contract, lease agreement,
instrument or commitment to which the Borrower or any of its Subsidiaries is
a party which has not been waived, or which has, or would have, a Material
Adverse Effect.
The opinions expressed herein are subject to (i) general principles of
equity, regardless of whether enforcement is sought in a proceeding in equity or
at law and (ii) bankruptcy, reorganization, insolvency, fraudulent conveyance,
moratorium and similar laws affecting creditors'
<PAGE>
rights generally. The foregoing opinions are limited to the laws of the
United States, the State of Illinois and the General Corporation Law of the
State of Delaware.
This opinion is furnished by me solely for your benefit and it may not be
relied upon, quoted from or delivered to any person other than counsel to the
Borrower, counsel to you, your agents, employees, successors, assigns and
participants.
Very truly yours,
<PAGE>
EXHIBIT D
BORROWING BASE REPORT
ALLIED PRODUCTS CORPORATION
MONTHLY ASSET REPORT
_________ 199_
Report submitted pursuant to the requirements of Section 10.1.3 of the Second
Amended and Restated Credit Agreement dated as of February 1, 1999, among Allied
Products Corporation, the Banks named therein, and Bank of America Illinois as
Agent.
Receivables as of the close of the Company's business on ______ __, 199_:
80% of the Net Bush Hog 1 - 90 Days Eligible Receivables $
75% of the Net Bush Hog 91 - 180 Days Eligible Receivables $
65% of the Net Bush Hog 181 - 240 Days Eligible Receivables $
50% of the Net Bush Hog Over 240 Days Eligible Receivables $
85% of the Verson Eligible Receivables $
80% of the Net Great Bend 1 - 90 Days Eligible Receivables $
75% of the Net Great Bend 91 - 180 Days Eligible Receivables $
65% of the Net Great Bend 181 - 240 Days Eligible Receivables $
50% of the Net Great Bend Over 240 Days Eligible Receivables $
80% of the Net Precision Press Eligible Receivables $
Inventories as of the close of the Company's business on ______ __, 199_:
45% of the Net Bush Hog Eligible Raw Material Inventory $
45% of the Net Great Bend Eligible Raw Material Inventory $
45% of the Net Bush Hog Purchased Parts Inventory $
45% of the Net Great Bend Purchased Parts Inventory $
55% of the Net Bush Hog Eligible Finished Goods Inventory $
55% of the Net Great Bend Eligible Finished Goods Inventory $
50% of the Net Verson Eligible Raw Material Inventory $
50% of the Net Precision Press Industries Eligible
Raw Material Inventory $
20% of the Net Verson Eligible Work-in-Process Inventory $
20% of the Net Precision Press Eligible Work-in-Process Inventory $
Machinery and equipment as of the close of the Company's business on _______ __,
199_:
35% of the consolidated gross (undepreciated) value of the machinery and
equipment of the Company and its Subsidiaries
$______
Total Asset Report $______
______
Capitalized terms used but not defined herein shall have the respective meanings
assigned to such terms in the Credit Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Report on the __day of _____,
199_.
ALLIED PRODUCTS CORPORATION
By:
------------------------------
Its: Vice President
<PAGE>
EXHIBIT E
[FORM OF] ASSIGNMENT AND ACCEPTANCE AGREEMENT
This ASSIGNMENT AND ACCEPTANCE AGREEMENT (this "ASSIGNMENT AND
ACCEPTANCE") dated as of __________, 199__ is made between
_________________________ (the "ASSIGNOR") and __________________________ (the
"ASSIGNEE").
RECITALS
WHEREAS, the Assignor is party to that certain Second Amended and
Restated Credit Agreement dated as of February 1, 1999 (as amended, amended and
restated, modified, supplemented or renewed, the "CREDIT AGREEMENT") among
Allied Products Corporation, a Delaware corporation (the "COMPANY"), the several
financial institutions from time to time party thereto (including the Assignor,
the "BANKS"), and Bank of America National Trust and Savings Association, as
agent for the Banks (the "AGENT"). Any terms defined in the Credit Agreement
and not defined in this Assignment and Acceptance are used herein as defined in
the Credit Agreement;
WHEREAS, as provided under the Credit Agreement, the Assignor has committed to
making Loans (the "REVOLVING LOANS") to the Company in an aggregate amount not
to exceed $__________ (the "COMMITMENT");
WHEREAS, [the Assignor has made Revolving Loans in the aggregate
principal amount of $__________ to the Company] [no Revolving Loans are
outstanding under the Credit Agreement];
WHEREAS, [the Assignor has acquired a participation in the Issuing
Bank's liability under Letters of Credit in an aggregate principal amount of
$____________ (the "L/C OBLIGATIONS")] [no Letters of Credit are outstanding
under the Credit Agreement]; and
WHEREAS, the Assignor wishes to assign to the Assignee [part of the]
[all] rights and obligations of the Assignor under the Credit Agreement in
respect of its Commitment, [together with a corresponding portion of each of its
outstanding Revolving Loans and L/C Obligations,] in an amount equal to
$__________ (the "ASSIGNED AMOUNT") on the terms and subject to the conditions
set forth herein and the Assignee wishes to accept assignment of such rights and
to assume such obligations from the Assignor on such terms and subject to such
conditions;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
1. ASSIGNMENT AND ACCEPTANCE.
(a) Subject to the terms and conditions of this Assignment and
Acceptance, (i) the Assignor hereby sells, transfers and assigns to the
Assignee, and (ii) the Assignee hereby purchases, assumes and undertakes from
the Assignor, without recourse and without representation or warranty (except as
provided in this Assignment and Acceptance) __% (the "ASSIGNEE'S PERCENTAGE
SHARE") of (A) the Commitment [and the Revolving Loans and the L/C Obligations]
of
<PAGE>
the Assignor and (B) all related rights, benefits, obligations, liabilities
and indemnities of the Assignor under and in connection with the Credit
Agreement and the Loan Documents.
[IF APPROPRIATE, ADD PARAGRAPH SPECIFYING PAYMENT TO ASSIGNOR BY
ASSIGNEE OF OUTSTANDING PRINCIPAL OF, ACCRUED INTEREST ON, AND FEES WITH RESPECT
TO, REVOLVING LOANS AND L/C OBLIGATIONS ASSIGNED.]
(b) With effect on and after the Effective Date (as defined in
Section 5 hereof), the Assignee shall be a party to the Credit Agreement and
succeed to all of the rights and be obligated to perform all of the obligations
of a Bank under the Credit Agreement, including the requirements concerning
confidentiality and the payment of indemnification, with a Commitment in an
amount equal to the Assigned Amount. The Assignee agrees that it will perform
in accordance with their terms all of the obligations which by the terms of the
Credit Agreement are required to be performed by it as a Bank. It is the intent
of the parties hereto that the Commitment of the Assignor shall, as of the
Effective Date, be reduced by an amount equal to the Assigned Amount and the
Assignor shall relinquish its rights and be released from its obligations under
the Credit Agreement to the extent such obligations have been assumed by the
Assignee; provided, however, the Assignor shall not relinquish its rights under
Sections __ and __ of the Credit Agreement to the extent such rights relate to
the time prior to the Effective Date.
(c) After giving effect to the assignment and assumption set forth
herein, on the Effective Date the Assignee's Commitment will be $__________.
(d) After giving effect to the assignment and assumption set forth
herein, on the Effective Date the Assignor's Commitment will be $__________.
2. PAYMENTS.
(a) As consideration for the sale, assignment and transfer
contemplated in Section 1 hereof, the Assignee shall pay to the Assignor on the
Effective Date in immediately available funds an amount equal to $__________,
representing the Assignee's Pro Rata Share of the principal amount of all
Revolving Loans.
(b) The [Assignor] [Assignee] further agrees to pay to the Agent a
processing fee in the amount specified in Section [ ](__) of the Credit
Agreement.
3. REALLOCATION OF PAYMENTS.
Any interest, fees and other payments accrued to the Effective Date with
respect to the Commitment[,] [and] Revolving Loans [and L/C Obligations] shall
be for the account of the Assignor. Any interest, fees and other payments
accrued on and after the Effective Date with respect to the Assigned Amount
shall be for the account of the Assignee. Each of the Assignor and the Assignee
agrees that it will hold in trust for the other party any interest, fees and
other amounts which it may receive to which the other party is entitled pursuant
to the preceding sentence and pay to the other party any such amounts which it
may receive promptly upon receipt.
<PAGE>
4. INDEPENDENT CREDIT DECISION.
The Assignee (a) acknowledges that it has received a copy of the Credit
Agreement and the Schedules and Exhibits thereto, together with copies of the
most recent financial statements referred to in Section 9.4 of the Credit
Agreement, and such other documents and information as it has deemed appropriate
to make its own credit and legal analysis and decision to enter into this
Assignment and Acceptance; and (b) agrees that it will, independently and
without reliance upon the Assignor, the Agent or any other Bank and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit and legal decisions in taking or not taking
action under the Credit Agreement.
5. EFFECTIVE DATE; NOTICES.
(a) As between the Assignor and the Assignee, the effective date for
this Assignment and Acceptance shall be __________, 199__ (the "EFFECTIVE
DATE"); PROVIDED that the following conditions precedent have been satisfied on
or before the Effective Date:
(i) this Assignment and Acceptance shall be executed and
delivered by the Assignor and the Assignee;
(ii) the consent of the Company and the Agent required for an
effective assignment of the Assigned Amount by the Assignor to the Assignee
under Section [ ](__) of the Credit Agreement shall have been duly obtained
and shall be in full force and effect as of the Effective Date;
(iii) the Assignee shall pay to the Assignor all amounts due
to the Assignor under this Assignment and Acceptance;
[(iv) the Assignee shall have complied with Section [ ](__)
of the Credit Agreement (if applicable);
(v) the processing fee referred to in Section 2(b) hereof and in
Section [ ](__) of the Credit Agreement shall have been paid to the Agent; and
(vi) the Assignor shall have assigned and the Assignee shall have
assumed a percentage equal to the Assignee's Percentage Share of the rights and
obligations of the Assignor under the Credit Agreement (if such agreement
exists).
(b) Promptly following the execution of this Assignment and
Acceptance, the Assignor shall deliver to the Company and the Agent for
acknowledgement by the Agent, a Notice of Assignment [substantially] in the form
attached hereto as SCHEDULE 1.
6. AGENT.
(a) The Assignee hereby appoints and authorizes the Assignor to take
such action as agent on its behalf and to exercise such powers under the Credit
Agreement as are delegated to the Agent by the Banks pursuant to the terms of
the Credit Agreement.
<PAGE>
[(b) The Assignee shall assume no duties or obligations held by the
Assignor in its capacity as Agent under the Credit Agreement.] [INCLUDE ONLY IF
ASSIGNOR IS AGENT]
7. WITHHOLDING TAX.
The Assignee (a) represents and warrants to the Assignor, the Agent and the
Company that under applicable law and treaties no tax will be required to be
withheld by the Assignor with respect to any payments to be made to the Assignee
hereunder, (b) agrees to furnish (if it is organized under the laws of any
jurisdiction other than the United States or any State thereof) to the Agent and
the Company prior to the time that the Agent or Company is required to make any
payment of principal, interest or fees hereunder, duplicate executed originals
of either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue
Service Form 1001 (wherein the Assignee claims entitlement to the benefits of a
tax treaty that provides for a complete exemption from U.S. federal income
withholding tax on all payments hereunder) and agrees to provide new Forms 4224
or 1001 upon the expiration of any previously delivered form or comparable
statements in accordance with applicable U.S. law and regulations and amendments
thereto, duly executed and completed by the Assignee, and (c) agrees to comply
with all applicable U.S. laws and regulations with regard to such withholding
tax exemption.
8. REPRESENTATIONS AND WARRANTIES.
(a) The Assignor represents and warrants that (i) it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any Lien or other adverse claim; (ii) it is duly
organized and existing and it has the full power and authority to take, and has
taken, all action necessary to execute and deliver this Assignment and
Acceptance and any other documents required or permitted to be executed or
delivered by it in connection with this Assignment and Acceptance and to fulfill
its obligations hereunder; (iii) no notices to, or consents, authorizations or
approvals of, any Person are required (other than any already given or obtained)
for its due execution, delivery and performance of this Assignment and
Acceptance, and apart from any agreements or undertakings or filings required by
the Credit Agreement, no further action by, or notice to, or filing with, any
Person is required of it for such execution, delivery or performance; and
(iv) this Assignment and Acceptance has been duly executed and delivered by it
and constitutes the legal, valid and binding obligation of the Assignor,
enforceable against the Assignor in accordance with the terms hereof, subject,
as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and
other laws of general application relating to or affecting creditors' rights and
to general equitable principles.
(b) The Assignor makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement or any other instrument or document furnished pursuant thereto. The
Assignor makes no representation or warranty in connection with, and assumes no
responsibility with respect to, the solvency, financial condition or statements
of the Company, or the performance or observance by the Company, of any of its
respective obligations under the Credit Agreement or any other instrument or
document furnished in connection therewith.
(c) The Assignee represents and warrants that (i) it is duly
organized and existing and it has full power and authority to take, and has
taken, all action necessary to execute
<PAGE>
and deliver this Assignment and Acceptance and any other documents required
or permitted to be executed or delivered by it in connection with this
Assignment and Acceptance, and to fulfill its obligations hereunder; (ii) no
notices to, or consents, authorizations or approvals of, any Person are
required (other than any already given or obtained) for its due execution,
delivery and performance of this Assignment and Acceptance; and apart from
any agreements or undertakings or filings required by the Credit Agreement,
no further action by, or notice to, or filing with, any Person is required of
it for such execution, delivery or performance; (iii) this Assignment and
Acceptance has been duly executed and delivered by it and constitutes the
legal, valid and binding obligation of the Assignee, enforceable against the
Assignee in accordance with the terms hereof, subject, as to enforcement, to
bankruptcy, insolvency, moratorium, reorganization and other laws of general
application relating to or affecting creditors' rights and to general
equitable principles; and (iv) it is an Eligible Assignee.
9. FURTHER ASSURANCES.
The Assignor and the Assignee each hereby agree to execute and deliver such
other instruments, and take such other action, as either party may reasonably
request in connection with the transactions contemplated by this Assignment and
Acceptance, including the delivery of any notices or other documents or
instruments to the Company or the Agent, which may be required in connection
with the assignment and assumption contemplated hereby.
10. MISCELLANEOUS.
(a) Any amendment or waiver of any provision of this Assignment and
Acceptance shall be in writing and signed by the parties hereto. No failure or
delay by either party hereto in exercising any right, power or privilege
hereunder shall operate as a waiver thereof and any waiver of any breach of the
provisions of this Assignment and Acceptance shall be without prejudice to any
rights with respect to any other or further breach thereof.
(b) All payments made hereunder shall be made without any set-off or
counterclaim.
(c) The Assignor and the Assignee shall each pay its own costs and
expenses incurred in connection with the negotiation, preparation, execution and
performance of this Assignment and Acceptance.
(d) This Assignment and Acceptance may be executed in any number of
counterparts and all of such counterparts taken together shall be deemed to
constitute one and the same instrument.
(e) THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA [NOTE: CONFIRM CHOICE OF
LAW]. The Assignor and the Assignee each irrevocably submits to the
non-exclusive jurisdiction of any State or Federal court sitting in [Illinois]
over any suit, action or proceeding arising out of or relating to this
Assignment and Acceptance and irrevocably agrees that all claims in respect of
such action or proceeding may be heard and determined in such [Illinois] State
or Federal court. Each party to this Assignment and Acceptance hereby
irrevocably waives, to
<PAGE>
the fullest extent it may effectively do so, the defense of an inconvenient
forum to the maintenance of such action or proceeding.
(f) THE ASSIGNOR AND THE ASSIGNEE EACH HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH
THIS ASSIGNMENT AND ACCEPTANCE, THE CREDIT AGREEMENT, ANY RELATED DOCUMENTS AND
AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, OR STATEMENTS (WHETHER
ORAL OR WRITTEN).
[OTHER PROVISIONS TO BE ADDED AS MAY BE NEGOTIATED BETWEEN THE
ASSIGNOR AND THE ASSIGNEE, PROVIDED THAT SUCH PROVISIONS ARE NOT INCONSISTENT
WITH THE CREDIT AGREEMENT.]
<PAGE>
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this
Assignment and Acceptance to be executed and delivered by their duly authorized
officers as of the date first above written.
[ASSIGNOR]
By:
--------------------------------
Title:
-----------------------------
By:
--------------------------------
Title:
-----------------------------
Address:
[ASSIGNEE]
By:
--------------------------------
Title:
-----------------------------
By:
--------------------------------
Title:
-----------------------------
Address:
<PAGE>
SCHEDULE 1
NOTICE OF ASSIGNMENT AND ACCEPTANCE
_______________, 19__
Bank of America National Trust
and Savings Association, as Agent
231 South LaSalle Street
Chicago, Illinois
Attn: David Johanson
[Name and Address of Company]
Ladies and Gentlemen:
We refer to the Second Amended and Restated Credit Agreement dated as of
February 1, 1999 (as amended, amended and restated, modified, supplemented or
renewed from time to time the "CREDIT AGREEMENT") among Allied Products
Corporation (the "COMPANY"), the Banks referred to therein and Bank of America
National Trust and Savings Association, as agent for the Banks (the "AGENT").
Terms defined in the Credit Agreement are used herein as therein defined.
1. We hereby give you notice of, and request your consent to, the
assignment by __________________ (the "ASSIGNOR") to _______________ (the
"ASSIGNEE") of _____% of the right, title and interest of the Assignor in and to
the Credit Agreement (including, without limitation, the right, title and
interest of the Assignor in and to the Commitments of the Assignor[,] [and] all
outstanding Loans made by the Assignor [and the Assignor's participation in the
Letters of Credit]) pursuant to the Assignment and Acceptance Agreement attached
hereto (the "ASSIGNMENT AND ACCEPTANCE"). Before giving effect to such
assignment the Assignor's Commitment is $ ___________[,] [and] the aggregate
amount of its outstanding Loans is $_____________[, and its participation in L/C
Obligations is $_____________].
2. The Assignee agrees that, upon receiving the consent of the Agent[,
the Issuing Bank] and, if applicable, [NAME OF COMPANY] to such
assignment, the Assignee will be bound by the terms of the Credit Agreement as
fully and to the same extent as if the Assignee were the Bank originally holding
such interest in the Credit Agreement.
3. The following administrative details apply to the Assignee:
(A) Notice Address:
---------------------------------------------
Assignee name:
---------------------------------------------
Address:
---------------------------------------------
---------------------------------------------
---------------------------------------------
<PAGE>
Attention:
---------------------------------------------
Telephone: ( )
---------------------------------------------
Telecopier: ( )
---------------------------------------------
Telex (Answerback):
---------------------------------------------
(B) Payment Instructions:
Account No.:
---------------------------------------------
At:
---------------------------------------------
---------------------------------------------
---------------------------------------------
Reference:
---------------------------------------------
Attention:
---------------------------------------------
4. You and the Company are entitled to rely upon the representations,
warranties and covenants of each of the Assignor and Assignee contained in the
Assignment and Acceptance.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Notice of
Assignment and Acceptance to be executed by their respective duly authorized
officials, officers or agents as of the date first above mentioned.
[NAME OF ASSIGNOR]
By:
--------------------------------
Title:
-----------------------------
By:
--------------------------------
Title:
-----------------------------
[NAME OF ASSIGNOR]
By:
--------------------------------
Title:
-----------------------------
By:
--------------------------------
Title:
-----------------------------
ACKNOWLEDGED AND ASSIGNMENT
CONSENTED TO:
[COMPANY]
By:
--------------------------------
Title:
-----------------------------
By:
--------------------------------
Title:
-----------------------------
<PAGE>
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By:
--------------------------------
Title:
-----------------------------
<PAGE>
EXHIBIT 10 B
FIRST AMENDMENT AND WAIVER DATED AS OF APRIL 15, 1999
TO CREDIT AGREEMENT DATED AS OF FEBRUARY 1, 1999
This First Amendment and Waiver (this "Amendment"), dated as of
April 15, 1999, is made by and among ALLIED PRODUCTS CORPORATION, a Delaware
corporation (the "Company"), the financial institutions party hereto (the
"Banks"), and Bank of America National Trust and Savings Association (as
successor by merger to Bank of America Illinois), as agent for the Banks (in
such capacity, the "Agent"). Terms defined in the Credit Agreement shall
have the same respective meanings when used herein and the provisions of
SECTION 13 of the Credit Agreement shall apply, mutatis mutandis, to this
Amendment.
W I T N E S S E T H:
WHEREAS, the parties hereto are parties to that certain Second
Amended and Restated Credit Agreement, dated as of February 1, 1999 (as
amended or modified and in effect on the date hereof, the "Credit Agreement");
WHEREAS, the Company has requested that the Banks and the Agent
agree to amend or modify the Credit Agreement as described herein; and
WHEREAS, the Banks and the Agent are willing to amend and modify
the Credit Agreement on the terms and conditions contained herein;
NOW, THEREFORE, in consideration of the premises, the mutual
covenants herein contained and other good and valuable consideration (the
receipt, adequacy and sufficiency of which is hereby acknowledged), the
parties hereto, intending legally to be bound, hereby agree as follows:
I. AMENDMENT
1. AMENDMENTS. Subject to the satisfaction of the conditions
precedent set forth in Section 3.2 below, the Credit Agreement is hereby
amended as follows:
Section 1.1.3(a) of the Credit Agreement is amended to read in its
entirety as follows:
<PAGE>
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
together with the Stated Amount of all Letters of Credit then
outstanding shall not at any one time exceed the lesser of (i) the
Borrowing Base or (ii) the following amounts (less in each case any
reductions made pursuant to SECTION 6.1 or SECTION 6.3) during the
following period:
MONTH ENDING AMOUNT
February 28, 1999 $140,000,000
March 31, 1999 $140,000,000
April 30, 1999 $135,000,000
May 31, 1999 $135,000,000
June 30, 1999 $135,000,000
July 31, 1999 $118,000,000
August 31, 1999 $115,000,000
September 30, 1999 $118,000,000
October 31, 1999 $115,000,000
November 30, 1999 $115,000,000
December 31, 1999 $110,000,000
January 31, 2000 $110,000,000
February 28, 2000 Zero
Section 5.2 of the Credit Agreement is amended to read in its entirety
as follows:
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 Commitments
(whether used or unused) (as the same may be reduced by SECTION 6.1 or
SECTION 6.3). 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 at the rate
of 0.50% per annum for the actual number of days elapsed on the basis
of a year of 360 days. The facility fee shall be determined without
regard to any Borrowing Base limitation or any Event of Default or
Unmatured Event of Default.
Section 6.1(c) of the Credit Agreement is amended to read in its
entirety, as follows:
(c) On any date that the aggregate unpaid principal amount of
the Revolving Loans, PLUS the aggregate Stated Amount of all Letters
of Credit exceeds the aggregate Commitments of the Banks (whether as a
result of a Borrowing Base shortfall, a reduction in the Commitments,
or otherwise), the
-2-
<PAGE>
Company shall immediately repay the Revolving Loans or, in the case
of the Letters of Credit, furnish to the Agent cash collateral, in
an amount equal to such excess.
Section 6.3 of the Credit Agreement is amended to read its entirety as
follows:
SECTION 6.3 MANDATORY PREPAYMENTS. (a) If the Company or any
Subsidiary shall issue new common or preferred equity or any
Indebtedness for borrowed money, the Company shall promptly notify the
Agent of the estimated Net Issuance Proceeds of such issuance to be
received by the Company in respect thereof. Promptly upon, and in no
event later than 5 Business Days after, receipt by the Company or a
Subsidiary of Net Issuance Proceeds of such issuance, the Company
shall prepay the Revolving Loans and other Liabilities in an aggregate
amount equal to 100% of the amount of such Net Issuance Proceeds. Net
Issuance Proceeds which arise from the incurrence of purchase money
Indebtedness or Capital Lease Obligations shall not be required to be
applied as a prepayment pursuant to this Section 6.3.
(b) If the Company or any Subsidiary shall enter into any
agreement for the sale or disposition of any substantial part of its
assets outside the ordinary course of business, the Company shall
promptly notify the Agent of the terms thereof, including the
estimated Net Sale Proceeds (it being understood that any sale outside
of the ordinary course of business of all or any substantial part of
the assets of the Company or any Subsidiary is subject to the consent
of the Required Banks pursuant to Section 10.13). Promptly, and in
any event within 5 Business Days after receipt by the Company or any
Subsidiary of the Net Sale Proceeds of such sale, the Company shall
prepay the Revolving Loans and other Liabilities in an aggregate
principal amount equal to 100% of the amount of such Net Sale
Proceeds.
(c) Notwithstanding any provision to the contrary in Section
6.3(a) or 6.3(b), the Company shall not be obligated to pay over to
the Agent any Net Issuance Proceeds or Net Sale Proceeds in excess of
the aggregate Liabilities then outstanding (it being understood that
for this purpose the undrawn amount of Letters of Credit shall
constitute Letter of Credit Liabilities and that the amounts prepaid
to the Agent in respect of such Letter of Credit Liabilities shall be
held by the Agent as cash collateral for such Letter of Credit
Liabilities).
Section 10.1.3 of the Credit Agreement is amended to read in its
entirety as follows:
SECTION 10.1.3 MONTHLY REPORTS. (a) Within 30 days after the end of
each calendar month occurring after April 30, 1999, a Directors'
Statement which at a minimum provides (i) the unaudited financial
statements (including, without limitation, consolidated and
consolidating balance sheets of the Company and its Subsidiaries as of
the end of such month and related changes in financial position
-3-
<PAGE>
together with statements of income) of the Company and its
Subsidiaries, prepared in substantially the same manner as Schedule
10.1.3, (ii) a status report as to the Verson Division of the Company,
(iii) an accounts payable aging by division, and (iv) a jobs in
progress report.
(b) Within 15 days after the end of each calendar month
occurring after April 30, 1999, the Company shall deliver to Agent the
following: (i) an updated Borrowing Base Report, (ii) a receivables
aging certificate in a form reasonably acceptable to the Agent, and
(iii) a certificate containing a computation of the debt coverage
ratio in Section 10.8.
(c) All items furnished pursuant to this Section 10.1.3(a) and
(b) shall be in a form reasonably acceptable to the Required Banks and
shall be signed by the Chief Accounting Officer of the Company.
Section 10.5.1 of the Credit Agreement is amended to read in its
entirety as follows:
SECTION 10.5.1 CAPITAL EXPENDITURES. Not permit the
consolidated capital expenditures of the Company and its Subsidiaries
(including Capital Lease Obligations) in any fiscal year to exceed
$10,000,000; provided, however, that the amount applicable to fiscal
year 1999 shall exclude Capital Expenditures of up to $5,000,000
related to the Verson Division's facility expansion project as carried
over from fiscal year 1998.
Section 10.5.2 of the Credit Agreement is amended to read in its
entirety as follows:
SECTION 10.5.2 MINIMUM CONSOLIDATED OPERATING CASH FLOW. As of
the end of any Fiscal Quarter, not permit its Consolidated Operating
Cash Flow (measured quarterly on a cumulative basis for the related
calendar year), to be less than the amount applicable to such Fiscal
Quarter as follows:
<TABLE>
<CAPTION>
AMOUNT BEFORE AMOUNT AFTER
COLLATERAL GRANT COLLATERAL GRANT
FISCAL QUARTER ENDING
<S> <C> <C>
June 30, 1999 ($ 1,009,000) ($ 1,333,000)
September 30, 1999 $ 5,150,000 $ 4,177,000
December 31, 1999 $ 14,407,000 $ 11,376,000
</TABLE>
Section 10.5.3 (net worth) of the Credit Agreement is amended to read
in its entirety as follows (it being understood that the text of such
section is deleted):
SECTION 10.5.3 [Reserved]
-4-
<PAGE>
Section 10.6 (Funded Debt/Operating Cash Flow Ratio) of the Credit
Agreement is amended to read in its entirety as follows (it being
understood that the text of such Section is deleted):
SECTION 10.6 [Reserved]
Section 10.7 of the Credit Agreement is amended to read in its
entirety as follows:
SECTION 10.7 CONSOLIDATED FIXED CHARGE COVERAGE. Not permit for
any Fiscal Quarter the ratio ("Consolidated Fixed Charge Ratio") of
(a) Consolidated Adjusted Operating Cash Flow 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 the ratio
applicable to such Fiscal Quarter, as follows:
<TABLE>
<CAPTION>
RATIO BEFORE RATIO AFTER
FISCAL QUARTER ENDING COLLATERAL GRANT COLLATERAL GRANT
<S> <C> <C>
September 30, 1999 1.40:1 1.15:1
December 31, 1999 2.00:1 2.00:1
</TABLE>
Section 10.8 of the Credit Agreement is amended to read in its
entirety as follows:
SECTION 10.8 MINIMUM DEBT COVERAGE. As of the end of any
calendar month, 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 less (iv) accounts payable 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 the ratio
applicable to such calendar month as follows:
-5-
<PAGE>
<TABLE>
<CAPTION>
CALENDAR MONTH RATIO BEFORE RATIO AFTER
ENDING COLLATERAL GRANT COLLATERAL GRANT
<S> <C> <C>
April 30, 1999 0.85 to 1 0.62 to 1
May 31, 1999 0.80 to 1 0.60 to 1
June 30, 1999 0.80 to 1 0.60 to 1
July 31, 1999 0.75 to 1 0.57 to 1
August 31, 1999 0.75 to 1 0.56 to 1
September 30, 1999 0.80 to 1 0.60 to 1
October 31, 1999 0.80 to 1 0.61 to 1
November 30, 1999 0.85 to 1 0.64 to 1
December 31, 1999 0.85 to 1 0.66 to 1
January 31, 2000 0.85 to 1 0.66 to 1
</TABLE>
Section 10.9 of the Credit Agreement is amended to read in its
entirety as follows:
SECTION 10.9 PURCHASE OR REDEMPTION OF COMPANY'S SECURITIES;
DIVIDEND 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, pay or declare
cash dividends to the holders of common stock of the Company, but not
in excess of $2,000,000 in the aggregate for all such dividends
declared or paid in any fiscal year.
Section 10 of the Credit Agreement is further amended by adding
Section 10.22 as follows:
SECTION 10.22. COLLATERAL. (a) On or before May 15, 1999,
the Company (i) shall grant and cause each of its Subsidiaries to
grant to the Agent, for the prorata benefit of the Banks, as security
for the Liabilities, a lien upon and security interest in all of the
assets of every description (whether now or hereafter existing or
acquired) of the Company and its Subsidiaries (other than real estate
interests), and (ii) at its expense, execute and deliver and cause to
be executed and delivered to the Agent any and all Collateral
Documents, and take all further action that may be required under
applicable law, or that the Agent or the Required Banks may reasonably
request, in order to grant, preserve, protect and perfect the validity
and first priority of the security interests created pursuant to such
Collateral Documents.
(b) In addition, from time to time after May 15, 1999, the
Company will, at its expense, promptly execute and deliver or cause to
be executed and delivered to the Agent such additional Collateral
Documents, and take such additional action, all as may from time to
time be reasonably requested by the
-6-
<PAGE>
Agent or the Required Banks, in order to preserve, protect and
perfect the validity and first priority of the security interests
created pursuant to the Collateral Documents (it being understood
that it is the intent of the parties that the Liabilities shall be
secured by all the assets of the Company and its Subsidiaries
(other than real estate interests) and that such security
interests will be created under such Collateral Documents as shall be
in form and substance reasonably satisfactory to the Agent and the
Required Banks).
Section 12.1.5 of the Credit Agreement is amended to read in its
entirety as follows:
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 (except for Section 10.22 as to
which no notice or grace period shall apply) 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 13 of the Credit Agreement is amended so that the definition
of Borrowing Base Overadvance shall read in its entirety as follows:
BORROWING BASE OVERADVANCE shall for each month set forth below
mean an amount as follows:
<TABLE>
<CAPTION>
MONTH OVERADVANCE AMOUNT
<S> <C>
January 1999 $40,000,000
February 1999 $40,000,000
March 1999 $40,000,000
April 1999 $40,000,000
May 1999 $46,700,000
June 1999 $47,600,000
July 1999 $41,600,000
August 1999 $42,700,000
September 1999 $41,700,000
October 1999 $35,100,000
November 1999 $26,100,000
December 1999 $27,800,000
January 2000 $27,800,000
</TABLE>
Section 13 of the Credit Agreement is amended so that the definition
of "Margin" shall read in its entirety as follows:
-7-
<PAGE>
MARGIN shall mean (i) in the case of Eurodollar Loans (and
Letters of Credit) a rate equal to 3.5% per annum and (ii) in the case
of Floating Rate Loans, a rate equal to 2% per annum.
Section 13 of the Credit Agreement is further amended by adding
thereto a definition of "Collateral Grant" as follows:
COLLATERAL GRANT shall mean the receipt by the Agent of
Collateral Documents duly executed and delivered and in form and
substance reasonably satisfactory to the Agent, pursuant to
Section 10.22.
Section 13 of the Credit Agreement is further amended by adding
thereto a definition of "Collateral Documents" as follows:
COLLATERAL DOCUMENTS shall mean such security agreements, pledge
agreements, mortgages, deeds of trusts, UCC financing statements,
appraisals, landlord waivers, opinions of counsel, lock box agreements,
search reports, and other documents and instruments as the Agent or the
Required Banks shall reasonably require in order that the Agent shall have,
as security for the Liabilities, a first perfected lien on and security
interest in all of the assets of the Company and its Subsidiaries (other
than real estate interests), subject only to such preexisting liens
permitted under Section 10.11 as do not in the opinion of the Agent or the
Required Banks materially detract from the value of the liens and security
interests in favor of the Agent. The Collateral Documents shall constitute
Loan Documents hereunder.
Section 13 of the Credit Agreement is amended by inserting "for any
period" immediately after "shall mean" in the definition of Consolidated
Adjusted Operating Cash Flow.
Section 13 of the Credit Agreement is amended so that the definition
of "Consolidated Operating Cash Flow" shall read in its entirety as
follows:
CONSOLIDATED OPERATING CASH FLOW shall mean for any period (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 (iv) depreciation and amortization for such period,
less (b) all interest income for the period, it being understood,
however, that Consolidated Operating Cash Flow shall be determined
without regard to extraordinary items for the period, and shall be
determined for the Company and its Subsidiaries on a consolidated
basis.
Section 13 of the Credit Agreement is further amended by adding
thereto a definition of "Liabilities" as follows:
-8-
<PAGE>
LIABILITIES shall mean (i) the Notes, (ii) all obligations of
the Company in respect of Letters of Credit (whether or not drawn),
and (iii) all other obligations of the Company of every description,
which arise under this Agreement or the Loan Documents or hedging
agreements of the Banks permitted under the Loan Documents,
including without limitation, all obligations of the Company in
respect of principal, interest, fees or expenses, in each case
however created, arising or evidenced, whether direct or indirect,
or absolute and contingent, or now or hereafter existing, or due or
to become due. The Liabilities may also be sometimes called the
"Obligations".
Section 13 of the Credit Agreement is amended by adding thereto a
definition of "Net Sale Proceeds" as follows:
NET SALE PROCEEDS shall mean with respect to any sale of assets
of the Company or any Subsidiary, the cash proceeds (including cash
proceeds subsequently received (as and when received) in respect of
non-cash consideration initially received and including all insurance
settlements and condemnation awards in excess of $250,000 from any
single event or series of related events), net of (i) transaction
expenses (including reasonable broker's fees or commissions, legal
fees, accounting fees, investment banking fees and other professional
fees, transfer and similar taxes and the Company's good faith estimate
of income taxes paid or payable in connection with the receipt of such
cash proceeds), (ii) amounts provided as a reserve, in accordance with
GAAP, including pursuant to any escrow arrangement, against any
liabilities under any indemnification liabilities associated with such
sale (PROVIDED that, to the extent and at the time any such amounts
are released from such reserve, such amounts shall constitute Net Sale
Proceeds), (iii) in the case of insurance settlements and condemnation
awards, amounts previously paid by the Company and its Subsidiaries to
replace or restore the affected property, and (iv) the principal
amount, premium or penalty, if any, interest and other amounts on any
indebtedness for borrowed money which is secured by the asset sold in
such sale and is required to be repaid with such proceeds (other than
any such indebtedness assumed by the purchaser of such asset).
Section 13 of the Credit Agreement is amended so that the definition
of "Revolving Termination Date" shall read in its entirety as follows:
REVOLVING TERMINATION DATE shall mean February 28, 2000.
Section 9.5 of the Credit Agreement is amended by adding thereto the
paragraph which appears in Supplemental Schedule 9.5 attached hereto.
-9-
<PAGE>
II. WAIVER
2.1 WAIVER. The Banks hereby waive the following:
(a) the failure of the Company to furnish to the Agent and Banks,
within 90 days after the end of its fiscal year ending December 31, 1998,
its audit report (and related certificate) in respect of such fiscal year
as required by Section 10.1.1 of the Credit Agreement, it being understood
(and the Company hereby agrees) that such audit report (and related
certificate) shall be furnished to the Agent and the Banks on or before
April 30, 1999;
(b) the failure of the Company to furnish to the Agent and Banks, its
quarterly financial statements as of December 31, 1998 and March 31, 1999,
as required pursuant to Section 10.1.2;
(c) the requirement of Section 10.1.3 that the Company furnish to the
Agent and the Banks monthly reports (including financial statements,
Borrowing Base Reports and receivables aging certificates) for the months
of January through March, 1999;
(d) the requirement of Section 10.1.4 that the Company furnish a
compliance certificate as of December 31, 1998 and March 31, 1999;
(e) noncompliance by the Company as of March 31, 1999, with the
minimum consolidated operating consolidating cash flow provision of Section
10.5.2;
(f) noncompliance by the Company as of March 31, 1999 with the net
worth provision of Section 10.5.3; and
(g) noncompliance by the Company as of March 31, 1999, with the
consolidated fixed charge ratio provision of Section 10.7.
2.2 LIMITATION ON WAIVER. Except as specifically set forth in
Section 2.1, the foregoing waivers are specific in time and in intent and do
not constitute, nor shall any of such waivers be construed as, a waiver of
any other right, power or privilege under the Credit Agreement, or under any
agreement, contract, indenture, document or other instrument mentioned in the
Credit Agreement; nor does any of the foregoing waivers preclude other or
further exercise hereof or the exercise of any other right, power or
privilege, nor shall any waiver of any right, power, privilege or default
hereunder, or under any agreement, contract, indenture, document, or
instrument mentioned in the Credit Agreement, constitute a waiver of any
other default of the same or of any other term or provision.
III. GENERAL
3.1 REPRESENTATIONS. The Company hereby represents and warrants
to the Banks and the Agent that:
-10-
<PAGE>
(a) The execution, delivery and performance of this Amendment are
within the Company's corporate authority, have been duly authorized by all
necessary corporate action, have received all necessary consents and
approvals (if any shall be required), and do not and will not contravene or
conflict with any provision of law or of the Certificate of Incorporation
or By-laws of the Company or its Subsidiaries, or of any other agreement
binding upon the Company or its Subsidiaries or their respective property;
(b) This Amendment constitutes the legal, valid, and binding
obligations of the Company, enforceable against the Company in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws affecting the enforcement of
creditors' rights generally or by equitable principles relating to
enforceability; and
(c) Except for any Event of Default or Unmatured Event of Default
which will be cured by this Amendment becoming effective, no Event of
Default or Unmatured Event of Default has occurred and is continuing or
will result from this Amendment.
3.2 CONDITIONS PRECEDENT TO EFFECTIVENESS. This Amendment shall
become effective as of April 15, 1999 (the "Effective Date"), subject,
however, to the receipt by the Agent of all fees and expenses previously
billed to the Company in respect of the Credit Agreement as amended hereby,
together with each of the following, each appropriately completed and duly
executed as required and otherwise in form and substance reasonably
satisfactory to the Agent:
(a) counterparts of this Amendment, executed by the Company and the
Banks (together with a related fee letter between the Company and the
Agent);
(b) Certified copies of resolutions of the Board of Directors of the
Company authorizing or ratifying the execution, delivery and performance by
the Company of this Amendment;
(c) A certificate of the President or a Vice-President of the Company
that all necessary consents or approvals with respect to this Amendment
have been obtained;
(d) A certificate of the Secretary or Assistant Secretary of the
Company, certifying the name(s) of the officer(s) of the Company authorized
to sign this Amendment and the documents related hereto on behalf of the
Company;
(e) An opinion of Mark Standefer covering those matters set forth in
Section 3.1(a) and 3.1(b) and such other legal matters as the Agent or its
counsel may request; and
(f) Such other instruments, agreements and documents as the Agent may
reasonably request, in each case duly executed as required and otherwise in
form and substance satisfactory to the Banks.
-11-
<PAGE>
3.3 DOCUMENTS REMAIN IN EFFECT. Except as amended or modified by
this Amendment, the Credit Agreement remains in full force and effect and the
Company confirms that its representations, warranties, agreements and
covenants contained in, and obligations and liabilities under, the Credit
Agreement and each of the other Loan Documents are true and correct in all
material respects as if made on the date hereof, except where such
representation, warranty, agreement or covenant speaks as of a specified
date. References to the Credit Agreement in any other document shall be
deemed to include a reference to the Credit Agreement as amended or modified
hereby, whether or not reference is made to this Amendment.
3.4 EXPENSES. The Company covenants to pay to or reimburse the
Agent, upon demand, for all costs and expenses (including legal expenses) in
connection with the development, preparation, negotiation, execution and
delivery of this Amendment and the Collateral Documents.
3.5 MISCELLANEOUS.
(a) Section headings used in this Amendment are for convenience of
reference only, and shall not affect the construction of this Amendment.
(b) This Amendment shall be a contract made under and governed by
the internal laws of the State of Illinois, without giving effect to
principles of conflicts of laws.
(c) All obligations of the Company and rights of the Banks and the
Agent, that are expressed herein, shall be in addition to and not in
limitation to those provided by applicable law.
(d) Whenever possible, each provision of this Amendment shall be
interpreted in such manner as to be effective and valid under applicable law;
but if any provision of this Amendment 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 Amendment.
(e) The Company acknowledges and agrees that the execution and
delivery by the Agent and the Banks of this Amendment shall not be deemed (i)
to create a course of dealing or otherwise obligate the Agent or the Banks to
forbear or execute similar amendments under the same or similar circumstances
in the future, or (ii) to amend, relinquish or impair any right of the Agent
or the Banks to receive any indemnity or similar payment from any Person or
entity as a result of any matter arising from or relating to this Amendment.
(f) This Amendment shall be binding upon and inure to the benefit
of the parties and thereto and their respective successors and assigns. No
third party beneficiaries are intended in connection with this Amendment.
(g) This Amendment may be executed in any number of counterparts,
each of which shall be deemed an original, but all such counterparts together
shall constitute but one and the same instrument. Each of the parties hereto
understands and agrees that this
-12-
<PAGE>
document (and any other document required herein) may be delivered by any
party thereto either in the form of an executed original or an executed
original sent by facsimile transmission to be followed promptly by mailing of
a hard copy original, and that receipt by the Agent of a facsimile
transmitted document purportedly bearing the signature of a Bank or the
Company shall bind such Bank or the Company, respectively, with the same
force and effect as the delivery of a hard copy original. Any failure by the
Agent to receive the hard copy executed original of such document shall not
diminish the binding effect of receipt of the facsimile transmitted executed
original of such document of the party whose hard copy page was not received
by the Agent.
(h) This Amendment, together with the Credit Agreement, contains
the entire and exclusive agreement of the parties hereto with reference to
the matters discussed herein and therein. This Amendment supercedes all
prior drafts and communications with respect thereto. This Amendment may not
be amended except in accordance with the provisions of Section 15.1 of the
Credit Agreement.
* * *
-13-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused the execution and delivery
hereof by their respective representatives thereunto duly authorized as of the
date first herein appearing.
ALLIED PRODUCTS CORPORATION
By: /s/ Richard A. Drexler
----------------------
Name: Richard A. Drexler
Title: Chairman, President & Chief
Executive Officer
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION (as successor by merger to Bank of
America Illinois), as Agent
By: /s/ David A. Johanson
Name: David A. Johanson
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION (as successor by merger to Bank of
America Illinois), in its individual corporate
capacity
By: /s/ John J. Compernolle
Name: John J. Compernolle
Title: Sr. Vice President
LASALLE NATIONAL BANK
By: /s/ Robert M. Swanson
Name: Robert M. Swanson
Title: SR. Vice President
-14-
<PAGE>
SUPPLEMENTAL SCHEDULE 9.5
ADVERSE CHANGE
-15-
<PAGE>
EXHIBIT 21
<TABLE>
<CAPTION>
State or Other % Of
Jurisdiction Securities
In Which Owned by
Subsidiaries of Registrant (1) Incorporated Registrant
- - -----------------------------------------------------------------------------------------
<S> <C> <C>
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.
04/20/99
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Allied Products
Corporation registration statement on Form S-8 (File No. 33-60058) of our
report, dated April 15, 1999, on our audits of the consolidated financial
statements and financial statement schedule of Allied Products Corporation
and consolidated subsidiaries as of December 31, 1998 and 1997 and for the
three years in the period December 31, 1998, which report is included in the
1998 Annual Report of Form 10-K.
PricewaterhouseCoopers LLP
Chicago, Illinois
April 30, 1999
<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, 1998 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 Mark
C. Standefer as 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 28th
day of April, 1999.
/s/[RICHARD A. DREXLER]
---------------------------------------
Richard A. Drexler, Chairman of the
Board, President and Chief
Executive Officer; Director
/s/[ROBERT J. FLECK]
---------------------------------------
Robert J. Fleck, Vice President -
Accounting, Chief Accounting
and Administrative Officer
/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
/s/[S. S. SHERMAN]
---------------------------------------
S. S. Sherman, Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1998 AND THE CONSOLIDATED STATEMENT
OF INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOW FOR THE YEAR ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 727
<SECURITIES> 0
<RECEIVABLES> 69,346
<ALLOWANCES> 519
<INVENTORY> 96,844
<CURRENT-ASSETS> 181,864
<PP&E> 128,648
<DEPRECIATION> 48,181
<TOTAL-ASSETS> 275,804
<CURRENT-LIABILITIES> 196,819
<BONDS> 2,298
0
0
<COMMON> 140
<OTHER-SE> 71,590
<TOTAL-LIABILITY-AND-EQUITY> 275,804
<SALES> 273,834
<TOTAL-REVENUES> 273,834
<CGS> 250,169
<TOTAL-COSTS> 250,169
<OTHER-EXPENSES> 45,308
<LOSS-PROVISION> 129
<INTEREST-EXPENSE> 6,201
<INCOME-PRETAX> (21,643)
<INCOME-TAX> (7,530)
<INCOME-CONTINUING> (14,113)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,113)
<EPS-PRIMARY> (1.19)
<EPS-DILUTED> (1.19)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1998 AND THE CONSOLIDATED STATEMENT
OF INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOW FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 428
<SECURITIES> 0
<RECEIVABLES> 65,627
<ALLOWANCES> 699
<INVENTORY> 134,025
<CURRENT-ASSETS> 212,694
<PP&E> 121,043
<DEPRECIATION> 47,792
<TOTAL-ASSETS> 299,378
<CURRENT-LIABILITIES> 193,441
<BONDS> 1,168
0
0
<COMMON> 140
<OTHER-SE> 92,523
<TOTAL-LIABILITY-AND-EQUITY> 299,378
<SALES> 229,000
<TOTAL-REVENUES> 229,000
<CGS> 189,674
<TOTAL-COSTS> 189,674
<OTHER-EXPENSES> 31,074
<LOSS-PROVISION> 161
<INTEREST-EXPENSE> 4,339
<INCOME-PRETAX> 8,252
<INCOME-TAX> 2,969
<INCOME-CONTINUING> 5,283
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,283
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JUNE 30, 1998 AND THE CONSOLIDATED STATEMENT OF
INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOW FOR THE SIX MONTHS ENDED JUNE
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 489
<SECURITIES> 0
<RECEIVABLES> 68,376
<ALLOWANCES> 652
<INVENTORY> 125,189
<CURRENT-ASSETS> 206,708
<PP&E> 111,848
<DEPRECIATION> 46,285
<TOTAL-ASSETS> 286,873
<CURRENT-LIABILITIES> 169,570
<BONDS> 1,235
0
0
<COMMON> 140
<OTHER-SE> 100,387
<TOTAL-LIABILITY-AND-EQUITY> 286,873
<SALES> 151,816
<TOTAL-REVENUES> 151,816
<CGS> 113,446
<TOTAL-COSTS> 113,446
<OTHER-EXPENSES> 19,322
<LOSS-PROVISION> 103
<INTEREST-EXPENSE> 2,537
<INCOME-PRETAX> 19,048
<INCOME-TAX> 6,617
<INCOME-CONTINUING> 12,431
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,431
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.03
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MARCH 31, 1998 AND THE CONSOLIDATED STATEMENT OF
INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOW FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,273
<SECURITIES> 0
<RECEIVABLES> 75,097
<ALLOWANCES> 566
<INVENTORY> 98,478
<CURRENT-ASSETS> 187,512
<PP&E> 101,388
<DEPRECIATION> 50,150
<TOTAL-ASSETS> 246,769
<CURRENT-LIABILITIES> 139,827
<BONDS> 602
0
0
<COMMON> 140
<OTHER-SE> 93,646
<TOTAL-LIABILITY-AND-EQUITY> 246,769
<SALES> 62,831
<TOTAL-REVENUES> 62,831
<CGS> 43,676
<TOTAL-COSTS> 43,676
<OTHER-EXPENSES> 10,752
<LOSS-PROVISION> 49
<INTEREST-EXPENSE> 1,090
<INCOME-PRETAX> 8,403
<INCOME-TAX> 3,073
<INCOME-CONTINUING> 5,330
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,330
<EPS-PRIMARY> .45
<EPS-DILUTED> .44
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997 AND THE CONSOLIDATED STATEMENT
OF INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOW FOR THE YEAR ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 609
<SECURITIES> 0
<RECEIVABLES> 55,260
<ALLOWANCES> 531
<INVENTORY> 73,423
<CURRENT-ASSETS> 141,949
<PP&E> 94,332
<DEPRECIATION> 48,811
<TOTAL-ASSETS> 195,064
<CURRENT-LIABILITIES> 95,736
<BONDS> 670
0
0
<COMMON> 140
<OTHER-SE> 88,413
<TOTAL-LIABILITY-AND-EQUITY> 195,064
<SALES> 270,562
<TOTAL-REVENUES> 270,562
<CGS> 210,033
<TOTAL-COSTS> 210,033
<OTHER-EXPENSES> 35,694
<LOSS-PROVISION> 114
<INTEREST-EXPENSE> 3,306
<INCOME-PRETAX> 24,835
<INCOME-TAX> 9,189
<INCOME-CONTINUING> 15,646
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,646
<EPS-PRIMARY> 1.29
<EPS-DILUTED> 1.27
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1997 AND THE CONSOLIDATED STATEMENT
OF INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOW FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 503
<SECURITIES> 0
<RECEIVABLES> 63,065
<ALLOWANCES> 685
<INVENTORY> 68,652
<CURRENT-ASSETS> 146,242
<PP&E> 97,225
<DEPRECIATION> 52,777
<TOTAL-ASSETS> 199,360
<CURRENT-LIABILITIES> 93,107
<BONDS> 344
0
0
<COMMON> 140
<OTHER-SE> 92,734
<TOTAL-LIABILITY-AND-EQUITY> 199,360
<SALES> 213,497
<TOTAL-REVENUES> 213,497
<CGS> 160,281
<TOTAL-COSTS> 160,281
<OTHER-EXPENSES> 27,989
<LOSS-PROVISION> 106
<INTEREST-EXPENSE> 2,499
<INCOME-PRETAX> 25,227
<INCOME-TAX> 9,035
<INCOME-CONTINUING> 16,192
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,192
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 1.30
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JUNE 30, 1997 AND THE CONSOLIDATED STATEMENT OF
INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOW FOR THE SIX MONTHS ENDED JUNE
30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,168
<SECURITIES> 0
<RECEIVABLES> 75,669
<ALLOWANCES> 680
<INVENTORY> 60,668
<CURRENT-ASSETS> 151,533
<PP&E> 94,698
<DEPRECIATION> 51,865
<TOTAL-ASSETS> 202,972
<CURRENT-LIABILITIES> 101,468
<BONDS> 393
0
0
<COMMON> 94
<OTHER-SE> 90,577
<TOTAL-LIABILITY-AND-EQUITY> 202,972
<SALES> 149,783
<TOTAL-REVENUES> 149,783
<CGS> 113,188
<TOTAL-COSTS> 113,188
<OTHER-EXPENSES> 19,548
<LOSS-PROVISION> 76
<INTEREST-EXPENSE> 1,652
<INCOME-PRETAX> 17,047
<INCOME-TAX> 6,142
<INCOME-CONTINUING> 10,905
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,905
<EPS-PRIMARY> .89
<EPS-DILUTED> .88
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MARCH 31, 1997 AND THE CONSOLIDATED STATEMENT OF
INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOW FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,141
<SECURITIES> 0
<RECEIVABLES> 80,454
<ALLOWANCES> 637
<INVENTORY> 55,772
<CURRENT-ASSETS> 151,432
<PP&E> 90,703
<DEPRECIATION> 50,949
<TOTAL-ASSETS> 199,962
<CURRENT-LIABILITIES> 106,137
<BONDS> 441
0
0
<COMMON> 94
<OTHER-SE> 85,528
<TOTAL-LIABILITY-AND-EQUITY> 199,962
<SALES> 72,881
<TOTAL-REVENUES> 72,881
<CGS> 54,623
<TOTAL-COSTS> 54,623
<OTHER-EXPENSES> 9,703
<LOSS-PROVISION> 19
<INTEREST-EXPENSE> 694
<INCOME-PRETAX> 8,555
<INCOME-TAX> 3,049
<INCOME-CONTINUING> 5,506
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,506
<EPS-PRIMARY> .45
<EPS-DILUTED> .44
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1996 AND THE CONSOLIDATED STATEMENT
OF INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOW FOR THE YEAR ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<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> 172,509
<CURRENT-LIABILITIES> 74,460
<BONDS> 489
0
0
<COMMON> 94
<OTHER-SE> 92,319
<TOTAL-LIABILITY-AND-EQUITY> 172,509
<SALES> 274,414
<TOTAL-REVENUES> 274,414
<CGS> 209,118
<TOTAL-COSTS> 209,118
<OTHER-EXPENSES> 40,073
<LOSS-PROVISION> 214
<INTEREST-EXPENSE> 1,557
<INCOME-PRETAX> 25,223
<INCOME-TAX> 9,134
<INCOME-CONTINUING> 16,089
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,089
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.17
</TABLE>
