FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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 Identification
incorporation or organization) Number)
10 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
- - -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 454-1020
Not Applicable
--------------
(former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirement for
the past 90 days. Yes x No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 11,847,046 common shares, $.01
par value, as of October 31,1999.
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
INTRODUCTION
CONDENSED CONSOLIDATED BALANCE SHEETS-
September 30, 1999 and December 31, 1998
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Three and Nine Months Ended September 30, 1999
and 1998
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-
Nine Months Ended September 30, 1999 and 1998
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. NOT APPLICABLE
ITEM 3. NOT APPLICABLE
ITEM 4. NOT APPLICABLE
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
----------
EXHIBIT INDEX
--------------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
INTRODUCTION
The condensed consolidated financial statements included herein (as of
September 30, 1999 and for the three and nine months ended September 30, 1999
and 1998) have been prepared by the Company, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission and reflect all
adjustments which are, in the opinion of management, necessary to present fairly
the condensed consolidated financial information required therein. All such
adjustments, except as otherwise may be described herein, are of a normal,
recurring nature. The information as of December 31, 1998 is derived from
the audited year end balance sheet for that year. Certain information and
footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these financial statements be
read in conjunction with the financial statements and the notes thereto included
in the Company's latest annual report on Form 10-K.
The results of operations for the three and nine month periods ended
September 30, 1999 and 1998 are not necessarily indicative of the results to be
expected for the full year.
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
ASSETS
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Cash and cash equivalents ........................ $ 914,000 $ 727,000
------------------ -----------------
Notes and accounts receivable, less allowances of
$1,321,000 and $519,000, respectively ......... $ 73,118,000 $ 68,827,000
------------------ -----------------
Inventories:
Raw materials .................................. $ 10,193,000 $ 11,529,000
Work in process ................................ 50,201,000 68,296,000
Finished goods ................................. 12,544,000 17,019,000
------------------ -----------------
$ 72,938,000 $ 96,844,000
------------------ -----------------
Deferred tax asset ................................ $ 15,060,000 $ 15,060,000
------------------ -----------------
Prepaid expenses .................................. $ 101,000 $ 406,000
------------------ -----------------
Total current assets ........................ $ 162,131,000 $ 181,864,000
------------------ -----------------
Plant and Equipment, at cost:
Land ........................................... $ 2,412,000 $ 2,430,000
Buildings and improvements ..................... 60,050,000 57,022,000
Machinery and equipment ........................ 71,881,000 69,196,000
------------------ -----------------
$ 134,343,000 $ 128,648,000
Less-Accumulated depreciation and amortization .. 54,297,000 48,181,000
------------------ -----------------
$ 80,046,000 $ 80,467,000
------------------ -----------------
Other Assets:
Deferred tax asset ............................. $ 4,165,000 $ 4,165,000
Deferred charges (goodwill), net of amortization 5,820,000 6,154,000
Other .......................................... 5,091,000 3,154,000
------------------ -----------------
$ 15,076,000 $ 13,473,000
------------------ -----------------
$ 257,253,000 $ 275,804,000
================== =================
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
LIABILITIES AND SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Revolving credit agreement ........................ $ 130,100,000 $ 119,300,000
Current portion of long-term debt ................. 627,000 627,000
Accounts payable .................................. 36,634,000 52,634,000
Accrued expenses .................................. 26,327,000 24,258,000
------------------ -----------------
Total current liabilities .................. $ 193,688,000 $ 196,819,000
------------------ -----------------
Long-term debt, less current portion shown above .... $ 1,797,000 $ 2,298,000
------------------ -----------------
Other long-term liabilities ......................... $ 4,911,000 $ 4,957,000
------------------ -----------------
Commitments and Contingencies
Shareholders' Investment:
Preferred stock:
Undesignated-authorized 1,500,000 shares
at September 30, 1999 and December 31,
1998; none issued ............................ $ -- $ --
Common Stock, par value $.01 per share; authorized
25,000,000 shares; issued 14,047,249 shares at
September 30, 1999 and December 31, 1998 ...... 140,000 140,000
Additional paid-in capital ....................... 97,971,000 98,377,000
Retained earnings ................................ 1,263,000 16,131,000
------------------ -----------------
$ 99,374,000 $ 114,648,000
Less: Treasury stock, at cost: 2,200,203 and
2,228,640 shares at September 30, 1999 and
December 31, 1998, respectively ................ (42,517,000) (42,918,000)
------------------ -----------------
Total shareholder's equity ................. $ 56,857,000 $ 71,730,000
------------------ -----------------
$ 257,253,000 $ 275,804,000
================== =================
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Net sales ........................... $ 69,332,000 $ 77,184,000 $ 226,196,000 $ 229,000,000
Cost of products sold ............... 55,295,000 76,228,000 199,632,000 189,674,000
--------------- --------------- --------------- --------------
Gross profit ...................... $ 14,037,000 $ 956,000 $ 26,564,000 $ 39,326,000
--------------- --------------- --------------- --------------
Other costs and expenses:
Selling and administrative expenses $ 10,148,000 $ 9,571,000 $ 31,509,000 $ 28,220,000
Interest expense .................. 3,038,000 1,802,000 8,236,000 4,339,000
Other (income) expense, net ....... 311,000 379,000 270,000 (1,485,000)
--------------- --------------- --------------- --------------
$ 13,497,000 $ 11,752,000 $ 40,015,000 $ 31,074,000
--------------- --------------- ------------- --------------
Income (loss) before taxes .......... $ 540,000 $ (10,796,000) $ (13,451,000) $ 8,252,000
Provision (credit) for income taxes . -- (3,648,000) -- 2,969,000
--------------- --------------- --------------- --------------
Net income (loss) and comprehensive
income (loss) ..................... $ 540,000 $ (7,148,000) $ (13,451,000) $ 5,283,000
=============== =============== =============== ==============
Earnings (loss) per common share:
Basic ............................. $ 0.05 $ (0.60) $ (1.14) $ 0.44
=============== =============== =============== ==============
Diluted ........................... $ 0.05 $ (0.60) $ (1.14) $ 0.44
=============== =============== =============== ==============
Weighted average shares outstanding:
Basic ............................. 11,847,000 11,914,000 11,834,000 11,920,000
=============== =============== =============== ==============
Diluted ........................... 11,854,000 11,914,000 11,834,000 12,069,000
=============== =============== =============== ==============
Dividends per common share .......... $ 0.04 $ 0.04 $ 0.12 $ 0.12
=============== =============== =============== ==============
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Net income(loss) .................................................. $ (13,451,000) $ 5,283,000
Adjustments to reconcile net income (loss) to net cash
used for operating activities:
Gains on sales of operating and nonoperating assets ............ (79,000) (1,962,000)
Depreciation and amortization .................................. 6,489,000 4,406,000
Amortization of deferred charges ............................... 334,000 240,000
Deferred income tax provision .................................. - 2,414,000
Provision for inventory valuation .............................. 8,663,000 1,906,000
Stock option compensation ...................................... -- 1,119,000
Changes in noncash assets and liabilities, net of
noncash transactions:
(Increase) in accounts receivable ........................... (5,201,000) (7,710,000)
(Increase) decrease in inventories ......................... 15,243,000 (59,572,000)
(Increase) decrease in prepaid expenses ..................... 305,000 (107,000)
Increase (decrease) in accounts payable and accrued expenses (13,817,000) 30,143,000
Other,net ...................................................... (978,000) (713,000)
-------------- -------------
Net cash used for operating activities ............................ $ (2,492,000) $ (24,553,000)
-------------- -------------
Cash Flows from Investing Activities
Additions to plant and equipment .................................. $ (6,094,000) $ (31,411,000)
Payment for businesses acquired ................................... -- (10,953,000)
Proceeds from sales of plant and equipment ........................ 10,000 3,373,000
-------------- -------------
Net cash used for investing activities ............................ $ (6,084,000) $ (38,991,000)
-------------- -------------
Cash Flows from Financing Activities:
Borrowings under revolving credit agreement ....................... $ 100,300,000 $ 131,400,000
Payments under revolving credit agreement ......................... (89,500,000) (65,800,000)
Payments of short and long-term debt .............................. (501,000) (202,000)
Purchase of treasury stock ........................................ -- (1,171,000)
Dividends paid .................................................... (1,417,000) (955,000)
Stock options and other transactions .............................. (119,000) 91,000
-------------- -------------
Net cash provided from financing activities .......................... $ 8,763,000 $ 63,363,000
-------------- -------------
Net increase (decrease) in cash and cash equivalents ................. $ 187,000 $ (181,000)
Cash and cash equivalents at beginning of year ....................... 727,000 609,000
-------------- -------------
Cash and cash equivalents at end of period ........................... $ 914,000 $ 428,000
============== =============
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of the statements.
Allied Products Corporation and Consolidated Subsidiaries
Notes to Condensed Consolidated Financial Statements
(1) Restatement of Previously Issued Financial Statements
-----------------------------------------------------
Operating results for the three and nine month periods ended
September 30, 1998 have been restated to reflect the effect of (a)
compensation expenses which should have been recognized in relation to
certain stock option exercise transactions and (b) the correction of
gross profit margins at the Verson division. See Note 13 of Notes to
Consolidated Financial Statements in the Company's 1998 Annual Report
for a more detailed explanation of the restatement.
The following table reconciles the amounts previously reported
to the amounts currently being reported in the Condensed Consolidated
Statement of Income (Loss) for the three and nine month periods ended
September 30, 1998:
<TABLE>
<CAPTION>
Income (Loss) Tax
Before Provision Net
Taxes (Benefit) Income (Loss)
------------ ------------ ------------
<S> <C> <C> <C>
For The Three Months
--------------------
As previously reported ........... $(15,639,000) $ (5,343,000) $(10,296,000)
Restatement associated with Verson
gross profit margin ........... 4,843,000 1,695,000 3,148,000
Restatement associated with stock
option compensation ........... -- -- --
------------ ------------ ------------
As restated ...................... $(10,796,000) $ (3,648,000) $ (7,148,000)
============ ============ ============
For Nine Months Ended
---------------------
As previously reported ........... $ 4,092,000 $ 1,513,000 $ 2,579,000
Restatement associated with Verson
gross profit margin ........... 5,279,000 1,848,000 3,431,000
Restatement associated with stock
option compensation ........... (1,119,000) (392,000) (727,000)
------------ ------------ ------------
As restated ...................... $ 8,252,000 $ 2,969,000 $ 5,283,000
============ ============ ============
</TABLE>
(2) Accrued Expenses
----------------
The Company's accrued expenses consist of the following:
<TABLE>
<CAPTION>
9/30/99 12/31/98
----------- -----------
<S> <C> <C>
Salaries and wages ............... $ 6,184,000 $ 6,573,000
Warranty ......................... 6,115,000 5,794,000
Self insurance accruals .......... 2,362,000 2,905,000
Pensions, including retiree health 4,891,000 4,644,000
Taxes, other than income taxes ... 1,184,000 888,000
Interest ......................... 1,512,000 309,000
Environmental matters ............ 1,127,000 1,225,000
Other ............................ 2,952,000 1,920,000
----------- -----------
$26,327,000 $24,258,000
=========== ===========
</TABLE>
(3) Earnings Per Common Share
-------------------------
Basic earnings (loss) per common share for the periods in 1999
is based on the average number of common shares outstanding (11,847,000
and 11,834,000 for the three and nine months ended September 30, 1999,
respectively). Diluted earnings per common share for the three months
ended September 30, 1999 is based on the average number of common
shares outstanding (11,847,000) increased by the dilutive effect of
options outstanding (7,000). For the nine months ended September 30,
1999, dilutive securities (8,000 shares) were excluded from the
calculation of diluted loss per common share as their effect would have
been antidilutive. Basic earnings (loss) per common share for the same
periods in 1998 is based on the average number of common shares
outstanding (11,914,000 and 11,920,000 for the three and nine months
ended September 30, 1998, respectively). For the three months ended
September 30, 1998, dilutive securities (7,000 shares) were excluded
from the calculation of diluted loss per common share as their effect
would have been antidilutive. Diluted earnings per common share for the
nine months ended September 30, 1998 is based on the average number of
common shares outstanding (11,920,000) increased by the dilutive effect
(149,000 shares) of outstanding options.
(4) Business Purchase Option
------------------------
In August 1999, the Company acquired a conditional option to
purchase certain fixed assets and inventories of the Niagara Machine
Division (the "Niagara Assets") of CNB International, Inc. D.I.P.
("CNB") for a purchase price equal to the sum of $8,500,000 plus the
fair value of inventories as determined by the parties. The option is
subject to the acquisition of substantially all of the assets of CNB by
the grantor of the option, Emprotech Corp., which has entered into a
letter of intent with CNB regarding the acquisition. If Emprotech
successfully completes its acquisition of the assets of CNB, the
Company currently anticipates that it will exercise its option and
purchase the Niagara Assets from Emprotech. The Niagara Machine
Division is a manufacturer of small and medium metal forming presses
and press parts under the Niagara name. Niagara management estimates
that the Niagara spare parts business services an installed base of
over 35,000 machines. The
Company's management believes that the acquisition of the Niagara
product line and spare parts business will compliment Verson's existing
operations.
(5) Joint Venture
-------------
On July 15, 1999, the Company and CC Industries, Inc., a
privately held firm headquartered in Chicago, signed a letter of intent
to form a joint venture for the ownership and operation of the
Company's Agricultural Products Group. On October 26, 1999 the Company
announced that it had signed a definitive agreement to sell 80.1% of
the Agricultural Products Group for approximately $120,000,000. If the
transaction is approved by the Company's shareholders, Bush Hog L.L.C.,
a new joint-venture company, will acquire the business, assets and
certain liabilities of the division within the Agricultural Products
Group. Under the final agreement, the Company will sell an 80.1%
interest in Bush Hog L.L.C. to an affiliate of C.C. Industries, Inc.
Final shareholder approval and closing of the transaction is not
expected to occur until the first quarter of 2000.
If this transaction is completed, the Company's remaining
operations will consist solely of the operations of the Industrial
Products Group and the 19.9% interest in Bush Hog L.L.C. To complete
these transactions, the Company must obtain the consent of its banks
under the Second Amended and Restated Credit Agreement and the release
of outstanding security interests held by the banks in the assets of
the Agricultural Products Group. The banks have consented to such
transaction and have agreed to release the security interests, subject
to the Company's repayment of its entire indebtedness owing to the
banks on the closing. Simultaneous with the closing of this
transaction, the Company expects to borrow additional funds, secured by
its 19.9% membership interest in Bush Hog L.L.C. All or a portion of
those new borrowings, together with the cash proceeds received from the
affiliate of CC Industries, net of fees and expenses, will be applied
to repay the Company's then current bank indebtedness. If the Company
terminates the purchase agreement in order to accept another third
party acquisition, the Company is required to pay a termination fee of
$5,000,000.
(6) Stockholder Rights Plan
-----------------------
During the third quarter of 1999 the Company announced that
its Board of Directors approved the redemption of its current Common
Share Purchase Rights and adopted a new Stockholder Rights Plan. The
new plan is designed to continue the assurance of fair and equal
treatment of all stockholders in the event of any proposed takeover.
The plan involves the distribution of the new rights and a redemption
payment for current rights to all common shareholders of record as of
July 30, 1999. The stockholders received one purchase right for a new
series of junior preferred stock for each outstanding share of the
Company's common stock and a redemption payment on August 10, 1999 of
$0.01 per share for the Common
Share Purchase Rights declared under a 10-year rights agreement adopted
in January 1990. Each Preferred Share Purchase Right entitles the
holder to purchase from the Company under certain circumstances one
one-thousandth of a share of the new junior preferred stock. The rights
may be exercised if a person or group announces its intention to
acquire or acquires 15 percent or more of Allied Products' common
stock. However, an exception is made for certain significant
stockholders of the Company who are holding the Company's common stock
for investment purposes. They may acquire up to 20 percent of Allied
Products' common stock without triggering the Rights Plan. Under
certain circumstances, the holders of the rights will be entitled to
purchase at below market value either shares of common stock of Allied
Products Corporation or the common stock of the acquiring company.
Unless redeemed or exchanged earlier, the Preferred Share Purchase
Rights will expire in 10 years.
(7) Legal Proceedings
-----------------
During 1997, the Company sold the assets of its former Coz
division and assigned to the purchaser (the "Assignee") the lease of
the Coz facility. The lessor consented to the assignment but did not
release the Company from liability as lessee. During 1999, the Assignee
announced its intent to vacate the facility and filed a lawsuit against
the Company and the lessor seeking a declaration of the rights of the
respective parties under the lease. In particular, the Assignee has
alleged that the Company breached certain representations made in the
contract for the sale of the Coz assets, and that the lessor breached
certain provisions of the lease. The Company has denied all allegations
of misrepresentations asserted by Assignee, and asserted claims against
the Assignee for breach of the terms of the assignment and against the
lessor for breach of the lease. The lessor has asserted claims in a
lawsuit that the Company and the Assignee are in default under the
certain terms of the lease, including payment terms. Recently, the
lessor placed the Assignee and the Company on notice that it had
terminated the lease for nonpayment of rent and accelerated the rent
due for the remaining term. The lessor also filed an eviction action
against Assignee. The term of the lease runs until December 31, 2000.
Rental payments over the remaining term approximate $1,000,000. While
the risk of loss is reasonably possible, the Company believes that
should the litigation result in a judgment against the Company and in
the favor of lessor, the Company will likely be able to receive and
collect a favorable a judgment against Assignee in the same amount.
In May 1999 and June 1999, the Company was served with two
complaints purporting to be class action lawsuits on behalf of
shareholders who purchased the Company's common stock between February
6, 1997 and March 11, 1999. The complaints, which were filed in the
United States District Court for the Northern District of Illinois,
appear to be virtually identical. They allege various violations of the
federal securities laws, including misrepresentations or failure to
disclose material information about the Company's results of
operations, financial condition, weakness in its financial internal
controls, accounting for long-term construction contracts and employee
stock option compensation expense. In August 1999, the District Court
ordered that the two cases be consolidated for all purposes. A
Consolidated Amended Complaint was filed on October 12, 1999. The
claims in the Consolidated Amended Complaint appear to be virtually
identical to the claims in the prior complaints filed in May 1999 and
June 1999. No estimate can currently be made as to the ultimate outcome
of this claim, however, such claim 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.
(8) Contingent Liabilities
----------------------
In addition to the items described in Note 7, the Company is
involved in a number of legal proceedings as a defending party,
including product liability and environmental matters for which
additional liability is reasonably possible. For all these additional
matters except one, 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 product liability claim, however, 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 of Notes to Consolidated Financial
Statements in the Company's 1998 Annual Report on Form 10-K, the Verson
division may not be able to meet delivery schedules for certain presses
currently on orders in production. Certain customers of this division
may seek to exercise remedies for alleged breach of contract by the
Company. The remedies could include partial or complete cancellation of
orders and recovery of damages for late delivery, which may 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.
The Company recently entered into an amended purchase order
agreement with a major customer regarding the production and delivery
of orders for four (4) large presses. Under the terms of the amendment,
the customer will advance scheduled payments for press components as
such components are shipped. The original purchase orders called for
90% payment upon shipment of each completed press. Shipment of the
presses (and related payments) has been extended so that the last press
will not be shipped until the first quarter of 2001 and final payment
will not be received until the first quarter of 2002. Upon fulfillment
of certain conditions set forth in the amendment, the customer will
waive and release the Company from all claims arising from or
attributable to the Company's alleged late delivery defaults on all
presses and will accept delivery of the last two (2) presses related to
this order. Among the conditions set forth in the amendment are the
requirements that the Company complete the sale of the Agricultural
Products Group by the earlier of the expiration of the Company's
financing arrangements with its secured lenders or December 31, 1999.
Final shareholder approval and closing of the sale of the Agricultural
Products Group is not expected to occur until the first quarter of
2000. The Company is in the process of requesting an amendment to the
amended purchase order agreement to reflect the change in the projected
closing date of the sale of the Agricultural Products Group. In
addition, the Company must also obtain by December 31, 1999 a
commitment reasonably satisfactory to the customer for working capital
financing sufficient for the production of the last two presses. The
Company is in the process of requesting an amendment to the
Second Amended and Restated Credit Agreement to extend the maturity
date of this agreement beyond December 31, 1999 -- see Note 12 of Notes
to Condensed Consolidated Financial Statements. Should the Company be
unsuccessful in obtaining such amendments, the ultimate outcome could
be materially adverse to the financial position and results of
operations in the near term.
Reference is made to Note 10 of the Notes to Consolidated
Financial Statements in the Company's 1998 Annual Report on Form 10-K
and the description of an adversary proceeding filed against the
Company in 1998 by the debtor in a bankruptcy proceeding. On November
4, 1999, the Company entered into an agreement to settle the adversary
proceeding. Under the terms of the agreement, the Company will pay
$615,000, plus interest accruing at the rate of 8% per annum on any
amount unpaid after November 12, 1999. Final payment of the entire
settlement amount, plus accrued interest, is due on or before December
1, 1999.
At September 30, 1999, the Company was contingently liable for
approximately $1,579,000 primarily relating to outstanding letters of
credit.
(9) Income Taxes
------------
The provision for income taxes in the three and nine month
periods of 1998 is based upon the Federal statutory rate adjusted for
items that are not subject to taxes. No tax benefit was recorded in the
three and nine month periods ended September 30, 1999 as the Company
had no tax benefits available to record against the pretax loss.
Temporary timing differences have remained relatively constant over
time and are of a nature that will generally reverse over a longer
period of time and are currently not subject to any expiration time
frame. However, if the sale of an 80.1% interest in the Agricultural
Products Group (see Note 5) is approved by the shareholders,
management's belief is that the likelihood of utilizing the deferred
tax asset associated with certain temporary differences is further
decreased in the near term as a result of the proposed transaction, and
that tax loss carryforwards subject to expiration will
most likely arise. This will likely require an adjustment which will
be recorded upon consummation of the sale, which is the event subject
to shareholder approval that reduces the likelihood of the current
temporary differences being utilizable.
See Note 4 of Notes to Consolidated Financial Statements in
the Company's 1998 Annual Report on Form 10-K for a further discussion
related to income taxes.
(10) 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 segment information for 1998 has been restated to
reflect the business segments noted below. 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>
----
For the three months:
Net sales to unaffiliated customers $ 38,930 $ 30,402 $ -- $ 69,332
Income (loss) before taxes (a) ........ 5,471(b) 912 (c) (5,843)(e) 540
For the nine months:
Net sales to unaffiliated customers ... $ 112,965 $ 113,231 $ -- $ 226,196
Income (loss) before taxes (a) ........ 15,629(b) (12,354)(c) (16,726)(e) (13,451)
Total assets .......................... 108,791 132,123 16,339 (d) 257,253
1998
----
For the three months
Net sales to unaffiliated customers .... $ 34,068 $ 43,116 $ -- $ 77,184
Income (loss) before taxes (a) ........ 3,520(b) (9,952)(c) (4,364)(e) (10,796)
For the nine months
Net sales to unaffiliated customers .... $ 109,288 $ 119,712 $ -- $ 229,000
Income (loss) before taxes (a) ........ 18,306(b) 65 (c) (10,119)(e) 8,252
Total assets .......................... 96,985 181,348 21,045 (d) 299,378
</TABLE>
---------
(a) Segment income (loss) before taxes does not reflect an allocation
or charge for general corporate income or expenses, or interest
expense.
(b) Includes interest income of $19 in the three months and $81 in
nine months of 1999 and $22 in the three months and $82 in the
nine months of 1998.
(c) Includes interest income of $38 in the three months and $251 in
the nine months of 1999 and $0 in the three and nine months of
1998.
(d) Corporate assets consist principally of cash, deferred income
taxes, other assets, properties not used in operations and
investment in a unconsolidated joint venture.
(e) Corporate income (loss) before taxes consists of the following:
<TABLE>
<CAPTION>
Three months ended Nine months ended
9/30/99 9/30/98 9/30/99 9/30/98
------- ------- ------- -------
<S> <C> <C> <C> <C>
General corporate income and expense $(2,818) $(2,599) $ (8,545) $ (4,725)
Stock option compensation (Note 1) . -- -- -- (1,119)
Interest expense ................... (3,038) (1,802) (8,236) (4,339)
Interest income .................... 13 37 64
------- ------- -------- --------
Total ......................... $(5,843) $(4,364) $(16,726) $(10,119)
======= ======= ======== ========
</TABLE>
(11) Summary of Other (Income) Expense
Other (income) expense for the three and nine month periods
ended September 30, 1999 and 1998 consists of the following:
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
-------------------------- -------------------------
9/30/99 9/30/98 9/30/99 9/30/98
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income .............. $ (70,000) $ (59,000) $ (387,000) $ (146,000)
Goodwill amortization ........ 112,000 108,000 335,000 240,000
Loan costs amortization ...... 181,000 6,000 380,000 6,000
Net (gain) loss on sales of
operating and non-operating
assets .................... 14,000 10,000 (79,000) (1,962,000)
Loss on investment in non
consolidated subsidiary ... 2,000 16,000 208,000 97,000
Litigation
settlements/insurance
provision ................. 343,000 249,000 (46,000) 818,000
Credit for recovery of
long-term receivable ...... -- (130,000) -- (520,000)
Other miscellaneous .......... (271,000) 179,000 (141,000) (18,000)
----------- ----------- ----------- -----------
$ 311,000 $ 379,000 $ 270,000 $(1,485,000)
=========== =========== =========== ===========
</TABLE>
(12) Financial Arrangements
----------------------
During the first quarter of 1999, 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. Effective July 31, 1999, the Company entered into a
Second Amendment and Waiver to the Second Amended and Restated Credit
Agreement ("Second Amendment"). Under the terms of the Second
Amendment, the maximum indebtedness under the agreement may remain at
$135,000,000 from July 31 through November 29, 1999 rather than
decrease on specific dates to $110,000,000 as originally scheduled.
Fixed LIBOR interest rates related to amounts outstanding under this
agreement have also been increased from LIBOR plus 3.5% to LIBOR plus
4.0%. The final
maturity date of the agreement was accelerated from February 28, 2000
to November 30, 1999. The Second Amendment specifies that termination
of or a materially adverse change in the letter of intent between CC
Industries and the Company or in any succeeding agreement will
constitute an event of default under the credit agreement. The Second
Amendment also provides for a waiver of noncompliance by the Company as
of June 30, 1999 with the minimum consolidated operating cash flow
provision of the agreement. See Note 5 of Notes to Consolidated
Financial Statements in the Company's 1998 Annual Report on Form 10-K
for more detailed explanation on Financial Arrangements.
Effective October 15, 1999, the Company entered into a Third
Amendment and Waiver to the Second Amended and Restated Credit
Agreement ("Third Amendment"). The Third Amendment contained a waiver
of noncompliance with the Company's financial covenants as of September
30, 1999 and extended the maturity date of the Second Amended and
Restated Credit Agreement from November 30, 1999 to December 31, 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Agricultural Products Group Disposition
- - ---------------------------------------
On July 15, 1999, the Company and CC Industries, Inc., a privately held
firm headquartered in Chicago, signed a letter of intent to form a joint venture
for the ownership and operation of the Company's Agricultural Products Group. On
October 26, 1999 the Company announced that it had signed a definitive agreement
to sell 80.1% of the Agricultural Products Group for approximately $120,000,000.
If the transaction is approved by the Company's shareholders, Bush Hog L.L.C., a
new joint-venture company, will acquire the business, assets and certain
liabilities of the Agricultural Products Group. Under the final agreement, the
Company will sell an 80.1% interest in Bush Hog L.L.C. to an affiliate of C.C.
Industries, Inc. Final shareholder approval and closing of this transaction is
not expected to occur until the first quarter of 2000.
If this transaction is completed, the Company's remaining operations
will consist solely of the operations of the Industrial Products Group and the
19.9% interest in Bush Hog L.L.C. To complete these transactions, the Company
must obtain the consent of its banks under the Second Amended and Restated
Credit Agreement and the release of outstanding security interests held by the
banks in the assets of the Agricultural Products Group. The banks have consented
to such transaction and have agreed to release the security interests, subject
to the Company's repayment of its entire indebtedness owing to the banks on the
closing. Simultaneous with the closing of this transaction, the Company expects
to borrow additional funds, secured by its 19.9% membership interest in Bush Hog
L.L.C. All or a portion of those new borrowings, together with the cash proceeds
received from the affiliate of CC Industries, Inc., net of fees and expenses,
will be applied to repay the Company's then current bank indebtedness. If the
Company terminates the purchase agreement in order to accept another third party
acquisition, the Company is required to pay a termination fee of $5,000,000.
OPERATING RESULTS
- - -----------------
First Nine Months of 1999 Compared to First Nine Months of 1998
- - ---------------------------------------------------------------
Consolidated net sales for the first nine months of 1999 were
$226,196,000 compared to consolidated net sales of $229,000,000 reported in the
first nine months of 1998. Loss before taxes in the first nine months of 1999
was $13,451,000 compared to income before taxes (on a restated basis) of
$8,252,000 in the first nine months of the prior year. Net loss for the first
nine months of 1999 was $13,451,000 ($1.14 per common share-diluted) compared to
net income (on a restated basis) of $5,283,000 ($0.44 per common share-diluted)
in the first nine months of 1998.
Subsequent to the end of 1998, the Company determined that the
accounting for certain stock option exercise transactions during the first
quarter of 1998 was incorrect. Compensation expense
for certain option exercises in the first quarter of 1998 which was not
recognized in the statement of income issued at that time is now reflected in
the accompanying restated statement of income (loss). The Company also
determined that gross profit margins at the Verson division of the Industrial
Products Group were incorrectly reported in the first, second and third quarters
of 1998. Corrected amounts are now reflected in the accompanying restated
statements of income (loss). Reference is made to Note 13 of Notes to
Consolidated Financial Statements in the Company's 1998 Annual Report on Form
10-K regarding the reconciliation of amounts previously reported in the first
three quarters of 1998 to the amounts currently being reported in the
accompanying restated statement of income (loss).
Within the Agricultural Products Group, net sales increased to
$112,965,000 in the first nine months of 1999 from $109,288,000 reported in the
first nine months of the prior year. Increases were primarily related to
turf/landscape products and improved loader sales. In the past few years, the
Company's Bush Hog division has concentrated on its turf and landscape product
line through the development of new products and the acquisition in April 1998
of Universal Turf. Improvements in the loader product line sales were also
associated with product development and the acquisition of the Great Bend
Manufacturing Company in April 1998. These increases were partially offset by
the effects of lower sales of cutter and disc mower products in the first nine
months of 1999. External financial conditions in the U.S. agricultural sector
have weakened since the early part of 1998 and are expected to remain weak for
the remainder of 1999 and on into 2000. Commodity prices are lower for a
majority of major crops and for most livestock segments compared to twelve
months ago. Net farm cash income decreased in 1998 and is projected to decline
further in 1999 and 2000. However the U.S. Senate recently passed legislation
to add $7.5 billion to the year 2000 agricultural appropriations bill for
emergency purposes, which is designed to alleviate some of these issues. Income
before taxes decreased to $15,629,000 in the first nine months of 1999 compared
to income before taxes of $18,306,000 reported in the first
nine months of 1998. Gross profit margins decreased by approximately 2.25
percentage points in 1999 due primarily to the effects of increased cash
discounts and decreased production levels in the current year. Additional cash
discounts have been offered to dealers in 1999 to help reduce the amount of
dealer inventory levels. Lower production levels were the result of decreased
demand by large farming operations which have been impacted most by the overall
agricultural economy described above. Increases in selling and administrative
expenses in the first nine months of 1999 were related to the acquisition of the
Great Bend division and Universal Turf operations as noted above. The increase
was offset in part by lower commission expenses at the Bush Hog division due to
the effects of lower sales volume and the mix of products sold.
Within the Industrial Products Group, net sales decreased to
$113,231,000 in the first nine months of 1999 compared to net sales of
$119,712,000 reported in the first nine months of the prior year. The decrease
was related to lower small press (size C and under) sales (production) at the
Verson division. Larger press (size B and higher) sales (production) in the
first nine months of 1999
increased slightly (less than 2%) from levels of the first nine months of the
prior year. Production continues on orders for four large presses to one major
U.S. automobile manufacturer. Production on another set of orders for four large
presses to another major U.S. automobile manufacturer is nearing completion at
the end of the third quarter of 1999.
The Industrial Products Group reported a loss before taxes of
$12,354,000 in the first nine months of 1999 compared to income before taxes (on
a restated basis) of $65,000 in the first nine months of 1998. In 1998, the
Industrial Products Group recorded a loss of $12,079,000 on certain jobs in
process including reserves of $8,813,000 (none in the first nine months) for
estimated future losses on those jobs. The Company indicated in its annual
report that it was reasonably possible that additional losses would occur. In
the first nine months of 1999, the Company revised its cost estimates on these
jobs and increased the reserves for future losses by $8,663,000. The excess of
costs over revenues in the first nine months of 1999 (approximately $2,100,000)
was attributable to the charges to the reserve for future losses on these jobs.
Two factors described in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Company's 1998 Annual
Report on Form 10-K affected the low margins reported in the first nine months
of 1999. First, the Industrial Products Group's sales backlog at December 31,
1998 included revenues of approximately $50,000,000 to be recognized in 1999
through 2001 on the loss jobs described above. No gross margins are expected to
be recognized on those revenues. The backlog also included future revenues of
approximately $95,000,000 to be recorded principally in 1999 and 2000 for which
anticipated gross margins will be lower than historical levels prior to 1998.
Second, the Industrial Products Group is reporting no gross profit on
any press manufactured during 1999 until a point in production when all
manufacturing costs can be reasonably estimated. Currently, that point is when
the press is in final assembly. This method of recognition of gross profits
adversely affected results for the first nine months of 1999.
Gross profits within the Industrial Products Group were favorably
affected in the first nine months of 1999 and 1998 by the Company's recovery of
a claim associated with a prior period. Selling and administrative expenses
increased in the first nine months of 1999. Most increases were related to
salary and fringe cost increases, an additional provision for doubtful accounts
and selling expenses related to the joint venture (Verson Pressentechnik) formed
in the fourth quarter of 1998 in which Verson holds a 60% stake.
The Industrial Products Group sales backlog at September 30, 1999 was
approximately $73,000,000 compared to a sales backlog of approximately
$145,000,000 at December 31, 1998. The sales backlog at September 30, 1999
includes revenues to be recorded in future periods on orders
received, including press revenues of approximately $31,000,000 on orders for
which estimated losses were recorded in 1998 and 1999 and on which no gross
margin is expected to be recognized in 1999 through 2001. Uncertainties
associated with these contracts make it reasonably possible that additional
losses could occur. The September 30, 1999 backlog for the Industrial Products
Group also included future press revenues of approximately $16,000,000 to be
recorded principally in 1999 for which the group anticipates gross margins lower
than levels prior to 1998. The remaining backlog at September 30, 1999
(approximately $26,000,000) includes future press revenues as well as orders for
parts and field services with anticipated pre-1998 historical gross margins. The
backlog of low margin and no margin work in process at September 30, 1999 will
have a substantial negative effect on the Industrial Products Group earnings in
1999 and, to a lesser extent, in 2000 and 2001. 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. The Industrial
Products Group's difficulties in completing orders during 1998 and 1999 could
adversely affect its relationship with one or more of its customers and
therefore could have a negative impact on the Industrial Products Group's
ability to obtain future business from such customers. In addition, failure to
complete the sale of the Agricultural Products Group and the resulting financial
strain that it would impose on the Company could further exacerbate problems
with existing customers of the Industrial Products Group and make it more
difficult to attract new customers. Management believes that the significant
improvement in the Company's balance sheet from the repayment of a substantial
majority of its outstanding bank debt may help provide the Industrial Products
Group flexibility to restructure and expand its operations to meet changing
demands and also may help to alleviate the concerns of customers and suppliers
about the long term viability of the Industrial Products Group.
Because of the difficulties the Industrial Products Group encountered
in 1998, the group failed to meet delivery date requirements provided in several
press orders. The group reserved for penalties of approximately $1,200,000 in
the first nine months of 1998 as a result of delays in shipments and may receive
additional claims for significant penalty payments or damages in the remainder
of 1999 and 2000. Reference is made to Note 10 of Notes to Consolidated
Financial Statements in the Company's 1998 Annual Report on Form 10-K.
Additional reference is made to Note 8 of Notes to Condensed Consolidated
Financial Statements.
Corporate expenses consisted primarily of administrative charges and
other (income) expense. Administrative expenses increased in the first nine
months of 1999. The majority of the increase was related to the effects of a
matching provision now provided by the Company for its 401(k) pension plans and
increased professional fees related to the extended 1998 audit and refinancing
efforts of the Company. In the first nine months of 1998, administrative
expenses included $1,119,000 of compensation expense (none in the first nine
months of 1999) related to the exercise of certain stock options previously
discussed. Reference is made to Note 11 of Notes to Condensed Consolidated
Financial Statements for an analysis of other (income) expense in the first nine
months of 1999 and 1998.
Interest expense in the first nine months of 1999 was $8,236,000
compared to interest expense of $4,339,000 reported in the first nine months of
1998. The increase was primarily associated with increased borrowings related to
greater receivable levels, fixed asset additions and the acquisition of the
Great Bend and Universal Turf operations in the second quarter of 1998. Interest
rates on borrowings outstanding have also increased under new and amended credit
agreements during the current year. Reference is made to Note 12 of Notes to
Condensed Consolidated Financial Statements in relation to increased interest
rates.
No current or deferred tax benefit was recorded in the first nine
months of 1999 as a result of the Company's pretax loss. Reference is made to
Note 9 of Notes to Condensed Consolidated Financial Statements.
Third Quarter of 1999 Compared to Third Quarter of 1998
- - -------------------------------------------------------
Consolidated net sales for the third quarter of 1999 were $69,332,000
compared to consolidated net sales of $77,184,000 reported in the third quarter
of 1998. Income before taxes in the third quarter of 1999 was $540,000 compared
to a loss before taxes (on a restated basis) of $10,796,000 in the third quarter
of the prior year. Net income for the third quarter of 1999 was $540,000 ($0.05
per common share-diluted) compared to a net loss (on a restated basis) of
$7,148,000 ($0.60 per common share-diluted) in the third quarter of 1998.
Within the Agricultural Products Group, net sales in the third quarter
of 1999 were $38,930,000 compared to net sales of $34,068,000 reported in the
third quarter of 1998. All major product lines (cutters, turf/landscape, loaders
and parts) recorded improved sales in the third quarter of the current year.
Approximately half of the total increase was related to the turf/landscape
product line. Much of the increase was related to new products developed in the
last 18 months. Improved loader sales in the third quarter of 1999 reflects the
impact of cross marketing these products under the Bush Hog and Great Bend brand
names and new products developed by both divisions. Income before taxes for the
Agricultural Products Group increased to $5,471,000 in the third quarter of 1999
compared to income before taxes of $3,520,000 reported in the third quarter of
the prior year. Gross profits and gross profit margins improved in the third
quarter of 1999 compared to the same quarter of the prior year. Approximately
half of the increase in gross profits was associated with the increased sales
volume as noted above. The remainder of the increase in gross profits and the
improvement in the gross profit margin was principally related to improved
manufacturing variances associated with reduced spending levels. Selling and
administrative expenses increased by approximately 3% in the third quarter of
1999 compared to the same quarter of the prior year. The majority of the
increase was related to increased commissions, the direct result of the increase
in sales noted above.
Within the Industrial Products Group, net sales decreased to
$30,402,000 in the third quarter of 1999 compared to net sales of $43,116,000
reported in the third quarter of 1998. Revenues have decreased due to a
decreasing number of presses currently in production compared to the prior year.
In addition, many of the presses currently in production are nearing completion.
Orders for presses, large and small, have decreased significantly in 1999 as the
Verson division is concentrating on completing current press orders in a timely
manner to avoid late delivery penalties on certain orders. While the division is
actively seeking press orders from both automobile manufacturers and tier one
and two suppliers, orders are not being pursued which would cause delays on
presses currently in production. This decrease in obtaining production orders
has resulted in decreased revenue recognition. Income before taxes in the third
quarter of 1999 was $912,000 compared to a loss before taxes (on a restated
basis) of $9,952,000 reported for the third quarter of 1998. As previously
noted, no gross profit on any press manufactured during 1999 would be recognized
until the press reaches a point in production when all manufacturing costs can
be reasonably estimated. During the third quarter of 1999, production on orders
for four large presses neared completion and accordingly, gross profits on these
jobs were recognized. Gross profit margins in the third quarter of 1998 includes
a charge of $11,180,000 for revised cost estimates for several newly designed,
automated, multi-station transfer presses which were in production at that time.
The need for revised cost estimates was identified in the third quarter of 1998
and reflects the impact of production bottlenecks in the assembly process as
well as greater than anticipated increases in subcontracting costs. Increases in
selling and administrative expenses in the third quarter of 1999 compared to the
third quarter of the prior year (approximately $400,000) resulted from the
realignment of the reporting of certain departments to selling expenses and
costs associated with the joint venture (Verson Pressentechnik) formed in the
fourth quarter of 1998.
As noted above, corporate expenses consisted primarily of
administrative charges and other (income) expense. Administrative expense
increases in the third quarter of 1999 were principally associated with
increased professional fees as previously discussed. Reference is made to Note
11 of Notes to Condensed Consolidated Financial Statements for an analysis of
other (income) expense in the third quarter of 1999 and 1998.
Interest expense in the third quarter of 1999 was $3,038,000 compared
to interest expense of $1,802,000 reported in the third quarter of 1998. The
increase was related to the effect of increased interest rates under loan
agreement terms in effect during each quarter and the impact of increased
borrowing levels for reasons previously discussed. Reference is made to Note 12
of Notes to Condensed Consolidated Financial Statements in relation to increased
interest rates.
FINANCIAL CONDITION AND LIQUIDITY
- - ---------------------------------
Working capital at September 30, 1999 was $(31,557,000) and the current
ratio was .84 to 1.00 compared to working capital of $(14,955,000) and a current
ratio of .92 to 1.00 at December
<PAGE>
31, 1998. Net consolidated receivables increased by $4,291,000 since the end of
1998. Approximately two-thirds of the increase was associated with the
Agricultural Products Group where sales in the current year increased as
previously noted. The remainder of the increase was associated with the
Industrial Products Group where receivables are a function of press shipments.
Net consolidated inventory levels decreased by $23,906,000 since the end of
1998. Over 85% of the decrease was related to the Industrial Products Group. As
noted above, production has decreased at the Verson division, particularly in
the third quarter of 1999 as presses in production are nearing completion.
Orders for new presses have decreased in the current year resulting in
additional reductions in production and decreased inventory levels. The
remainder of the decrease in inventories was related to the Agricultural
Products Group and reflects normal seasonal decreases.
Fixed asset additions in the first nine months of 1999 totaled
$6,094,000. Half of this amount represents building costs at the Verson
division, primarily associated with completing the assembly facility addition,
construction of which began in 1998. The majority of the remaining fixed asset
additions in 1999 were related to manufacturing machinery and equipment
purchases at both the Agricultural Products and Industrial Products groups.
There were no major fixed asset dispositions in the first nine months of 1999.
The net decrease in accounts payable and accrued expenses ($13,931,000)
during the first nine months of 1999 was primarily related to customer deposits
at the Verson division. Verson initially accounts for customer deposits received
against orders as a liability. As production continues on such orders, the
division reduces the amount classified as a liability and credits the amount as
a reduction in work in process inventory. Borrowings under the Company's
revolving credit agreement increased by $10,800,000 in the first nine months of
1999.
On July 31, 1999, the Company entered into a Second Amendment and
Waiver to the Second Amended and Restated Credit Agreement ("Second Amendment").
Under the terms of the Second Amendment, the maximum indebtedness under the
agreement may remain at $135,000,000 from July 31 through November 29, 1999
rather than decrease on specific dates to $110,000,000 as originally scheduled.
Interest rates related to amounts outstanding under this amendment have also
been increased. The final maturity date of the agreement was accelerated from
February 28, 2000 to November 30, 1999. The Second Amendment refers to the above
noted letter of intent between CC Industries, Inc. and the Company. The Second
Amendment specifies that termination of or a materially adverse change in the
letter of intent or in any succeeding agreement will constitute an event of
default under the credit agreement. The Second Amendment also provides for a
waiver of noncompliance by the Company as of June 30, 1999 with the minimum
consolidated operating cash flow provision of the agreement. Effective October
21, 1999, the Company entered into a Third Amendment and Waiver to the Second
Amended and Restated Credit Agreement ("Third Amendment"). The Third Amendment
contained a waiver of noncompliance with the Company's
<PAGE>
financial covenants as of September 30, 1999 and extended the maturity date of
the Second Amended and Restated Credit Agreement from November 30, 1999 to
December 31, 1999.
The principal market risk related to debt to which the Company is
exposed includes rates on the Company's debt which is subject to floating
interest rates as described in Note 12 of Notes to Condensed Financial
Statements.
The Company recently entered into an amended purchase order agreement
with a major customer regarding the production and delivery of orders for four
(4) large presses. Under the terms of the amendment, the customer will advance
scheduled payments for press components as such components are shipped. The
original purchase orders called for 90% payment upon shipment of each completed
press. Shipment of the presses (and related payments) has been extended so that
the last press will not be shipped until the first quarter of 2001 and final
payment will not be received until the first quarter of 2002. Upon fulfillment
of certain conditions set forth in the amendment, the customer will waive and
release the Company from all claims arising from or attributable to the
Company's alleged late delivery defaults on all presses and will accept delivery
of the last two (2) presses related to this order. Among the conditions set
forth in the amendment are the requirements that the Company complete the sale
of the Agricultural Products Group by the earlier of the expiration of the
Company's financing arrangements with its secured lenders or December 31, 1999.
Final shareholder approval and closing of the sale of the Agricultural Products
Group is not expected to occur until the first quarter of 2000. The Company is
in the process of requesting an amendment to the amended purchase order
agreement to reflect the change in the projected closing date of the sale of the
Agricultural Products Group. In addition, the Company must also obtain by
December 31, 1999 a commitment reasonably satisfactory to the customer for
working capital financing sufficient for the production of the last two presses.
The Company is in the process of requesting an amendment to the Second Amended
and Restated Credit Agreement to extend the maturity date of this agreement
beyond December 31, 1999 -- see Note 12 of Notes to Condensed Consolidated
Financial Statements. Should the Company be unsuccessful in obtaining such
amendments, the ultimate outcome could be materially adverse to the financial
position and results of operations in the near term.
Reference is made to Note 6 of Notes to Condensed Consolidated
Financial Statements in relation to the Company's announcement on July 29, 1999
of a New Stockholders' Right Plan and the redemption of the Common Share
Purchase Rights then outstanding. Reference is made to Note 4 of Notes to
Condensed Consolidated Financial Statements in relation to the Company acquiring
a conditional option to purchase certain fixed assets and inventories of the
Niagara Machine Division of CNB International, Inc. D.I.P.
As of September 30, 1999, the Company had cash and cash equivalents of
$914,000 and additional funds of $3,321,000 available under the Second Amended
and Restated Credit Agreement and related amendments. Absent completion of the
joint venture transaction or renegotiation of its credit facility, the Company
believes that its expected operating cash flow and funds available under the
Second Amended and Restated Credit Agreement and related amendments may not be
adequate
<PAGE>
to finance its operations and capital expenditures beyond 1999. The joint
venture transaction, if completed, should result in the Company receiving cash
proceeds which would significantly reduce the amounts outstanding under this
agreement. Additional financing will be necessary to maintain operations of the
Industrial Products Group. The Company is exploring additional or alternate
sources of financing necessary to continue these remaining operations in a
normal manufacturing environment and to finance necessary capital expenditures.
During the second and third quarters of 1999, the Company was not in compliance
with certain provisions of the Second Amended and Restated Credit Agreement. A
waiver for noncompliance was received subsequent to September 30, 1999.
Reference is made to Note 7 of Notes to Condensed Consolidated
Financial Statements as it relates to the Company's involvement in legal
proceedings as a defending party.
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, 2000. The Company is in the
process of evaluating the impact of this statement on its financial reporting.
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.
<PAGE>
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. The Company recently purchased and installed
financial software which is year 2000 compliant. Outside service bureau
financial reporting software currently in place has been determined and tested
to be year 2000 compliant. Payroll services for the Company are currently being
provided by an outside service. The Company is currently in the process of
upgrading this service to year 2000 compliant software. All locations are
utilizing this new software. Compliance certificates have been received for non
personal computer systems owned/leased by the Company. Compliance testing has
also been completed. 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. 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) although some testing has
been completed with no exceptions noted. 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 internal tests of
production machinery have been completed with no exceptions noted. Outside
consultants have also evaluated the status of production equipment at the Verson
division and have determined that the division would be unlikely to experience
year 2000 problems in the areas reviewed.
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.
<PAGE>
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 were asked to
update the Company on the status of their year 2000 compliance. The Company has
not received any notification from any outside service provider indicating non
year 2000 compliance on behalf of the vendor.
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 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 completing their year
2000 compliance status. Alternate suppliers of critical components are also in
the process of being identified. Contingency plans are being developed on a case
by case basis and may include booking orders before anticipated business
disruption. Even so, judgments regarding contingency plans, such as how to
develop them and to what extent, are themselves subject to many variables and
uncertainties. There can be no assurance that the Company will correctly
anticipate the level, impact or duration of noncompliance by suppliers that
provide inadequate information. As a result, there is no certainty that the
Company's contingency plans will be sufficient to mitigate the impact of
noncompliance by suppliers, and some material adverse effect to the Company may
result from one or more third parties regardless of defensive contingency plans.
The Company believes it is taking the necessary steps to resolve year 2000
issues and that with the completion of the year 2000 project as scheduled, the
possibility of significant interruptions of normal operations should be reduced.
<PAGE>
SAFE HARBOR STATEMENT
- - ---------------------
Statements contained within the Management Discussion and Analysis of
Financial Conditions and Results of Operations 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.
<PAGE>
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
-----------------
Reference is made to Notes 7 and 8 of Notes to
Condensed Consolidated Financial Statements.
Item 5 Other Information
-----------------
Reference is made to Note 12 of Notes to Condensed
Consolidated Financial Statements and Exhibit 10 for
information related to the Waiver to the Amended and Restated
Credit Agreement
Item 6. Exhibit and Reports on Form 8-K
-------------------------------
(a) Exhibits - See Exhibit Index included herein.
(b) Reports on Form 8-K - On July 30, 1999, the Company
filed report under Item 5 - Other Events. The report
was filed in connection with press release dated July
29, 1999 reporting that the registrant Broad of
Directors approved the redemption of its current
common share Purchase Rights and adopted a new
Stockholder Rights Plan. Reference is made to Note 6
of Notes to Condensed Consolidated Financial
Statements.
<PAGE>
SIGNATURES
Pursuant to the requirements 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)
November 12,1999 /s/ Robert J. Fleck
Robert J. Fleck
Vice President- Accounting and Chief Accounting
& Administrative Officer
November 12,1999 /s/ Mark C. Standefer
Vice President, General Counsel & Secretary
<PAGE>
ALLIED PRODUCTS CORPORATION
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBITS
2 Limited Liability Company Interest Purchase and Asset
Contribution Agreement by and between Allied Products
Corporation, Bush Hog Investors, L.L.C. and Bush Hog,
L.L.C. dated as of October 21, 1999.
10 Material Contract - Third Amendment and Waiver dated
as of October 15, 1999 to the Credit Agreement dated
as of February 1, 1999.
27 Financial Data Schedules
LIMITED LIABILITY COMPANY INTEREST PURCHASE
AND
ASSET CONTRIBUTION AGREEMENT
BY AND BETWEEN
ALLIED PRODUCTS CORPORATION, BUSH HOG INVESTORS, L.L.C. AND BUSH HOG, L.L.C.
Dated as of October 21, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C> <C>
Article 1 Purchase And Sale Transactions..............................................................1
1.1. Purchase and Sale Transactions..............................................................1
1.2. Excluded Assets.............................................................................2
1.3. Assumed Liabilities.........................................................................2
1.4. Excluded Liabilities........................................................................3
1.5. Purchase Price Computation and Adjustments and Payment......................................6
1.6. Closing Date...............................................................................10
1.7. Closing Date Deliveries....................................................................11
1.8. Further Assurances.........................................................................13
Article 2 Representations, Warranties And Covenants Of Allied........................................13
2.1. Due Organization...........................................................................14
2.2. Power and Authority........................................................................14
2.3. Subsidiaries and Investments...............................................................14
2.4. Authority..................................................................................14
2.5. Financial Statements.......................................................................15
2.6. Operations Since December 31, 1998.........................................................15
2.7. No Undisclosed Liabilities.................................................................16
2.8. Taxes......................................................................................16
2.9. Availability of Purchased Assets and Legality of Use.......................................17
2.10. Real Property..............................................................................18
2.11. Accounts Receivable........................................................................19
2.12. Inventory..................................................................................19
2.13. Licenses...................................................................................20
2.14. Title to Property..........................................................................20
2.15. Employee Relations.........................................................................20
2.16. Status of Contracts........................................................................21
2.17. No Violations, Litigation or Regulatory Action.............................................22
2.18. Environmental Matters......................................................................22
2.19. Insurance..................................................................................23
2.20. Customers..................................................................................24
2.21. Suppliers..................................................................................24
2.22. Product Liability; Product and Service Warranties..........................................25
2.23. Intellectual Property......................................................................25
2.24. Broker or Finder...........................................................................26
2.25. Year 2000 Compliance and Readiness Matters.................................................26
2.26. Employee Plans.............................................................................27
2.27. Ownership..................................................................................28
2.28. Capitalization.............................................................................28
2.29. Status of the Company......................................................................28
2.30. Great Bend Bonds...........................................................................29
2.31. Sales Representatives......................................................................29
2.32. Current Product Lines......................................................................29
2.33. Disclosure.................................................................................29
Article 3 Representations, Warranties And Covenants Of Crown.........................................29
3.1. Organization of Crown......................................................................30
3.2. Authority of Crown.........................................................................30
3.3. Financial Matters..........................................................................30
3.4. No Broker or Finder........................................................................30
Article 4 Actions Prior To The Closing Date..........................................................30
4.1. Investigation of the Divisions and Allied by Crown.........................................30
4.2. Preserve Accuracy of Representations and Warranties........................................31
4.3. Consents and Approvals.....................................................................32
4.4. Interim Financial Statements...............................................................32
4.5. No Public Announcements....................................................................32
4.6. Termination or Modification of Intercompany Agreements.....................................32
4.7. Environmental Surveys......................................................................32
4.8. No Other Negotiations......................................................................33
4.9. Title Insurance and Surveys................................................................34
4.10. Bulk Sales Act Compliance..................................................................35
4.11. Management Information Systems.............................................................35
4.12. Business Activity of the Company...........................................................35
4.13. Loan Secured by Allied's Interest in the Company...........................................35
Article 5 Other Agreements...........................................................................36
5.1. Non-Competition Agreements.................................................................36
5.2. Management Services........................................................................36
5.3. Limited Liability Company Agreement........................................................36
5.4. Employment Agreements......................................................................36
5.5. Miscellaneous Insurance Matters............................................................36
5.6. Discharge of Excluded Liabilities and Assumed Liabilities..................................37
5.7. Name.......................................................................................37
5.8. Payment of Great Bend Bonds................................................................37
5.9. Great Bend Manufacturing Plant.............................................................37
Article 6 Conditions Precedent To Obligations Of Crown...............................................37
6.1. No Misrepresentation or Breach of Covenants and Warranties.................................37
6.2. Corporate Action...........................................................................38
6.3. No Restraint or Litigation.................................................................38
6.4. Necessary Actions..........................................................................38
6.5. Legal Opinion..............................................................................38
6.6. Release of Obligations under Letters of Credit of the Divisions............................39
6.7. Estoppel Certificates......................................................................39
6.8. Allied Loan................................................................................39
6.9. Other Documentation........................................................................39
Article 7 Conditions Precedent To Obligations Of Allied..............................................39
7.1. No Misrepresentation or Breach of Covenants and Warranties.................................40
7.2. Company Action.............................................................................40
7.3. No Restraint or Litigation.................................................................40
7.4. Certain Approvals..........................................................................40
7.5. Legal Opinion..............................................................................40
7.6. Financial Matters..........................................................................40
7.7. Other Documentation........................................................................40
Article 8 Indemnification............................................................................41
8.1. Indemnification by Allied..................................................................41
8.2. Indemnification by Crown...................................................................42
8.3. Indemnification by the Company.............................................................43
8.4. Limitation of Damages......................................................................43
8.5. Notice of Claims...........................................................................44
Article 9 Employees And Employee Benefit Plans.......................................................45
9.1. Employment.................................................................................45
9.2. 401(k) Plans...............................................................................47
Article 10 Termination................................................................................48
10.1. Termination................................................................................48
10.2. Remedies...................................................................................48
10.3. Risk of Loss...............................................................................49
Article 11 General Provisions.........................................................................50
11.1. Confidential Nature of Information.........................................................50
11.2. Governing Law and Forum....................................................................50
11.3. Records, Ongoing Cooperation...............................................................50
11.4. Notices....................................................................................51
11.5. Successors and Assigns.....................................................................53
11.6. Entire Agreement; Amendments...............................................................53
11.7. Waivers....................................................................................53
11.8. Expenses...................................................................................53
11.9. Sales and Transfer Taxes...................................................................53
11.10. Execution of Counterparts..................................................................54
11.11. Certain Provisions Relating to Consents....................................................54
11.12. Litigation Support.........................................................................55
Article 12 Definitions................................................................................56
12.1. "A/R List".................................................................................56
12.2. "Accounts Payable".........................................................................56
12.3. "Accounts Receivable"......................................................................56
12.4. "Accrued Commissions"......................................................................56
12.5. "Accrued Payroll Items"....................................................................56
12.6. INTENTIONALLY OMITTED .....................................................................56
12.7. "Active Employees".........................................................................56
12.8. "Adjusted Current Assets"..................................................................56
12.9. "Adjusted Current Liabilities".............................................................56
12.10. "Adjustment Report"........................................................................56
12.11. "Affiliate"................................................................................56
12.12. "Agreement"................................................................................57
12.13. "Allied"...................................................................................57
12.14. "Allied 401K Plans"........................................................................57
12.15. "Allied's Accountant"......................................................................57
12.16. "Allied Group".............................................................................57
12.17. "Allied Trustee"...........................................................................57
12.18. "Alternative Acquisition"..................................................................57
12.19. "Annual Statement".........................................................................57
12.20. "Arbiter"..................................................................................57
12.21. "Assets"...................................................................................58
12.22. "Assumed Liabilities"......................................................................58
12.23. "Banks"....................................................................................58
12.24. "Bank Lien"................................................................................58
12.25. "Base Adjusted Net Tangible Investment"....................................................58
12.26. "Base Adjusted Working Capital"............................................................58
12.27. "Base Long Term Assumed Liabilities".......................................................58
12.28. "Bond Trustee".............................................................................58
12.29. "Bond Trust Indenture".....................................................................58
12.30. "Capitalized Leases".......................................................................58
12.31. "Chicago Office"...........................................................................58
12.32. "Claiming Party"...........................................................................59
12.33. "Closing"and "Closing Date"................................................................59
12.34. "Closing Date A/R".........................................................................59
12.35. "Closing Date Adjusted Net Tangible Investment"............................................59
12.36. "Closing Date Adjusted Working Capital"....................................................59
12.37. "Closing Date Balance Sheet"...............................................................59
12.38. "Closing Date Long Term Assumed Liabilities"...............................................59
12.39. "Closing Date Middlebrooks Retirement Liability"...........................................59
12.40. "Closing Date Capitalized Tractor Lease Obligations".......................................59
12.41. "Code".....................................................................................59
12.42. "Commitments"..............................................................................59
12.43. "Company Defined Contribution Plan"........................................................60
12.44. "Company Employees"........................................................................60
12.45. "Company Trustee"..........................................................................60
12.46. "Contracts"................................................................................60
12.47. "Credit Agreement".........................................................................60
12.48. "Current Product Lines"....................................................................60
12.49. "Crown"....................................................................................60
12.50. "Crown Group"..............................................................................60
12.51. "December 31, 1998 Balance Sheet"..........................................................60
12.52. "Discrimination Suit"......................................................................60
12.53. "Divisions"................................................................................60
12.54. "Divisions Agreements".....................................................................61
12.55. "Employees"................................................................................61
12.56. "Employee Pension Benefit Plans"...........................................................61
12.57. "Employee Welfare Benefit Plans"...........................................................61
12.58. "Enforceability Exceptions"................................................................61
12.59. "Environmental Health and Safety Laws".....................................................61
12.60. "Environmental Review".....................................................................61
12.61. "EEOC".....................................................................................61
12.62. "ERISA"....................................................................................61
12.63. "ERISA Affiliate"..........................................................................61
12.64. "Estimated Adjustments"....................................................................61
12.65. "Estimated Purchase Price".................................................................62
12.66. "Estoppel Certificate".....................................................................62
12.67. "Excluded Assets"..........................................................................62
12.68. "Excluded Liabilities".....................................................................62
12.69. "Existing Liens"...........................................................................62
12.70. "Final Adjusted Net Tangible Investment"...................................................62
12.71. "Final Long Term Assumed Liabilities"......................................................62
12.72. "Final Middlebrooks Retirement Liability"..................................................62
12.73. "Final Adjusted Working Capital"...........................................................63
12.74. "Financial Statements".....................................................................63
12.75. "Fixed Assets".............................................................................63
12.76. "Formation"................................................................................63
12.77. "GAAP".....................................................................................63
12.78. "Governmental Agency"......................................................................63
12.79. "Governmental Charges".....................................................................63
12.80. "Great Bend Bonds".........................................................................63
12.81. "Hazardous Materials"......................................................................64
12.82. "Inactive Employees".......................................................................64
12.83. "Indemnifiable Damages"....................................................................64
12.84. "Indemnity Security Agreement".............................................................64
12.85. "Intellectual Property Rights".............................................................64
12.86. "Intercompany Agreements"..................................................................64
12.87. "Interests"................................................................................64
12.88. "Interim Statements".......................................................................64
12.89. "Inventory"................................................................................65
12.90. "Lease"....................................................................................65
12.91. "Leased Real Property".....................................................................65
12.92. "Letters of Credit"........................................................................65
12.93. "Letter of Intent".........................................................................65
12.94. "Licenses".................................................................................65
12.95. "Liens"....................................................................................65
12.96. "Limited Liability Company Agreement"......................................................65
12.97. "Manufacturing Lease"......................................................................65
12.98. "Material Adverse Effect"..................................................................65
12.99. "Middlebrooks Retirement Liability"........................................................65
12.100. "Money Purchase Plan"......................................................................66
12.101. "Most Recent Balance Sheet"................................................................66
12.102. "Non-claiming Party".......................................................................66
12.103. "Non-Competition Agreement"................................................................66
12.104. "Objection Notice".........................................................................66
12.105. "Offices"..................................................................................66
12.106. "Other Assumed Capitalized Leases".........................................................66
12.107. "Owned Real Property"......................................................................66
12.108. "Permit"...................................................................................66
12.109. "Permitted Exceptions".....................................................................66
12.110. "Person"...................................................................................67
12.111. "Personal Property Existing Liens".........................................................67
12.112. "Personal Property Permitted Exceptions"...................................................67
12.113. "Plants"...................................................................................67
12.114. "Post-Closing Claims"......................................................................67
12.115. " Pre-Acquisition Liabilities".............................................................67
12.116. "Prepaids".................................................................................67
12.117. "Product"..................................................................................67
12.118. "Purchase Price"...........................................................................67
12.119. "Purchase Price Allocation Schedule".......................................................67
12.120. "Purchased Assets".........................................................................67
12.121. "Real Estate Existing Liens"...............................................................69
12.122. "Real Estate Permitted Exceptions".........................................................69
12.123. "R&D Lease"................................................................................69
12.124. "Recalls"..................................................................................69
12.125. "Remediation Costs"........................................................................69
12.126. "Sales Representatives"....................................................................69
12.127. "Series A Bonds"...........................................................................70
12.128. "Series B Bonds"...........................................................................70
12.129. "Services".................................................................................70
12.130. "Significant Customers"....................................................................70
12.131. "Stub Period"..............................................................................70
12.132. "Superior Proposal"........................................................................70
12.133. "Surveys"..................................................................................70
12.134. "Termination Fee"..........................................................................70
12.135. "Total Salaried Savings Plan Transfer Amount"..............................................70
12.136. "Tractor Leases"...........................................................................70
12.137. "Transfer
</TABLE>
<PAGE>
SCHEDULES
---------
1.5(a) Purchase Price Adjustments
1.5(b) Inventory Valuation Principles
1.5(d) Purchase Price Allocation
2.1 Jurisdictions; Qualifications
2.2 Foreign Qualifications
2.3 Subsidiaries and Investments
2.4 Defaults
2.5 Financial Statements
2.6(b) Operations Outside of the Ordinary Course
2.8 Tax Audits
2.9 Leased Personal Property
2.10(a) Description of Real Estate
2.10(b) Leased Real Property
2.10(c) Eminent Domain
2.11 Accounts Receivable
2.13 Licenses
2.14 Personal Property Permitted Exceptions
2.15 Collective Bargaining Agreements,
Employee Benefit Plans, Employee
Agreements
2.16 Contracts
2.17 Litigation
2.18 Environmental Matters
2.19 Insurance
2.20 Significant Customers
2.21 Suppliers
2.22 Product Warranties
2.23 Intellectual Property Rights
2.25 Y2K Matters
2.26 Employee Plans
2.31 Sales Representatives
2.32 Current Product Lines
4.6 Intercompany Agreements
4.7 Environmental Remediation
4.9 Surveys
6.4 Contract Consents Required
12.120 (a) Fixed Assets
12.120 (b) Owned Real Property
12.120 (c) Contracts
12.120 (d) Licenses
<PAGE>
EXHIBITS
--------
1.2(c) Great Bend Land Descriptions
2.5 Copies of Financial Statements
5.1 Non-Competition Agreement
5.3 Limited Liability Company Agreement
<PAGE>
LIMITED LIABILITY COMPANY INTEREST PURCHASE AND ASSET CONTRIBUTION AGREEMENT
----------------------------------------------------------------------------
This Limited Liability Company Interest Purchase and Asset Contribution
Agreement (the "Agreement"), dated as of October 21, 1999, is made by and
between Bush Hog Investors, L.L.C., a Delaware limited liability company
("Crown"), Allied Products Corporation, a Delaware corporation ("Allied"), and
Bush Hog, L.L.C., a Delaware limited liability company (the "Company").
RECITALS
--------
A. Allied is a diversified manufacturer of agricultural and turf
equipment, industrial presses and other machinery products. Allied's Bush Hog
and Great Bend Manufacturing Company divisions (individually "Bush Hog" and
"Great Bend", collectively, the "Divisions") are engaged in the manufacturing of
agricultural implements and machinery and turf equipment, and in the
manufacturing of front-end loaders, respectively (the "Business"). All undefined
capitalized terms shall have the same meanings ascribed to them in Article 12.
B. Simultaneous with the Closing: (i) Allied shall sell, contribute,
transfer and assign to the Company the Purchased Assets (as defined herein),
subject solely to the Assumed Liabilities (as defined herein); (ii) Allied shall
sell to Crown, and Crown shall purchase from Allied, eighty and one-tenth
percent (80.1%) of the limited liability company interests in the Company (the
"Interests"); and (iii) Crown and Allied shall enter into a Limited Liability
Company Agreement for the Company in the form of Exhibit 5.3 attached hereto,
all on the terms and subject to the conditions set forth herein.
C. Allied has granted a security interest (the "Bank Lien") in the
Purchased Assets pursuant to the Second Amended and Restated Credit Agreement
dated as of February 1, 1999 as subsequently amended (the "Credit Agreement")
among Allied, LaSalle National Bank and Bank of America (collectively the
"Banks"). Simultaneous with the Closing, Allied shall borrow an amount, secured
by its continuing 19.9% limited liability company interest in the Company which,
together with the Estimated Purchase Price to be paid at Closing, shall be
sufficient to discharge all of Allied's obligations under the Credit Agreement
and obtain at Closing a release of the Bank Lien.
The parties therefore agree, for good and valuable consideration, as
follows:
Article 1
Purchase And Sale Transactions
------------------------------
1.1. Purchase and Sale Transactions.
-------------------------------
On the terms and subject to the conditions set forth in this Agreement,
Allied shall, on or contemporaneous with the Closing Date: (A) first, cause the
Formation of the Company, (B) then, sell, contribute, transfer, set over,
deliver and assign to the Company all of the Purchased Assets, subject only to
the Assumed Liabilities and the Permitted Exceptions, lease and sublease certain
of the Excluded Assets to the Company but retain all other Excluded Assets, and
(C) then, in consideration of the Purchase Price, sell and assign to Crown the
Interests, free and clear of all Liens.
1.2. Excluded Assets.
----------------
Allied shall not contribute to the Company, and shall retain, the
following ("Excluded Assets"):
(a) any asset not included in the Purchased Assets;
(b) all cash and cash equivalents of Allied (except for petty cash located
at the Plants and Offices and imprest accounts) including all cash
generated by the Divisions prior to the Closing;
(c) subject to Section 5.9, all of Tracts 1, 2, 3 and 4, in Great Bend,
Kansas, including the Great Bend Lake, as defined and further described
in Exhibit 1.2(c) and all improvements thereon other than any Fixed
Assets described in Section 12.120(a);
(d) all rights of Allied under this Agreement; and
(e) the names "Allied Products Corporation," "Allied" and all variations
thereof or any right to use the same alone or in conjunction with other
words; provided, that the Company shall be permitted to use the Allied
name, to the extent such name exists on tangible items including,
without limitation, finished goods, supplies, labels and sales
literature transferred pursuant to this Agreement, for a commercially
reasonable period, but not in excess of twelve (12) months after the
Closing Date (or 60 days after the Closing Date for paper documents);
(f) claims arising out of Excluded Assets or Excluded Liabilities;
(g) corporate records and financial records required by law to be retained
by Allied, except that copies of such records shall be included in
Purchased Assets.
1.3. Assumed Liabilities.
--------------------
Concurrent with the transfer of the Purchased Assets to the Company on
the Closing Date, the Company shall assume, undertake or possess solely the
following liabilities, commitments and obligations of the Divisions
(collectively, the "Assumed Liabilities"):
(a) for Employees hired by the Company as of the Closing, the wages,
salaries and commissions payable to such Employees for the pay period
which includes the Closing Date, and accrued vacation and sick pay, for
such Employees, but only to the extent included in the calculation of
Final Adjusted Working Capital (the "Accrued Payroll Items");
(b) commissions payable to Sales Representatives with respect to the
Accounts Receivables included in the Purchased Assets to the extent
included in the calculation of Final Adjusted Working Capital ("Accrued
Commissions");
(c) the obligations under (i) the Capitalized Leases for the truck tractors
listed on Schedule 1.5(a) (the "Tractor Leases") and (ii) the other
Capitalized Leases listed on Schedule 1.5(a) (the "Other Assumed
Capitalized Leases") and (iii) other Contracts, excluding any liability
for a breach thereunder arising out of or accruing from events that
occurred prior to the Closing including without limitation any
liability of the nature contemplated in Section 1.4(h);
(d) the obligations and liabilities incurred in the ordinary course of
business (except to the extent resulting from, arising out of, relating
to, or caused by any tort, breach of contract, infringement or
violation of law); provided, however, obligations and liabilities
related to employees and employee benefits are included only to the
extent described in Section 1.3(a) and 1.3(i);
(e) the obligations and liabilities incurred in the ordinary course of the
business of the Divisions to hold, store or retain finished goods
located at any facility of the business of the Divisions for customers
who have previously purchased such goods;
(f) any liability, commitment or obligation regarding any claim for
warranty claims for Products manufactured or sold prior to Closing,
irrespective of the time of occurrence or assertion of such liability,
commitment or obligation;
(g) the obligations and liabilities listed or reflected in the Closing Date
Balance Sheet (except Excluded Liabilities), to the extent included in
the Final Adjusted Working Capital or the Final Long Term Assumed
Liabilities;
(h) any liability, commitment or obligation regarding any claim for product
liability for events occurring on or after Closing for products within
the Current Product Lines, irrespective of when the relevant products
within such Current Product Lines were manufactured or sold, except
products manufactured or sold by Great Bend or Universal Turf prior to
their acquisition by Allied (the "Pre-Acquisition Liabilities"); and
(i) the obligation to pay supplemental retirement payments to Bobby
Middlebrooks under the Allied Products Corporation Nonqualified
Deferred Compensation Plan adopted on July 23, 1997 (the "Middlebrooks
Retirement Liability").
1.4. Excluded Liabilities.
---------------------
The Company shall not assume or otherwise be responsible for any
liabilities or obligations of Allied (other than the Assumed Liabilities)
whether or not attributable to the Divisions or otherwise, direct or indirect,
known or unknown, absolute or contingent. By way of illustration but not
limitation, the Company shall not assume or otherwise be responsible for any of
the following liabilities, obligations or commitments of Allied and/or the
Divisions or any of its or their Affiliates, (the "Excluded Liabilities"):
(a) any Governmental Charge arising from the operation of Allied, the
Divisions or Assets on or prior to the Closing Date;
(b) any liability of Allied to any Affiliate, or any Affiliate to Allied,
including any liability relating to any lease or sublease of Fixed
Assets;
(c) any cost, broker's or finder's fee or expense incurred incident to the
negotiation or preparation of this Agreement or the performance and
compliance with the agreements and conditions contained herein
including, without limitation, fees, if any, due to J.P. Morgan
Securities Inc. or J.P. Morgan & Co. Incorporated;
(d) any liability, obligation or commitment relating to those certain City
of Great Bend, Kansas Industrial Revenue Refunding Improvement Bonds
Series A, 1994 and Series B, 1994 in the aggregate principal amount at
the time of issuance of $1,250,000 (the "Series A Bonds" and the
"Series B Bonds", respectively and the "Great Bend Bonds",
collectively), and governed by that certain Trust Indenture dated as of
March 1, 1994 (the "Bond Trust Indenture"), between the City of Great
Bend, Kansas, as issuer, and Union National Bank of Wichita, Wichita,
Kansas, as Trustee (the "Bond Trustee"), which Allied represents as
having a Seven Hundred Thousand Dollar ($700,000) principal remaining
at March 1, 1999, and an average interest rate of six percent (6%);
(e) any debt, liability, obligation or commitment to banks or for borrowed
money, including, without limitation, that certain Second Amended and
Restated Credit Agreement dated as of February 1, 1999, as subsequently
amended among Allied and the Banks;
(f) any liabilities and obligations related to employees or employee
benefits including, without limitation, any obligation for wages,
commissions, vacation and holiday pay, sick pay, bonuses, severance
pay, retiree or employee medical benefits, underfunding of any defined
benefit plan, withdrawal liability or partial wind-up or similar
liability under law or the provisions of any plan, or any obligation
under any employment agreement or common law employment relationship
and any statutory obligation to provide continuation of medical
benefits pursuant to Section 4980B of the Code or applicable state or
provincial law but, notwithstanding the foregoing, excluding any
liabilities with respect to the Middlebrooks Retirement Liability
included as an Assumed Liability and the Accrued Payroll Items;
(g) except for specifically described Assumed Liabilities, any liability,
obligation or commitment of: (i) Allied or its Affiliates, other than
the Company, incurred after the Closing Date; or (ii) Allied's Verson
Division.
(h) any liability the existence of which would constitute a breach or
inaccuracy of, or failure to comply with, any of the representations,
warranties, covenants or agreements of any party other than Crown
hereunder;
(i) any liability, commitment or obligation regarding any claim relating to
product liability for (A) products not within the Current Product Lines
(B) Pre-Acquisition Liabilities and (C) events occurring before
Closing, including, without limitation, any obligations and liabilities
related to that certain asserted product liability claim described on
page 8 of Allied's Form 10-Q for the quarterly period ended March 31,
1999, in which the amount of damages claimed against the defendants
exceeds Allied's liability insurance limits (known as Haynes & Griffin
v. Bush Hog);
(j) any liability, commitment or obligation arising from Allied's, its
Divisions' or their respective predecessors', or the Company's activity
prior to Closing relating to the Environmental Health and Safety Laws;
or the existence of Hazardous Materials at any Plants or on Real
Property now or previously owned or leased by Allied or any of the
Divisions, or their respective predecessors; or the deposit of
Hazardous Materials by Allied or its Divisions or their respective
predecessors including, without limitation, all of the environmental
matters referenced in Allied's Form 10-K for the fiscal year ended
December 31, 1998;
(k) any liability, commitment or obligation arising under or with respect
to the workers' compensation including Federal, state or provincial
(including, without limitation, Ontario and Saskatchewan) statutes
relating to occupational health and safety with respect to injuries
occurring or occupational illnesses alleged to have begun prior to
the Closing Date (including relapses and aggravations of injuries
(as determined by the appropriate federal, state or provincial
governing body) after the Closing relating to accidents or injuries and
occupational diseases occurring before the Closing Date) including
without limitation any costs, fees, charges, fines or penalties
resulting from any audits of any Plant with respect to periods prior
to Closing), premium assessments applicable to the periods prior to
the Closing, adjustments (both credits and charges), for whatever
reason, to the assessed premiums for periods prior to the Closing and
all ongoing claims administration and related fees and expenses
including case management, rehabilitation and return to work costs
relating to Employees involved in accidents prior to the Closing Date;
(l) any liability, commitment or obligation of Allied or the Divisions to
any finance company financing the purchase of Products relating to any
Products sold or ordered prior to the Closing, including without
limitation any guarantees, rebates, allowances, take-back agreements or
similar commitments;
(m) any liability, commitment or obligation of Allied relating to the
matters described on page 43 of Allied's Form 10-K for the fiscal year
ended December 31, 1998, for liabilities related to Allied's agreements
with certain executive officers that provide payments of up to
approximately three (3) years' compensation if within one (1) year
following a defined change in ownership or control of Allied, there is
an involuntary termination of such executive's employment or patterns
of activity during such period by Allied that cause the executive to
resign;
(n) any liabilities, commitments or obligations arising as a result of
actual or alleged occurrences of misconduct by officers, directors and
employees of Allied and its Affiliates including employment practices,
EEOC, crimes or breaches of fiduciary duties for incidents occurring
prior to the Closing Date irrespective of the reporting date,
including, without limitation:
(1) the shareholder class action lawsuit filed in the United States
District Court for the Northern District of Illinois, styled Great Neck
Capital Appreciation Investment Partnership, L.P. v. Richard A.
Drexler, et al.; and (2) the race discrimination class action suit
brought by seven plaintiffs who are current and former employees,
styled Quintin Alexander, Freddie Holmes, Henry Hall, Jerry Wilson,
Roger Hall, Bert Scott and Darriel Hollman v. Bush Hog Division of
Allied Products Corporation, or any subsequent members of such class or
any such plaintiffs individually, for matters related thereto ("the
"Discrimination Suit"), except to the extent set forth in Section 11.12
below;
(o) any liabilities, commitments or obligations related to Excluded Assets,
Capitalized Leases not listed on Schedule 1.5(a) and operating leases
of personal property not listed on Schedule 2.9; and
(p) any liabilities, commitments or obligations related to the obligation
to repurchase equipment and/or inventory from dealers terminated prior
to Closing, or arising out of events occurring prior to Closing
relating thereto, but only to the extent such obligation exceeds the
fair market value of such repurchased inventory and/or equipment based
on the sale price received by the Company on a resale of such
repurchased equipment and/or inventory, or as otherwise agreed to in
writing by the Company and a dealer, in each case, less the Company's
costs of repossession, storage, handling, transportation and
refurbishment.
1.5. Purchase Price Computation and Adjustments and Payment.
-------------------------------------------------------
(a) Computation and Adjustments. The Purchase Price (collectively, the
---------------------------
`Purchase Price') for the Interests shall be One Hundred Twenty Million
Eighty-Six Thousand Forty-One Dollars ($120,086,041) adjusted as
follows: (i) plus or minus an amount equal to eighty and one-tenth
percent (80.1%) of the increase or the decrease, respectively, from:
(A) the Base Adjusted Working Capital to (B) the Final Adjusted
Working Capital; (ii) plus or minus an amount equal to eighty and
one-tenth percent (80.1%) of the increase or decrease, respectively,
from: (A) the Base Adjusted Net Tangible Investment to (B) the Final
Adjusted Net Tangible Investment; provided, however, that if such
adjustment in this clause (ii) initially results in an amount owing by
Allied to Crown, then Allied shall have the obligation to pay Crown
only to the extent that such decrease exceeds $2,258.90 times the
number of days which have elapsed between December 31, 1998 and the
Closing, but not in excess of 365 days; and (iii) plus or minus an
amount equal to eighty and one-tenth percent (80.1%) of the decrease
or increase, respectively, from: (A) the Base Long Term Assumed
Liabilities to (B) the Final Long Term Assumed Liabilities. For
purposes of this Section 1.5, Closing Date Adjusted Working Capital,
Closing Date Adjusted Net Tangible Investment and Closing Date Long
Term Assumed Liabilities shall be calculated and determined as follows:
(i) Calculation of Closing Date Adjusted Working Capital. The
---------------------------------------------------------
"Closing Date Adjusted Working Capital" shall equal the excess
of Adjusted Current Assets as set forth in the Closing Date
Balance Sheet over Adjusted Current Liabilities as set forth
in the Closing Date Balance Sheet.
(A) The term "Adjusted Current Assets" shall mean the
categories of current assets included in the Base
Adjusted Working Capital and shall be computed on a
basis consistent with the computation of such assets
in the Base Adjusted Working Capital,
(B) The term "Adjusted Current Liabilities" shall mean
the categories of liabilities included in the Base
Adjusted Working Capital computed on a basis
consistent with the computation of such liabilities
in the Base Adjusted Working Capital but excluding
all liabilities which constitute Excluded Liabilities
hereof,
(C) Schedule 1.5(a) sets forth the adjustments to the
working capital included in the Divisions' balance
sheet as of June 30, 1999 which would have been
required to compute the "Closing Date Adjusted
Working Capital," assuming the closing of the
transaction hereunder had occurred on June 30, 1999.
The Base Adjusted Working Capital was determined
based on the items from the Divisions' projected
working capital set forth on Schedule 1.5(a) as of
September 30, 1999.
(ii) Calculation of Closing Date Adjusted Net Tangible Investment.
--------------------------------------------------------------
The "Closing Date Adjusted Net Tangible Investment" shall mean
the amount of the Plant and Equipment net of accumulated
depreciation as set forth in the Closing Date Balance Sheet.
(iii) Calculation of Closing Date Long Term Assumed Liabilities. The
----------------------------------------------------------
Closing Date Long Term Assumed Liabilities shall be the sum of
the Closing Date Capitalized Tractor Lease Obligations and the
Closing Date Middlebrooks Retirement Liability. The Closing
Date Capitalized Tractor Lease Obligations and the Closing
Date Middlebrooks Retirement Liability shall be determined as
set forth on Schedule 1.5(a).
(iv) Post-Closing Payment of Closing Date Adjusted Working Capital,
--------------------------------------------------------------
Closing Date Adjusted Net Tangible Investment and Closing Date
--------------------------------------------------------------
Long Term Assumed Liabilities.
------------------------------
(A) Within sixty (60) days after the Closing Date,
Allied will prepare,
and cause Allied's Accountant to audit and deliver
to Crown, the balance sheet of Divisions as of the
close of business on the Closing Date (the "Closing
Date Balance Sheet") and will prepare and deliver
to Crown a report (the "Adjustment Report"), showing
the computation of Closing Date Adjusted Working
Capital, Closing Date Adjusted Net Tangible
Investment and Closing Date Long Term Assumed
Liabilities, computed in accordance with the
definitions of Closing Date Adjusted Working Capital,
Closing Date Adjusted Net Tangible Investment and
Closing Date Long Term Assumed Liabilities set forth
herein, and which shall set forth the adjustment to
the Purchase Price in Section 1.5(a). Such Closing
Date Balance Sheet will be prepared in accordance
with GAAP applied on a basis consistent with that
used in, and in accordance with the same accounting
principles applied in the Divisions' December 31,
1998 Balance Sheet and the Adjustment Report will be
prepared in accordance with Section 1.5(a) and
Schedule 1.5(a). The Closing Date Balance Sheet
will also include an opinion of Allied's Accountants
that they have audited the Closing Date Balance
Sheet, and the Adjustment Report and that such
Balance Sheet has been prepared in accordance with
GAAP, applied on a basis consistent with that used
in, and in accordance with the same accounting
principles applied in, the preparation of the
Divisions' December 31, 1998 Balance Sheet and that
the Adjustment Report has been prepared in accordance
with Schedule 1.5(a) and in accordance with the
terms of this Agreement. The Closing Date Balance
Sheet shall include and reflect information related
to the Business which becomes available after the
Closing (other than subsequent events), through the
date the Closing Date Balance Sheet is prepared, and
which according to GAAP should be reflected in the
Closing Date Balance Sheet.
(B) At Crown's request, Allied shall promptly provide
Crown and its accountants with Allied's
and its Accountant's books,
records and workpapers supporting the preparation
of the Closing Date Balance Sheet and the Adjustment
Report. Within 30 days after receipt of the Closing
Date Balance Sheet and the Adjustment Report, Crown
may, by written notice to Allied, object to the
Closing Date Balance Sheet and Adjustment Report
(the "Objection Notice"). Within twenty-one (21)
days following delivery of the Objection Notice,
Crown and Allied shall attempt in good faith to
resolve all disputes between them regarding these
items. If Crown and Allied cannot resolve all such
disputes within such 21 day period, the matters in
dispute shall be determined by an Arbiter. Promptly,
but not later than 21 days after the acceptance of
its appointment, the Arbiter will determine (based
solely on presentations by Allied and Crown to the
Arbiter and not by independent review) only those
items in dispute and will render a report as to its
resolution of such items and the resulting
calculation of such items in dispute. In resolving
any disputed item, the Arbiter may not assign a
value to such item greater than the greatest value
for such item claimed by either party or less than
the lowest value for such item claimed by either
party, in each case as presented to the Arbiter.
For purposes of Arbiter's calculation of the Closing
Date Adjusted Working Capital, Closing Date Adjusted
Net Tangible Investment and/or Closing Date Long
Term Assumed Liabilities the amounts to be included
will be the appropriate amounts from the Closing Date
Balance Sheet and the Adjustment Report, as the case
may be, as to items that are not in dispute and the
amounts determined by the Arbiter, as to items that
are submitted for resolution by the Arbiter. Crown
and Allied shall cooperate with the Arbiter in
making its determination and such determination shall
be conclusive and binding upon Crown and Allied. Any
fees or expenses payable to the Arbiter shall be paid
by the party that does not substantially prevail on
the disputed issues (as determined by the Arbiter).
(C) If Crown does not timely deliver an Objection Notice,
Crown shall be deemed to have accepted the Closing
Date Adjusted Working Capital, Closing Date Adjusted
Net Tangible Investment and/or Closing Date Long Term
Assumed Liabilities, as the case may be. The terms
Final Adjusted Working Capital, Final Adjusted Net
Tangible Investment and Final Long Term Assumed
Liabilities shall mean: (i) the Closing Date Adjusted
Working Capital, the Closing Date Adjusted Net
Tangible Investment and Closing Date Long Term
Assumed Liabilities, respectively, if Crown does not
timely deliver an Objection Notice as set forth
above; or (ii) if Crown timely delivers an Objection
Notice, the applicable amounts determined pursuant to
Section 1.5(a)(iv)(B).
(D) Within five days after determination of the
Final Adjusted Working Capital,
Final Adjusted Net Tangible Investment,
and/or Final Long Term Assumed Liabilities, as the
case may be: (i) Allied shall pay Crown by wire
transfer of immediately available funds the amount,
if any, equal to: (x) eighty and one-tenth percent
(80.1%) of the excess of the Base Adjusted Working
Capital over the Final Adjusted Working Capital;
(y) eighty and one-tenth percent (80.1%) of the
excess of Base Adjusted Net Tangible Investment over
the Final Adjusted Net Tangible Investment provided,
however, that such adjustment in this clause
(D)(i)(y) shall only apply to a payment by Allied to
Crown to the extent that such decrease from the
Base Adjusted Net Tangible Investment exceeds the
product of $2,258.90 times the number of days which
have elapsed between December 31, 1998 and the
Closing, but not in excess of 365 days, and (z)
eighty and one-tenth percent (80.1%) of the excess
of the Final Long Term Assumed Liabilities over the
Base Long Term Assumed Liabilities and (ii) Crown
shall pay Allied by wire transfer of immediately
available funds the amount, if any, equal to (x)
eighty and one-tenth percent (80.10%) of the excess
of the Final Adjusted Working Capital over the Base
Adjusted Working Capital (y) eighty and one-tenth
percent (80.1%) of the excess of the Final Adjusted
Net Tangible Investment over the Base Adjusted Net
Tangible Investment and (z) eighty and one-tenth
percent (80.1%) of the excess of Base Long Term
Assumed Liabilities over the Final Long Term Assumed
Liabilities. Any payment pursuant to this Section
(excluding payments attributable to interest) will
be treated by the parties as an increase or decrease
in the Purchase Price and shall be appropriately
adjusted to reflect any Estimated Adjustments paid
at the Closing Date. Each of the payments required
pursuant to this paragraph shall be set off against
the others so that only one party shall make one net
payment to the other. Such payment shall include
interest on such payments calculated at an annual
rate of eight percent (8%) from the Closing to the
Date of Payment.
(E) Notwithstanding the foregoing, on or prior to the
Closing Date Crown and Allied shall in good faith
attempt to agree on an estimate of the adjustments to
the Purchase Price pursuant to this Section 1.5(a)
(any such agreement herein, the "Estimated
Adjustments").
(b) Inventory. The Inventory as of the Closing Date shall be determined in
---------
accordance with the inventory valuation principles used by the
Divisions set forth on Schedule 1.5(b) and in conformity with GAAP on
a basis consistent with past practice. Immediately prior to the
Closing Date, Allied, at its sole cost, shall cause the Divisions
to take, and Crown (and its agents) may observe, a physical count of
the Inventory using procedures consistent with the Divisions' past
physical inventory practices. Each party, and its representatives,
shall have full access to all work papers and records of such physical
count. The physical inventory shall be priced in accordance with such
principles with appropriate adjustments for obsolete, used,
slow-moving, overstock, damaged or defective goods in accordance with
the valuation principles set forth on Schedule 1.5(b). Any adjustments
of inventory required as a result of the physical inventory shall be
reflected in the inventory included in the Closing Balance Sheet.
Any disputes under this section shall be resolved by the Arbiter in
accordance with Section 1.5(a)(iv)(B).
(c) Payment. On the Closing Date, One Hundred Twenty Million Eighty-Six
-------
Thousand Forty-One Dollars ($120,086,041) adjusted for the Estimated
Adjustments (the "Estimated Purchase Price") shall be paid by Crown to
Allied by wire transfer of immediately available funds.
(d) Allocation. The Purchase Price plus the Assumed Liabilities
----------
shall be allocated among the Purchased Assets and Non-Competition
Agreement, in accordance with an allocation Schedule (the "Purchase
Price Allocation Schedule") prepared by Crown and delivered to Allied
not later than the date which is the later of (i) ninety (90) days
after Closing, or (ii) 30 days after the determination of the Final
Adjusted Working Capital, Final Adjusted Net Tangible Investment and
Final Long Term Assumed Liabilities. The schedule shall be prepared
in a manner consistent with the principles set forth in Section 1060
of the Code and the regulations promulgated thereunder. The information
included on Purchase Price Allocation Schedule shall reflect that the
value attributed to the Non-Competition Agreement is part of the
goodwill transferred from Allied to the Company. The parties hereto
covenant and agree that neither of them will take a position on any tax
return or tax return forms, nor will any inconsistent tax election be
made by Allied or any Affiliate or the Company before any governmental
or regulatory body charged with the collection of any tax, or in any
judicial or administrative proceeding, that is in any way inconsistent
with the Purchase Price Allocation Schedule. The preceding sentence
shall not apply to any tax return or election required to be filed
(taking into account all applicable extensions) prior to delivery
of the Purchase Price Allocation Schedule or to the portion of the
Purchase Price allocable to the Owned Real Property for real estate
transfer tax purposes as reasonably determined by Crown and Allied.
1.6. Closing Date.
-------------
Subject to the provisions of Section 11.1 hereof, the completion of the
transactions contemplated hereunder, shall be at 10:00 a.m. on December 31,
1999, provided that (a) this date may be extended by the notice of either party
prior to such date so that the Closing Date occurs on the same date as the
transactions herein have been approved by Allied's shareholders and at least
five (5) business days have elapsed after the date the last of the approvals and
consents contemplated in Section 6.4(ii) have been received, (b) such time may
be otherwise extended or shortened as may be agreed upon in writing by Crown and
Allied, and (c) the conditions set forth in Article 6 and Article 7 have been
satisfied or appropriately waived, at the offices of Gould & Ratner, 222 N.
LaSalle, Suite 800, Chicago, Illinois 60601, or at such other place or at such
other time as shall be agreed upon in writing by Crown and Allied (such date and
time being herein called the "Closing" or "Closing Date").
1.7. Closing Date Deliveries.
------------------------
(a) Allied's Deliveries to the Company and Crown. On the Closing Date,
-----------------------------------------------
Allied shall deliver to the Company and Crown, duly executed copies, as
appropriate, of the following:
(i) a Certificate of Incorporation of Allied (certified by the
Secretary of State of Delaware, dated within two (2) weeks
prior to the Closing) and By-Laws of Allied (certified by the
Secretary thereof as of the Closing),
(ii) Certificate of Formation of the Company (certified by
Secretary of State of Delaware dated within two (2) weeks
prior to the Closing),
(iii) general assignments and warranty bills of sale in a form to be
agreed upon by the parties prior to the Closing Date executed
by Allied transferring the Purchased Assets to the Company,
free and clear of all Liens, except the Permitted Exceptions
and Bank Lien,
(iv) recordable special warranty deeds (recordable quitclaim deed
for parcel 22 as identified in Chicago Title Insurance Company
Commitment P99320 dated September 22, 1999) in a form to be
agreed upon by the parties prior to the Closing Date to
transfer the Owned Real Property to the Company, subject only
to the Real Estate Permitted Exceptions,
(v) any applicable federal, provincial or local tax clearance
certificate from the appropriate jurisdiction in which the
Purchased Assets are located (including, without limitation,
clear realty tax certificates or statements of taxes showing
no owing balance from the relevant government agencies),
(vi) good standing certificates of Allied and the Company each
from the Secretary of State of Delaware, dated within two (2)
weeks prior to the Closing,
(vii) tax, lien and judgment searches, dated within two (2) weeks of
Closing, showing no Liens, on any of the Purchased Assets or
Interests, except for the Existing Liens, all of which will be
released at Closing,
(viii) a resignation by the other officers, directors, managers and
other officials of the Company, if any, as may be requested by
Crown,
(ix) all of the documents, instruments and opinions required to be
delivered by Allied pursuant to Article 6,
(x) evidence of release of all Liens on the Purchased Assets and
Interests, including, without limitation, the Existing Liens,
but excluding the Permitted Exceptions, with respect to only
the Purchased Assets,
(xi) evidence of payment in full of Allied's indebtedness pursuant
to the Great Bend Bonds or the representations, warranties,
agreements and documentation described in Section 5.8(B),
(xii) those tax registration certificates reasonably requested by
Crown,
(xiii) the Indemnity Security Agreement,
(xiv) subject to Section 5.9, a lease (the "Manufacturing Lease")
for Tracts 1 and 4 in Great Bend, Kansas, as described on
Exhibit 1.2(c) duly executed by Allied, and
(xv) a lease or sublease (the "R&D Lease") for the research and
development facility located on Tracts 2 and 3 in Great Bend,
Kansas, as described on Exhibit 1.2(c) and duly executed by
Allied.
The Manufacturing Lease and R&D Lease shall provide for base rent of
$1.00 per year, a lease Term acceptable to Crown, at Crown's option, an option
to purchase property for $1.00 and such other terms and conditions as are
mutually agreed upon by the parties prior to the Closing Date.
(b) Allied's Deliveries to Crown. On the Closing Date, Allied shall deliver
-----------------------------
to Crown, duly executed copies, as appropriate, of the assignment of
the Interests to Crown, free and clear of all Liens, in a form to be
agreed upon by the parties prior to the Closing Date.
(c) Crown's Deliveries to Allied. On the Closing Date, Crown shall
------------------------------
deliver to Allied, the following:
(i) the Estimated Purchase Price;
(ii) duly executed copies, as appropriate, of all of the documents,
instruments and opinions required to be delivered by Crown
pursuant to the relevant provisions of Article 7;
(iii) Certificate of Formation of Crown certified by the Secretary of State
of Delaware dated within two (2) weeks prior to the Closing; and
(iv) a good standing certificate of Crown from the Secretary of State of
Delaware, dated within two (2) weeks prior to the Closing.
(d) Company's Deliveries to Allied.
------------------------------
On the Closing Date and subject to Section 5.9, the Company shall
deliver to Allied copies of the Manufacturing Lease and R&D Lease duly executed
by the Company.
1.8. Further Assurances.
------------------
Not in limitation of Section 1.7(a) and 1.7(b) or Article 5 and Article
6, on the Closing Date, Allied shall (i) deliver to Crown and the Company such
other bills of sale, endorsements, assignments, deeds, affidavits of title and
other good and sufficient instruments of conveyance and transfer, in form
reasonably satisfactory to Crown and its counsel, as Crown and the Company may
reasonably request or as may be otherwise reasonably necessary to vest in the
Company all the right, title and interest of Allied in, to or under any or all
of the Purchased Assets free and clear of all Liens other than the Permitted
Exceptions, and to vest in Crown all right, title and interest in the Interests
free and clear of all Liens, and (ii) take all steps as may be reasonably
necessary to put the Company in actual possession and control of all the
Purchased Assets and Crown in actual possession of the Interests. From time to
time following the Closing, Allied shall, at its cost and expense, execute and
deliver, or cause to be executed and delivered, to Crown and the Company, as the
case may be, such other instruments of conveyance and transfer as Crown may
reasonably request or as may be otherwise necessary to more effectively convey
and transfer to, and to vest in Crown all right, title and interest in the
Interests, and put the Company in possession of, any part of the Purchased
Assets free and clear of all Liens other than the Permitted Exceptions, and
Crown in actual control and possession of the Interests free and clear of all
Liens, and, in the case of licenses, certificates, approvals, authorizations,
agreements, contracts, leases, easements and other commitments included in the
Purchased Assets which cannot be transferred or assigned effectively without the
consent of third parties which consent has not been obtained prior to the
Closing, to cooperate with the Company and Crown at their request in (a)
endeavoring to obtain such consent promptly and (b) providing the Company with
actual use or enjoyment thereof. Notwithstanding the foregoing, to the extent
the Company obtains the actual use and enjoyment thereof, at no additional cost,
and on the same or better terms, despite not having obtained any such third
party consent, the Company shall hold Allied harmless and against all
obligations thereunder.
Article 2
Representations, Warranties And Covenants Of Allied
---------------------------------------------------
As an inducement to Crown and the Company to enter into this Agreement
and to consummate the transactions contemplated hereby, Allied hereby
represents, warrants and covenants to Crown and the Company and agrees as
follows:
2.1. Due Organization.
----------------
Allied is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and is duly qualified to
transact business as a foreign corporation in the states listed on Schedule 2.1.
2.2. Power and Authority.
-------------------
Allied has full corporate power and authority to own, lease or
otherwise hold the Purchased Assets and to operate and use the Purchased Assets
and to carry on the operation of the Divisions as now conducted. On the Closing,
the Company will be a limited liability company duly organized, validly existing
and in good standing under the laws of the State of Delaware and duly qualified
to transact business as a foreign corporation in the states listed on Schedule
2.2. On the Closing, the Company will have full corporate power and authority to
own, lease or otherwise hold the Purchased Assets and to operate and use the
Purchased Assets and to carry on the operation of the Divisions as now
conducted.
2.3. Subsidiaries and Investments.
----------------------------
Except as set forth on Schedule 2.3 and except for Allied's ownership
interests in the Company, Allied, does not, and as of the Closing the Company
will not, with respect to the Divisions (a) own, of record or beneficially, any
outstanding voting securities of or other equity interests in any corporation,
partnership, association, joint venture or other entity or (b) control (directly
or indirectly and alone or in combination with others) any corporation,
partnership, association, joint venture or other entity.
2.4. Authority.
---------
Allied has full power and authority to enter into this Agreement, to
consummate the transactions contemplated hereby and to comply with the terms,
conditions and provisions hereof. The execution, delivery and performance of
this Agreement, and all other agreements contemplated to be executed, delivered
and performed hereunder by Allied have been duly authorized and approved by the
board of directors of Allied, and do not require any further authorization or
consent of any third party or of any governmental authority except as may be
expressly set forth herein. This Agreement is (subject to the receipt of
stockholder approval), and each other agreement or instrument contemplated
hereby to which Allied is a party, will be, the legal, valid and binding
agreement of Allied, enforceable in accordance with their terms except (a) as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or similar law affecting the
enforcement of creditors' rights generally, or (b) to the extent that such
enforceability is subject to the principles of equity (regardless of whether
such enforcement is considered in a proceeding in equity or at law) (the
"Enforceability Exceptions").
Neither the execution nor the delivery of this Agreement nor the
consummation of the transactions contemplated hereby will conflict with or
result in any violation of or constitute a default under any term of (i) the
Certificate of Incorporation or By-Laws of Allied, or (ii) except as set forth
on Schedule 2.4 any agreement, mortgage, debt instrument, indenture, franchise,
license, permit, authorization, lease (provided that any necessary landlord
consent to assignment is obtained) or other instrument, judgment, decree, order,
law or regulation by which Allied is bound, or result in the creation of any
lien, security interest, prior claim, charge or encumbrance upon any of the
Purchased Assets.
2.5. Financial Statements.
--------------------
Attached hereto as Exhibit 2.5 are true, complete and correct copies of
(i) the Divisions' consolidated balance sheet and statements of operations
(together with any and all notes thereto) for the fiscal year ended December 31,
1998 (the "Annual Statement") and (ii) the Divisions' balance sheets and
statements of operations for June 30, 1999 (the "Interim Statement")
(collectively, the "Annual Statement" and the "Interim Statement" are referred
to as the "Financial Statement"). Except as set forth on Schedule 2.5, the
Financial Statements set forth in clause (i) have been prepared in conformity
with GAAP and present fairly the assets, liabilities, financial position and
results of operations of the Divisions as of their respective dates and for the
respective periods covered thereby. Except as set forth on Schedule 2.5, the
Financial Statements set forth in clause (ii) have been prepared in conformity
with GAAP (except for normal and recurring adjustments for year end statements)
and present fairly in all material respects the assets, liabilities, financial
position and results of operations of the Divisions as of each applicable entity
as of their respective dates and for the respective periods covered thereby. The
Company has had no revenues or expenses nor any assets or liabilities prior to
or after the Formation.
2.6. Operations Since December 31, 1998.
----------------------------------
(a) Since December 31, 1998, there has been (i) no Material Adverse Effect
and, to the knowledge of Allied, no fact or condition exists or is
contemplated or threatened which might reasonably be expected to cause
such a change in the future other than the Company's purchase and use
of the Purchased Assets; and (ii) in relation to the Divisions, no
damage, destruction, loss, claim, condemnation or other taking with
respect to the Assets other than Accounts Receivable (whether or not
covered by insurance), in the excess of $20,000 individually or
$200,000 in the aggregate.
(b) Since December 31, 1998, Allied has conducted the operations of the
Divisions in the ordinary course of business consistent with existing
operating procedures and practices. Without limiting the generality of
the foregoing, since December 31, 1998, except as set forth on
Schedules 1.5(a) and 2.6(b) and except for the transfer of the
Purchased Assets to the Company, Allied has not, with respect to the
Divisions, Purchased Assets or the Company:
(i) sold, leased, transferred or otherwise disposed of (except in
the ordinary course of business), or mortgaged or pledged, or
imposed or suffered to be imposed any lien, charge or
encumbrance on, any of the Purchased Assets;
(ii) canceled any debts owed to, or claims held by, the Divisions
(including the settlement of any claims or litigation) other
than in the ordinary course of business consistent with past
practice;
(iii) canceled or terminated any contract, lease or agreement in
connection with the Divisions or entered into and become bound
by any contract, lease or agreement the result of which would
be a Material Adverse Effect;
(iv) declared (or received a declaration of) default under any
material Contract;
(v) entered into any Contracts other than (A) purchase orders
entered into in the ordinary course of business, including
purchase orders for normally used raw materials and parts, and
(B) the Contracts described on Schedule 2.16;
(vi) entered into any joint venture or partnership;
(vii) made any dividend or distribution of any Purchased Asset;
(viii) given a raise to any Employee in excess of five percent (5%)
of such Employee's 1998 salary; given a bonus to any Employee
other than the incentive bonuses earned in 1998 (paid in 1999)
and 1999 and the 1999 Christmas bonus; or increased the
commissions rate payable to any Employee or Sales
Representative by more than five percent (5%) of such person's
commissions rate in effect on December 31, 1998;
(ix) changed any accounting policies or practices;
(x) made any agreements, written or oral, to perform any of the
above, other than this Agreement; or
(xi) entered into any Capitalized Leases.
2.7. No Undisclosed Liabilities.
--------------------------
None of the Purchased Assets are, nor Allied with respect to the
Divisions is, subject to any liability, commitment or obligation (including,
without limitation, to the knowledge of Allied, unasserted claims), whether
absolute, contingent, accrued or otherwise except (a) for Existing Liens; (b)
for the Contracts; (c) as set forth in the Financial Statements and (d) as
disclosed in this Agreement and the schedules and exhibits hereto. At Closing,
the Company will have no liabilities, commitments or obligations except for the
Assumed Liabilities.
2.8. Taxes.
-----
Allied has and will timely file all required foreign, federal, state,
provincial, municipal and local income, excise, training, withholding, property,
sales, use, franchise, commodity, payroll and other tax returns, declarations
and reports with respect to its entire entity including, but not limited to, the
Divisions, which are required to be filed on or before the date hereof and the
Closing, and shall have paid or reserved for all Governmental Charges arising
from the operation of Allied, the Divisions or Assets on or prior to the Closing
Date, including without limitation, all Governmental Charges arising in
connection with the Great Bend Bonds and all Government Charges required to be
withheld by Allied from employees of the Divisions for income taxes, social
security, workers' compensation, employment insurance, employer health tax and
other payroll taxes and related withholdings and all other similar taxes. There
are no actions, suits, proceedings, investigations, inquiries or claims now
pending or made or to the best knowledge of Allied threatened against Allied in
respect of Governmental Charges in connection with or attributable to the
Divisions. Allied has withheld from each amount paid or credited to any Person
the amount of Governmental Charges required to be withheld therefrom and has
either remitted such Governmental Charges to the proper tax or other receiving
authorities within the time required under applicable legislation or set aside
in accounts for such purpose, or accrued, reserved against and entered upon the
books of Allied or the Divisions. The returns, declarations and reports referred
to in the previous sentences of this Section 2.8 are or will be true and correct
and reflect or will reflect accurately all Governmental Charges for the periods
covered thereby. Except as disclosed on Schedule 2.8, Allied has not received a
notice that any examination of or proceeding with respect to any tax return or
report relating to the Divisions has been requested, scheduled or conducted.
There are no outstanding agreements or waivers extending the statutory period of
limitations applicable to any tax return of Allied.
2.9. Availability of Purchased Assets and Legality of Use.
----------------------------------------------------
(a) Allied has delivered to Crown a certified copy of the most recently
available list of the Divisions' material plant and equipment (which
excludes construction in process). Allied owns outright and has good
and marketable title to all personal property constituting Purchased
Assets which are not leased by Allied or the Divisions subject to no
Liens other than the Existing Liens. Schedule 2.9 lists all personal
property constituting Purchased Assets leased by Allied or the
Divisions. Except as set forth in Schedule 2.9, Allied holds good and
transferable leaseholds in all of the personal property shown on
Schedule 2.9, as the case may be, in each case under valid and
enforceable leases, subject to no Liens other than the claims of the
lessor. Allied and the Divisions are not, and to Allied's knowledge no
other party to such personal property lease is, in breach of or
default (and no event has occurred which, with due notice or lapse of
time or both, may constitute such a lapse or default) under any lease
of any item of personal property listed on Schedule 2.9.
(b) The Purchased Assets: (i) and the Excluded Assets in the aggregate are
adequate and sufficient to conduct the business and operations of the
Divisions in substantially the manner currently conducted, assuming
a continued source of working capital and continuation of relationships
with customers and suppliers; (ii) are suitable for the purposes
for which they are currently used; and (iii) with respect to tangible
personal property included within the Purchased Assets, are in good
operating condition and working order, ordinary wear and tear
excepted. All improvements included in the Leased Real Property and
Owned Real Property are in good condition, ordinary wear and tear
excepted, with all of their systems in good working order. Only the
business of the Divisions is conducted at the Plants. All
manufacturing of the Divisions is conducted at the Plants.
2.10. Real Property.
-------------
(a) Owned Real Property. Schedule 2.10(a) lists each parcel of Real
--------------------
Property owned and used or held for possible expansion by Allied
("Owned Real Property") in connection with the operations of the
Divisions (in each case showing the record title holder, legal
description, location and any indebtedness secured by a mortgage or
other lien thereon) other than Leased Real Property and of each option
or right of first refusal (or similar right) held or given by Allied
or its Affiliates to acquire any of the Owned Real Property or Leased
Real Property or any other real or immovable property contemplated
to be used or useful in the Divisions. True, complete and correct
copies of any and all existing opinions or policies of title insurance,
and documents referenced therein, available to Allied relating to
the Plants and Offices have heretofore been delivered by Allied to
Crown. Allied has good and marketable title in fee simple absolute to
the Owned Real Property and to all buildings, structures and other
improvements thereon, in each case free and clear of all Liens except
for Real Estate Permitted Exceptions. In each case such Real Estate
Permitted Exceptions has been reflected, to the extent that a value is
ascertainable, in each Financial Statement. Except as set forth on
Schedule 2.10(a), Allied has not received notice and has no knowledge
that any portion of the Owned Real Property or its use violates in any
material respect any laws, regulations, rules, ordinances, codes,
licenses, deed restrictions and covenants of record, franchises and
permits (including, without limitation, electrical, building, zoning,
environmental and occupational safety and health requirements).
(b) Leased Real Property. Schedule 2.10(b) sets forth a list of each
----------------------
lease or similar agreement (showing the rental fees, expiration date,
renewal and purchase options, if any, and the location of the real
property covered by such lease or other agreement) for Leased Real
Property used in connection with the Divisions. True, complete and
correct copies of any and all existing opinions or policies of title
insurance, and documents referenced therein, available to Allied with
respect to each such parcel have heretofore been delivered by Allied
to Crown. The applicable lessee has the right to quiet enjoyment of
all such real property described in such Schedule 2.10(b) for the full
term of each such lease or similar agreement (and any renewal option
related thereto) relating thereto. All rentals due and owing have been
paid and accepted, and the applicable lessee is not in default or
breach under said leases or agreements. Schedule 2.10(b), also contains
a brief description of each lease or other agreement (including in
each case the annual rental, expiration date and description of
property covered) under which Allied or any Affiliate thereof is
lessor, assignor or sub-lessor of any real property used or useful in
connection with the Divisions. Except as set forth on Schedule 2.10(b),
no notice of any pending expropriation or any violation in any
material respect of laws, regulations, rules, ordinances, codes,
licenses, deed restrictions and covenants of record, franchises and
permits (including, without limitation, electrical, building, zoning,
environmental and occupational safety and health requirements)
relating to such assets or their use has been received by Allied and
Allied has no knowledge of any such violation or expropriation, and
Allied has no knowledge that the existing use of the Leased Real
Property is not permitted under and does not conform with applicable
zoning ordinances.
(c) Eminent Domain. Except as set forth on Schedule 2.10(c), there is no
--------------
pending or, to Allied's knowledge, threatened: (i) condemnation of any
part of the Owned Real Property or Leased Real Property, if any, by any
governmental authority; (ii) special assessment against any part of any
part of the Owned Real Property or Leased Real Property, if any; or
(iii) litigation against Allied for breach of any restrictive covenant
affecting any part of the Owned Real Property or Leased Real Property,
if any.
(d) Utilities. Allied has not received any notice from any utility company
---------
or municipality of any fact or condition which could result in the
discontinuation of presently available or otherwise necessary sewer,
water, electric, gas, telephone or other utilities or services for the
Owned Real Property or Leased Real Property, if any. Each parcel of the
Owned Real Property and the Leased Real Property has access to
sufficient quantities of water, sewer, gas, steam, electric, telephone,
drainage and other utilities required to conduct its business as
presently conducted. Allied has not received any notice of any
termination or material impairment of any such utilities.
2.11. Accounts Receivable.
-------------------
All Accounts Receivables of Allied relating to the Divisions have
arisen from bona fide transactions by the Divisions in the ordinary course of
business, and are good and collectible in the ordinary course of business (net
of any reserves of the types reflected in the Most Recent Balance Sheet and
described in Schedule 2.11), none of the account debtors are Allied or Affiliate
thereof. Except as described in Schedule 2.11, none of such accounts receivable
are subject to any bona fide defense, counterclaim or set-off, claim for faulty
workmanship, defective quality, untimely or inaccurate delivery or other breach
of contract or promotional, advertising or other sales or marketing allowances
or rebates, or, except to the extent not in excess of the reserve for doubtful
accounts, is in dispute, and except as described in Schedule 2.11, Allied is not
aware of any basis for any of the foregoing or for any account debtor to return
any goods shipped by Allied. None of the Accounts Receivable include work in
process. The Divisions do not have any sales on consignment, approval or return.
2.12. Inventory.
---------
All Inventory is of good, merchantable and usable quality, is salable
in the ordinary course of business of the Divisions, and, after Closing, the
Company, and is reflected on each of the Financial Statements at the lower of
cost (on a first-in, first-out basis) or market value. The inventory
obsolescence policies of Allied with respect to the Divisions are appropriate to
the nature of the products sold and marketing methods used by the Divisions, the
reserve for inventory obsolescence contained in the Most Recent Balance Sheet
fairly reflects the amount of excess, obsolete, defective, damaged, used,
overstock and slow moving Inventory as of the date thereof and is consistent
with the principles set forth on Schedule 1.5(b), and the reserve for excess,
obsolete, defective, damaged, used, overstock and slow-moving inventory to be
contained in the Closing Statements will fairly reflect the amount of excess,
obsolete, defective, damaged, used, overstock and slow-moving inventory as of
the Closing Date. All Inventory which is work-in-process or finished goods: (i)
is bona fide work in process or finished goods created in the ordinary course of
business and is being completed on schedule and within budget; (ii) has been
subjected to and has passed all appropriate tests and inspections; (iii) (with
respect to those products which will be completed before Closing) may be sold in
conformance with specifications and industry standards; and (iv) in the
aggregate will be convertible (or has been converted) into accounts receivable
in the ordinary course of business. All work-in-process and finished goods
Inventory have been performed in accordance with the designs and plans therefor
which meet Year 2000 Readiness standards and satisfy the requirements of the
applicable Contracts.
2.13. Licenses.
--------
Schedule 2.13 lists all Licenses (whether or not transferable) held by
Allied on behalf of the Divisions and otherwise necessary for the operation of
the Divisions, correct copies of which have previously been delivered to Crown.
Allied is the exclusive holder of each of the Licenses, all of which are in full
force and effect and are not subject to any pending or threatened challenge,
revocation, amendment or forfeiture. No material default or breach exists on the
part of Allied with respect to any of the Licenses and no event or condition
exists which but for the lapse of time or notice or both would constitute a
default or breach with respect to any of the Licenses. True and correct copies
of all reports required by law relating to the Licenses have been and will be
timely filed with the appropriate bodies, and true and correct copies of such
reports have been and will be delivered to Crown.
2.14. Title to Property.
-----------------
Allied has good and marketable title to all of the Assets, free and
clear of all Liens, except for the Existing Liens. Delivery to the Company
and/or Crown on the Closing Date of the instruments of transfer contemplated by
Section 1.7 will transfer to the Company good and marketable title to the
Purchased Assets, free and clear of all Liens except for the Real Estate
Permitted Exceptions and, with respect to personal property, the permitted
exceptions, if any, shown on Schedule 2.14 (the "Personal Property Permitted
Exceptions"). No Person has any agreement, option, understanding or commitment
or any right or privilege (whether by law, preemptive or contractual) capable of
becoming an agreement, option or commitment, for the purchase or other
acquisition from Allied of any of the Assets, or any rights or interest therein,
other than in the ordinary course of business.
2.15. Employee Relations.
------------------
Except as set forth on Schedule 2.15, all employees performing services
for the Divisions perform those services exclusively for the Divisions. Since
1985, the Divisions and its employees are not and have not been subject to any
collective bargaining agreement. Except as described in Schedule 2.15 and
Schedule 2.26, neither Allied, on behalf of the Divisions, nor the Divisions is
otherwise a party to or bound by any oral or written: (i) collective bargaining
agreement, employment agreement, consulting, advisory or service agreement,
deferred compensation agreement, confidentiality agreement or covenant not to
compete; (ii) contract or agreement with any officer, director (or equivalent
official) or employee of Allied on behalf of the Divisions; or (iii) Employees'
Plans (as defined in Section 2.26). Allied has previously delivered to Crown:
(a) a list of all Employees as of December 31, 1998 whose then current base
compensation or commission on an annualized basis was in excess of $50,000 and
is reasonably expected to be in excess of that amount for fiscal year 1999; (b)
the then current compensation of, and a description of the fringe benefits
(other than those generally available to all employees of the Divisions)
provided by the Divisions to any Employees referred to in the preceding clause
(a); (c) a list of all present or former (since 1997) Employees of the Divisions
with last annual salaries or commissions exceeding $50,000 who have terminated
or given notice of their intention to terminate their relationship with the
Divisions or whose relationship with the Divisions had been terminated since
December 31, 1998; (d) a list of any increase, effective after December 31, 1998
in the rate of compensation of any of the Divisions' Employees if such increase
exceeds five percent (5%) of the previous annual salary of such Employees; (e) a
list of all substantial changes in job assignments of or promotions or
appointments of all employees of the Divisions whose annual base rate of
compensation or commissions as of December 31, 1998 was in excess of $50,000;
(f) a list of policy and procedure manuals binding on such Employees; and (g)
with respect to the Divisions, Allied has complied in all material respects with
all applicable laws, rules and regulations which relate to wages, hours,
discrimination in employment and collective bargaining and to the operation of
the Divisions and are not liable for any arrears of wages or any taxes or
penalties for failure to comply with any of the foregoing other than as may be
awarded or agreed to in connection with the Discrimination Suit. Allied believes
that its relations with the Employees of the Divisions are good. To Allied's
knowledge, there has been no union organizing effort within the last five (5)
years of the operation of the Divisions and there have been no strikes,
lockouts, slowdowns or similar work stoppages affecting the employees in
connection with the Divisions. All employees of the Divisions are terminable at
will with no liability except as set forth on Schedule 2.15. Except as set forth
on Schedule 2.15, to the best knowledge of Allied, (A) with respect to the
Divisions, Allied is not involved in any transaction or other situation with any
Employee, officer, director (or equivalent official) or affiliate of Allied that
may be generally characterized as a "conflict of interest", and (B) to Allied's
knowledge there are no situations with respect to the Business that involved or
involves (i) the use of any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, (ii)
the making of any direct or indirect unlawful payments to government officials
or others from funds or the establishment or maintenance of any unlawful or
unrecorded funds, (iii) the violation of any of the provisions of The U.S.
Foreign Corrupt Practices Act of 1977, or any rules or regulations promulgated
thereunder, (iv) the receipt of any illegal discounts or rebates, or (v) any
investigation by any other federal, foreign, state or local government agency or
authority.
2.16. Status of Contracts.
-------------------
Each of the Contracts constitutes a legal, valid and binding obligation
of Allied and, to Allied's knowledge, each other party thereto subject to the
Enforceability Exceptions and is in full force and effect, has not been amended
or modified. Except as described in Schedule 2.16, the Contracts may be
transferred to the Company pursuant to this Agreement and will continue in full
force and effect thereafter, in each case without breaching the terms thereof or
resulting in the forfeiture or impairment of any rights thereunder and without
the consent, approval or act of, or the making of any filing with, any other
party. Allied is not in, or alleged to be in, breach or default under, nor is
there or is there alleged to be any basis for termination of, any of the
Contracts and, to the best knowledge of Allied, no other party to any of the
Contracts has breached or defaulted thereunder, and no event has occurred and no
condition or state of facts exists which, with the passage of time or the giving
of notice or both, would constitute such a default or breach by Allied, or, to
the best of the knowledge of Allied, by any such other party. Allied is not
paying liquidated damages in lieu of performance under any Contract. Complete
and correct copies of each of the Capitalized Leases, and all other material
Contracts, have heretofore been delivered to Crown by Allied and are listed on
Schedule 2.16 attached hereto.
2.17. No Violations, Litigation or Regulatory Action.
----------------------------------------------
(a) With respect to the Divisions, Allied has complied in all material
respects with all laws, regulations, by-laws, rules, writs,
injunctions, ordinances, franchises, decrees or orders of any court or
of any foreign, federal, provincial, municipal or other government,
governmental department, commission, board, bureau, agency or
instrumentality which are applicable to the Assets or the Divisions;
(b) Except as disclosed on Schedule 2.17, there are no lawsuits, claims,
suits, proceedings, investigations, grievances, complaints, or charges
pending or, to the best knowledge of Allied, threatened against or
affecting Allied (relating to the Divisions), and there are no
lawsuits, claims, suits or proceedings pending in which Allied
(relating to the Divisions) is the plaintiff or claimant; and
(c) There is no action, suit or proceeding pending or, to the best
knowledge of Allied, threatened which questions the legality or
propriety of the transactions contemplated by this Agreement or which
may have an adverse effect on Allied's ability to perform its
obligations hereunder.
2.18. Environmental Matters.
---------------------
(a) For the purposes of this Agreement, the following terms and expressions
shall have the following meanings:
(i) "Environmental Health and Safety Laws" means all federal,
state and local laws, rules and regulations relating to the
protection and preservation of the environment, occupational
health and safety or Hazardous Materials.
(ii) "Environmental Permits" includes all orders, permits,
certificates, approvals, consents, registrations and licenses
issued by any authority of competent jurisdiction under
Environmental Health and Safety Laws.
(iii) "Hazardous Materials" means, collectively, any contaminant,
pollutant, hazardous substance (as defined in Environmental
Health and Safety Laws as amended from time to time), toxic
substance, petroleum based products, asbestos, or any
analogous substance defined in or regulated under any
Environmental Health and Safety Laws.
(iv) "Release" means any release, spill, leak, emission, discharge,
leaching, dumping, migrating, escape or other disposal which
is or has been made in contravention of any Environmental
Health and Safety Laws.
(b) Except as disclosed in Schedule 2.18 attached hereto, the use,
maintenance and operation of the Divisions and the Assets thereof are
in compliance in all material respects with all Environmental Health
and Safety Laws. Allied, in relation to the Divisions, is in
compliance in all material respects with all reporting, monitoring,
transportation and disposal requirements under all Environmental
Health and Safety Laws. In relation to the Divisions, Allied has not
received any notice of, nor does Allied anticipate any material
expenditures related to, any non-compliance with any Environmental
Health and Safety Laws, and Allied, in relation to the Divisions, has
never been convicted of a criminal offense for non-compliance with any
Environmental Health and Safety Laws or been fined or otherwise
sentenced or settled such prosecution short of conviction.
(c) Except as set forth on Schedule 2.18, Allied has obtained all
Environmental Permits necessary to conduct the business of the
Divisions and to own, use and operate the Assets. All such
Environmental Permits are listed in Schedule 2.18, and complete and
correct copies thereof have been provided to Crown. Allied agrees to
assist the Company and Crown with filing all necessary applications and
transferring or obtaining all necessary Environmental Permits.
(d) Except as disclosed in Schedule 2.18, to the knowledge of Allied, there
are no Hazardous Materials located on, in or under the surface of any
of the Assets, other than those associated with the proper and ordinary
operations of the Divisions, and no reportable Release of any Hazardous
Material has occurred on or from the Assets or has resulted from the
operation of the Divisions.
(e) Except as disclosed in Schedule 2.18, to the knowledge of Allied, there
are no underground or surface storage tanks, urea formaldehyde foam
insulation, asbestos, polychlorinated biphenyls (PCBs) or radioactive
substances located on, in or under the surface of any of the Assets. In
relation to the Divisions, Allied has not received any notice or claim
that it is responsible for any cleanup or corrective action under any
Environmental Health and Safety Laws. Allied has provided Crown with
copies of all environmental audits, assessments and studies of all of
the Assets or relating to the Divisions that it has ever conducted or
had in its possession.
(f) No environmental accruals have been established during 1998, 1997 and
1996 in relation to the Divisions.
(g) Under federal, state and local laws and regulations, where Allied has
been named as a potentially responsible party with respect to the
Divisions for various hazardous waste sites undergoing remediation or
under investigation, Allied has no knowledge of any violations of
Allied and believes it has been improperly named or will be considered
to be a "de-minimus" party thereto.
2.19. Insurance.
---------
Schedule 2.19 sets forth a list and brief description (including policy
numbers, insurers, nature of coverage, limits, deductibles, carriers, claims
pending under any insurance policy, and effective and termination dates) of all
policies of insurance maintained, owned or held by Allied insuring all or a
portion of the Purchased Assets and activities of the Divisions and a listing of
all open and closed claims related to the Division on such policies for the
years 1994 through the present date. Allied has complied in all material
respects with each of such insurance policies and has not failed to give any
notice or present any claim thereunder in a due and timely manner. Allied has
delivered to Crown correct and complete copies of each such insurance policy
related to the Divisions and of the most recent inspection reports, if any,
received from insurance underwriters as to the condition of the Purchased
Assets. Allied has not received any notice within the past three (3) years from
any insurance carrier or agent that its rates on the policies applicable to the
Divisions would be substantially increased (except to the extent that insurance
rates may be increased for all similarly situated risks), or that such policies
would not be renewed.
2.20. Customers.
---------
Schedule 2.20 contains a list of names and addresses of the Significant
Customers of Allied with respect to the Divisions and the percentage of the
Divisions' gross revenues which each such customer represents or represented
during the calendar years 1997 and 1998 and the period January 1, 1999 through
August 31, 1999. Allied has received no written notice that there exists an
actual or threatened termination, cancellation or litigation of, or any
materially adverse modification or change in, the business relationship of
Allied, on behalf of the Divisions, with any Significant Customers, and to the
best knowledge of Allied there exists no present condition or state of facts or
circumstances, involving any of the Significant Customers of which Allied has
notice which would have a Material Adverse Effect on the Divisions' relationship
with such Significant Customer or prevent Crown from operating the Divisions
after the Closing in essentially the same manner in which it has heretofore been
operated by Allied, except as affected by the transactions contemplated hereby.
Allied is not currently renegotiating (nor has it asked or been asked to
renegotiate) any Division Agreement with any Significant Customers in 1997, 1998
or 1999 nor is Allied or any Significant Customer paying liquidated damages in
lieu of performing any such Division Agreement.
2.21. Suppliers.
---------
Schedule 2.21 is a true and complete list by dollar volume of purchases
made during the calendar years 1997 and 1998 and the period January 1 through
June 30, 1999 from the fifteen (15) largest suppliers to Allied (on behalf of
the Divisions) of key materials and services and commodities, exclusive of
utility services. In the last twelve (12) months, no such supplier has canceled
or otherwise terminated, or threatened in writing to cancel or otherwise
terminate, its relationship with Allied. Allied has not received any written
notice and is not aware that any such supplier intends to cancel or otherwise
modify its relationship with Allied, which cancellation or modification would
have a Material Adverse Effect on the Divisions' relationship with such supplier
or ability to receive such supplies on a comparable basis. Each of the Accounts
Payable represents amounts owed to suppliers or employees of the Divisions for
bona fide goods or services performed in good faith on an arms' length basis by
such supplier or employee. All such goods have been delivered or services
performed by the respective creditor in a timely manner and Allied has no claim
against such creditor for offset, faulty workmanship, defective quality of
goods, or other breach of contract claim. Except as set forth on Schedule 2.21,
no Accounts Payable are owed Allied or any Affiliate thereof.
2.22. Product Liability; Product and Service Warranties.
-------------------------------------------------
Schedule 2.22 contains a description of the warranties given or offered
by Allied covering Products or services sold or distributed by the Divisions or
their predecessors and any other warranty covering any Products or services sold
or distributed by the Divisions or their predecessors, which warranty is in
effect on June 30, 1999. Schedule 2.22 also sets forth the amount and general
nature of any warranty claims experienced by the Divisions or their predecessors
in each of the years ended December 31, 1996, 1997 and 1998 and the period
January 1, 1999 to the date hereof. Allied, on behalf of the Divisions, is not
subject to any liability for warranty claims not shown or in excess of the
amounts shown or reserved for in the Most Recent Balance Sheet. Except as
disclosed in Schedule 2.22, (i) there is no notice, demand, claim, action, suit,
inquiry, hearing, proceeding, notice of violation or, to the best of Allied's
knowledge, investigation of a civil, criminal or administrative nature by or
before any governmental agency against or involving any Product, or class of
claims or lawsuits involving the same or similar Product which is pending or, to
Allied's knowledge threatened, resulting from an alleged defect in design,
manufacture, materials or workmanship of any Product manufactured, produced,
distributed, sold or serviced by or on behalf of the Divisions or their
predecessors, or any alleged failure to warn, or from any breach of implied
warranties or representations, (ii) to Allied's knowledge, for the past three
(3) years there is no fact, situation or circumstance that primarily forms or is
likely to be the primary cause for any such claim, and (iii) there has not been,
nor is there under consideration or investigation by Allied, any Recall
conducted by or on behalf of Allied concerning any Products or any Recall
conducted by or on behalf of any entity as a result of any alleged defect in any
Product supplied by Allied.
2.23. Intellectual Property.
---------------------
Schedule 2.23 contains a list of all material Intellectual Property
(other than know-how) in which Allied has any right, title or interest or which
during the past year has been used in, or which relates to, the business of the
Divisions. Except as set forth in Schedule 2.23, Allied either owns or has the
right to use by license, sublicense, agreement, or permission all of the
Intellectual Property set forth on Schedule 2.23. Except as otherwise set forth
in Schedule 2.23, Allied has not granted a license, nor reached an understanding
with any third party, nor entered into a written agreement, relating in whole or
in part, to any of the Intellectual Property of Allied used in connection with
the business or operations of the Divisions, and there has been no assertion
thereof by any person. To the knowledge of Allied, there is no infringement or
other adverse claim against the rights of Allied with respect to any of the
Intellectual Property used or owned by Allied in connection with the conduct of
the business of the Divisions. Schedule 2.23 lists separately Allied's
trademarks and tradenames which are material to the conduct of the business of
the Divisions (the "Material Trademarks and Tradenames"). Allied has not been
charged with nor, to the knowledge of Allied, is Allied threatened to be charged
with, nor to the knowledge of Allied is there any basis for any charge of, with
respect to its Material Trademarks and Tradenames, the infringement or other
violation of the intellectual property rights of any other Person. In connection
with the conduct of the business of the Divisions and except as set forth on
Schedule 2.23, Allied and the Divisions and, to Allied's knowledge, their
predecessors, with respect to their Material Trademarks and Tradenames, have not
infringed, nor are any of them infringing, any intellectual property right of
any other person. Allied owns or possesses adequate licenses or other rights or,
to the knowledge of Allied, can obtain such rights on commercially reasonable
terms that will not materially and adversely affect Allied or the Divisions, to
use all trademarks, trademark applications, service marks, service mark
applications, or other trade names, copyrights, manufacturing processes,
formulae, trade secrets and know how and, to the knowledge of Allied and the
Divisions, all patents and patent applications or other intellectual property
necessary or material to the conduct of the business of the Divisions, as
conducted. Except as set forth on Schedule 2.23, Allied has not granted or
assigned to any other person or entity any right to manufacture or assemble the
products or proposed products of the Divisions. No current or former
stockholder, employee, officer or director of Allied or the Divisions has
(directly or indirectly) any right, title or interest in any Intellectual
Property other than such right which such Person may enjoy as an owner of
Allied. Except as set forth on Schedule 2.23, Allied has not entered into any
written or oral contract, agreement or arrangement with any Person, pursuant to
which such Person receives access to or possession of any source code of Allied,
or the right to transfer, sell, distribute or license any product that
incorporates any Intellectual Property of Allied in a manner by which such
Person or an Affiliate of such Person is or may become an indirect or direct
competitor of Allied or the Divisions. To the knowledge of Allied, no current or
former director, officer, member, manager or employee of or consultant to Allied
or the Divisions is in violation of any terms of any employment contract,
non-competition agreement, non-disclosure agreement, patent disclosure or
assignment agreement or other contract or agreement containing restrictive
covenants relating to the right of any such director, officer, member, manager,
employee or consultant to be employed or engaged by Allied or the Divisions
because of the nature of the business conducted or proposed to be conducted by
Allied or the Divisions, or relating to the use of trade secrets or proprietary
information of others.
2.24. Broker or Finder.
----------------
Neither Allied nor any of its Affiliates nor any party acting on their
behalf has paid or become obligated to pay any fee or commission to any broker,
finder or intermediary for or on account of the transactions contemplated by
this Agreement for which the Company or Crown would be responsible.
2.25. Year 2000 Compliance and Readiness Matters.
------------------------------------------
The Divisions have conducted testing to determine whether the systems,
processes, products, equipment and services used in the Divisions' business have
achieved Year 2000 Readiness.
The Divisions have made written inquiries to its critical suppliers
regarding their respective Year 2000 Readiness. To the best of Allied's
knowledge, such critical suppliers will not be unable to perform the Contracts
due to Year 2000 Readiness issues.
Allied, on behalf of the Divisions, has made no express or implied
warranties regarding the Year 2000 Readiness of the Divisions, or any of their
Products or Services.
2.26. Employee Plans.
--------------
Schedule 2.26 identifies each retirement, pension, bonus, stock
purchase, profit sharing, stock option, deferred compensation, severance or
termination pay, insurance, medical, hospital, dental, vision care, drug, sick
leave, disability, salary continuation, retiree health, legal benefits,
unemployment benefits, vacation, incentive or other compensation plan or
arrangement or other employee benefit that is maintained or otherwise
contributed to, or required to be contributed to, by Allied for the benefit of
employees or former employees of the Divisions and each Employee Pension Benefit
Plan that Allied or any trade or business whether or not incorporated ("ERISA
Affiliate"), that together with Allied would be deemed a "single employer"
within the meaning of Section 401(b) of ERISA, sponsors, maintains, contributed
to or is required to contribute to (the "Employee Plans") and a true and
complete copy of each Employee Plan has been furnished to Crown. Except as set
forth in Schedule 2.26, each Employee Plan has been maintained in compliance
with its terms and with the requirements prescribed by any and all statutes,
orders, rules and regulations that are applicable to such Employee Plan. Except
as set forth in Schedule 2.26, each Employee Plan which is intended to be
qualified under Section 401(a) of the Code has been determined by the Internal
Revenue Service to qualify under Section 401(a) of the Code, and the Trusts
created thereunder have been determined to be exempt from tax under Section
501(a) of the Code, and nothing has occurred which could cause the loss of such
qualification. Allied has delivered to Crown the actuarial valuations, if any,
prepared for each Employee Plan during the past three years. Except as described
in Schedule 2.26:
(a) all contributions to and payments from each Employee Plan that may have
been required to be made in accordance with the terms of any such
Employee Plan, or with the recommendation of the actuary for such
Employee Plan, and, where applicable, the laws of the jurisdictions
that govern such Employee Plan, have been made in a timely manner;
(b) all material reports, returns and similar documents (including
applications for approval of contributions) with respect to any
Employee Plan required to be filed with any governmental agency or
distributed to any Employee Plan participant have been duly filed on a
timely basis or distributed;
(c) there are no pending investigations by any governmental or regulatory
agency or authority involving or relating to an Employee Plan, no
pending or, to the best of its knowledge, threatened claims (except for
claims for benefits payable in the normal operation of the Employee
Plans), suits or proceedings against any Employee Plan or asserting any
rights or claims to benefits under any Employee Plan that could give
rise to a liability nor, to the knowledge of Allied, are there any
facts that could give rise to any liability in the event of such
investigation, claim, suit or proceeding;
(d) no notice has been received by Allied of any complaints or other
proceedings of any kind involving Allied or Divisions or, to Allied's
best knowledge, any of the employees of the Divisions before any
pension board or committee relating to any Employee Plan or to the
Divisions; and
(e) the assets of each Employee Plan are at least equal to the liabilities
of such Employee Plans based on the actuarial assumptions utilized in
the most recent valuation performed by the actuary for such Employee
Plan, and neither Crown nor any of its Affiliates will incur any
liability with respect to any Employee Plan as a result of the
transactions contemplated by this Agreement.
2.27. Ownership.
---------
Except as disclosed in the Form 10-Q filed by Allied with the
Securities and Exchange Commission for the quarterly periods ending March 31,
1999 and June 30, 1999, since December 31, 1998 there has been no material
change in the business, operation, financial condition, assets, properties or
prospects of Allied's businesses other than the Divisions which will result in
Allied not having sufficient financial resources to pay and discharge its
indemnification and other obligations herein as they become due.
Except for the Bank Lien, Allied represents and warrants to Crown that
100% of the membership interests in the Company are owned beneficially and of
record by Allied, free and clear of all liens, mortgages, pledges, security
interests, restrictions, prior assignments, encumbrances and claims of any kind
or nature whatsoever. Except for the Bank Lien, the membership interests in the
Company are not subject to any restriction with respect to their transferability
(other than restrictions on transfer under applicable federal and state
securities laws).
2.28. Capitalization.
--------------
There are no outstanding rights, options, warrants, rights of first
refusal, subscriptions or agreements of any kind to acquire, now or as of the
Closing Date, from Allied any or all of its membership ownership in the Company.
2.29. Status of the Company.
---------------------
Except for the Bank Lien, immediately prior to the conveyance of the
Interests to Crown hereunder, Allied will be the sole owner of 100% of the
membership interests in the Company and have good and marketable title thereto,
free and clear of all liens, claims, security interests, mortgages, pledges,
encumbrances and equities of every kind. At such time and except for the Bank
Lien, Allied's ownership of 100% of the Company's membership interests will
entitle Allied to full, sole and exclusive control and rights to the Company.
Allied's ownership of the Company will constitute 100% of the ownership, legal
or equitable, to the Company, and no Person, except for Crown, has ever had any
ownership interest, legal or equitable, in or to the Company. The Certificate of
Formation and other organizational documents relating to the Company will be in
full force and effect, has not been amended or modified, and there will have
been no breaches, defaults or notices thereof or events which with or without
the passage of time or the giving of notice or both would constitute a breach or
default or both by Allied, and with no defaults or breaches thereof and there is
no basis for or event causing any such breach or default. Neither Allied, nor
any Affiliate thereof, is owed any sums by the Company. The Company will not
have transacted any business prior to Closing.
2.30. Great Bend Bonds.
----------------
The Bond Trust Indenture is in full force and effect and has not been
amended. There are no other agreements or instruments governing or otherwise
affecting Allied's or Allied's predecessor in interest's obligations with
respect to the Great Bend Bonds. All indebtedness under the Series A Bonds has
been paid in full. The proceeds of the Series B Bonds were used exclusively to
purchase property placed in service more than three (3) years prior to the
Closing Date.
2.31. Sales Representatives.
---------------------
Schedule 2.31 identifies all commission salespersons performing
services for the Divisions who are independent contractors ("Sales
Representatives"). No relationship other than as set forth in the Contracts with
the Sales Representatives exists with any Sales Representative. Allied has
previously delivered to Crown: (a) a list of all Sales Representatives as of
December 31, 1998 whose then current base commission on an annualized basis was
in excess of $50,000 and is reasonably expected to be in excess of that amount
for fiscal year 1999 and (b) the then current commission rates payable by the
Divisions to any Sales Representative referred to in the preceding clause (a).
To Allied's knowledge its relations with the Sales Representatives are generally
good.
2.32. Current Product Lines.
---------------------
Schedule 2.32 identifies the product lines currently manufactured by
the Divisions ("Current Product Lines"). No model within the Current Product
Lines was discontinued because it was unsafe or because of product liability
problems.
2.33. Disclosure.
----------
None of the representations or warranties of Allied contained herein,
and none of the information contained in the Schedules referred to in Article 2,
is false or misleading in any material respect or omits to state a fact here or
therein necessary to make the statements herein or therein not misleading in any
material respect. EXCEPT AS EXPRESSLY SET FORTH HEREIN, ALLIED MAKES NO OTHER
REPRESENTATIONS OR WARRANTIES AND DISCLAIMS ALL IMPLIED WARRANTIES.
Article 3
Representations, Warranties And Covenants Of Crown
--------------------------------------------------
As an inducement to Allied to enter into this Agreement and to
consummate the transactions contemplated hereby, Crown hereby represents,
warrants and covenants to Allied and agrees as follows:
3.1. Organization of Crown.
---------------------
Crown is a limited liability company formed and in good standing under
the laws of the State of Delaware and has full power and authority to own, lease
or otherwise hold its properties and assets and to carry on its business as now
conducted.
3.2. Authority of Crown.
------------------
Crown has full power and authority to enter into this Agreement, to
consummate the transactions contemplated hereby and to comply with the terms,
conditions and provisions hereof.
The execution, delivery and performance of this Agreement by Crown,
including, without limitation, the deliveries and other agreements of Crown
contemplated hereby, have been duly authorized and approved by its Manager (to
the extent required) and do not require any further authorization or consent of
any third party or of any governmental authority except as expressly set forth
herein. This Agreement is, and each other agreement or instrument of Crown
contemplated hereby will be, the legal, valid and binding agreement of Crown,
enforceable in accordance with its terms except for the Enforceability
Exceptions.
Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will conflict with or
result in any violation of or constitute a default under any term of its
Articles of Formation or its Limited Liability Company Agreement, or any
agreement, mortgage, debt instrument, indenture, franchise, license, permit,
authorization, lease or other instrument, judgment, decree, order, law or
regulation by which Crown is bound.
3.3. Financial Matters
-----------------
Crown will have at the Closing the financial wherewithal to consummate
and perform its obligations under this Agreement.
3.4. No Broker or Finder.
-------------------
Neither Crown nor any party acting on its behalf has paid or become
obligated to pay any fee or commission to any broker, finder or intermediary for
or on account of the transactions contemplated by this Agreement.
Article 4
Actions Prior To The Closing Date
---------------------------------
The respective parties hereto covenant and agree to take the following
actions between the date hereof and the Closing Date:
4.1. Investigation of the Divisions and Allied by Crown.
--------------------------------------------------
Allied shall afford to the officers, employees and authorized
representatives (including, without limitation, independent public accountants
and attorneys) of Crown, its Affiliates and its financing sources reasonable
access during normal business hours and opportunity to conduct and complete
acquisition review (to be conducted so as to minimize the effect on the business
of the Divisions), including, without limitation a review of the Divisions'
books and records, leases, contracts and other agreements, income tax returns,
public accountant work papers supporting the data underlying the Financial
Statements and Interim Statements, physical inspection of the Purchased Assets
(including the Real Property for the purpose of conducting an environmental
audit and to inspect the Real Property, Fixed Assets and Inventory), and the
right to contact and communicate with the Divisions' employees, customers,
vendors, suppliers, independent contractors, representatives, government
agencies and others having a business relationship with Allied, and Allied shall
provide to Crown all authorizations and consents required to effect the
foregoing. Allied shall furnish to Crown and its authorized representatives such
additional information concerning the Assets and the Divisions as shall be
reasonably requested. No investigation made by Crown or its representatives
hereunder shall affect the representations and warranties of Allied hereunder.
Not in limitation of Section 11.1, Crown agrees that it will keep and maintain
any and all information obtained by it, its agents and counsel confidential, and
will not make use of any such information other than for its evaluation of the
transactions contemplated by this Agreement. Crown shall either destroy or
return all information to Allied in the event that the transactions contemplated
by this Agreement do not occur.
4.2. Preserve Accuracy of Representations and Warranties.
---------------------------------------------------
Each of the parties hereto shall use reasonable best efforts consistent
with sound business practices to refrain from taking any action which would
render any representation or warranty contained in Article 2 or Article 3 of
this Agreement inaccurate on or before the Closing Date. Each party shall
promptly notify the other of any (a) event or condition which would render any
representation or warranty set forth in Article 2 or Article 3 untrue or in
breach or would cause any covenant in Article 2, Article 3, or Article 4 to be
unfulfilled or (b) any action, suit or proceeding that shall be instituted or
threatened against such party to restrain, prohibit or otherwise challenge the
legality of any transaction contemplated by this Agreement. In addition, Allied
shall promptly update all Schedules and Exhibits when facts and circumstances
change to warrant such updates to make such Schedules and Exhibits accurate (it
being understood that such updates shall not in any way diminish Crown's right
to claim a breach of this Agreement as a result of any such update). Not in
limitation of the foregoing, between the date of execution of this Agreement and
the Closing Date, Allied shall conduct the business of the Divisions in the
usual and ordinary course, consistent with past practice, and shall not make any
material changes in connection with the Divisions without first obtaining the
prior written approval of Crown, which approval shall not be unreasonably
withheld. Not in limitation, but in furtherance of the foregoing Allied, on
behalf of the Divisions, shall not without the prior written approval of Crown
(a) move any manufacturing, warehouse or office site or enter into or terminate
any: (i) operating lease for any Fixed Assets where the annual rentals exceed
Ten Thousand Dollars ($10,000) or the term exceeds one (1) year (unless such
lease could be terminated by tenant on 90 days or less notice without penalty),
or (ii) capital lease, (b) enter into any agreements to purchase or sell Fixed
Assets, Real Property or Inventory except in the ordinary course of business or
except in accordance with the balance of this section, (c) enter into any
contracts, leases or other agreements (x) outside of the ordinary course of
business or (y) with Allied or its Affiliates, (d) change pricing or change
collection practices, (e) change salaries, bonuses or compensation structure of
any employee or independent contractor, (f) terminate or move to another
operation of Allied or any Affiliate any employee of the Divisions, (g) merge,
liquidate, consolidate, reorganize or change the organic structure of Allied or
the Divisions, (h) made any dividend or distribution of any of the Purchased
Assets, (i) change any accounting policies or practices or (j) make any
commitment or agreement with respect to the foregoing. Further, Allied agrees
that between the date hereof and the Closing, it will use its reasonable best
efforts consistent with sound business practices to maintain all Assets in good
operating order, ordinary wear and tear excepted.
4.3. Consents and Approvals.
----------------------
Allied, at its sole cost and expense, shall use its best efforts
promptly to obtain all other consents from parties to Contracts and leases of
Real Property (without increasing any financial or other burden on the assignee)
and all consents, amendments, licenses or permits from governmental authorities
which are required by the terms thereof, this Agreement or otherwise for the due
and punctual consummation of the transactions contemplated by this Agreement.
Allied shall also cooperate with and assist Crown and its authorized
representatives in order to provide an efficient transfer of the control and
management of the Divisions and to avoid any undue interruption in the
activities and operations of the Divisions following the Closing Date.
4.4. Interim Financial Statements.
----------------------------
Allied shall furnish Interim Statements to Crown on a periodic basis
between the date hereof and Closing. The Interim Statements shall be prepared on
a basis consistent with monthly statements prepared by the Divisions in prior
periods.
4.5. No Public Announcements.
-----------------------
Neither of the parties hereto shall, without the approval of the other
party, make any press release or other public announcement concerning the
transactions contemplated by this Agreement, except as and to the extent that
such party shall be so obligated by law or applicable rules or regulations of
governmental or regulatory agencies, in which case the other party shall be
advised and the parties shall use their best efforts to cause a mutually
agreeable release or announcement to be issued (except in the case of
disclosures which may not properly be disclosed to Crown under any securities
law, rule or regulation).
4.6. Termination or Modification of Intercompany Agreements.
------------------------------------------------------
As of the Closing Date, all Intercompany Agreements set forth on
Schedule 4.6 hereof shall be, at Crown's election, either (a) terminated without
penalty or (b) modified on terms and conditions mutually agreed upon by Allied
and Crown. All such Intercompany Agreements are set forth on Schedule 4.6.
4.7. Environmental Surveys.
---------------------
Crown has determined that the items set forth on Schedule 4.7 require
remediation in order to comply with the Environmental Health and Safety Laws
(collectively, the "Remediation"). Prior to the Closing, Allied shall engage
reputable environmental consultants and engineers (the "Engineers"), reasonably
approved by Crown, to devise a plan and strategy (the "Plan") to perform the
Remediation and to complete the Remediation at Allied's sole cost and expense.
Crown shall have the right to approve the Plan, provided that such approval is
not unreasonably withheld or delayed, and observe the Remediation. The
Remediation shall be completed prior to the Closing and Crown shall have
received a certificate from the Engineers that the Remediation has been
completed and the subject areas, and any other areas uncovered in the course of
the Remediation, have been completed and comply with all Environmental Health
and Safety Laws (the "Completion Certificate"). If the Remediation is not
completed prior to the Closing, or if Crown does not receive an unqualified
Completion Certificate prior to Closing, then Crown shall have the option to
proceed to Closing but (i) require Allied to continue with the Remediation or
(ii) complete the Remediation itself and charge Allied the reasonable costs,
fees and expenses incurred in completing the Remediation. Allied's agreement
under this section does not limit its representation and warranty set forth in
Section 2.18 hereof.
4.8. No Other Negotiations.
---------------------
Upon execution of this Agreement, Allied is not engaged in, or shall
immediately terminate, any discussions with any third party concerning an
Alternative Acquisition (as defined below). From and after the date of this
Agreement until the earlier of the Closing or the termination of this Agreement
in accordance with its terms, Allied and the Company shall not, directly or
indirectly, (a) solicit, engage in discussions or negotiate with any person
(whether such discussions or negotiations are initiated by Allied and the
Company or otherwise) or take any other action intended or designed to
facilitate the efforts of any person, other than Crown, relating to the possible
acquisition of Allied or the Divisions (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise) or any material portion of
Allied's capital stock or assets (with any such efforts by any such person,
including a firm proposal to make such an acquisition, to be referred to as an
"Alternative Acquisition"), (b) provide information with respect to the
Divisions to any person, other than Crown, relating to a possible Alternative
Acquisition by any person, other than Crown, (c) enter into an agreement with
any person, other than Crown, providing for a possible Alternative Acquisition,
or (d) make or authorize any statement, recommendation or solicitation in
support of any possible Alternative Acquisition by any person, other than by
Crown.
Notwithstanding the foregoing, the restrictions set forth in this
Agreement shall not prevent the Board of Directors of Allied (or its agents
pursuant to its instructions) from taking any of the following actions: (a)
furnishing information concerning Allied and the Divisions to any third party or
(b) negotiating with such third party concerning an Alternative Acquisition
provided that all of the following events shall have occurred: (1) such third
party has made a written proposal to the Board of Directors of Allied (which
proposal may be conditional) to consummate an Alternative Acquisition which
proposal identifies a price or range of values to be paid for the outstanding
securities or substantially all of the assets of Allied or of the Divisions, and
if consummated, based on the advice of the Allied's investment bankers, the
Board of Directors of Allied has determined is financially more favorable to the
stockholders of Allied than the terms of this Agreement (a "Superior Proposal");
(2) Allied's Board of Directors has determined, based on the advice of its
investment bankers, that such third party is financially capable of consummating
such Superior Proposal; (3) Allied's Board of Directors shall have determined,
after consultation with its outside legal counsel, that the fiduciary duties of
the Board of Directors of Allied require it to furnish information to and
negotiate with such third party; and (4) Crown shall have been notified in
writing of such Superior Proposal, including all of its terms and conditions,
and shall have been given copies of such proposal. Notwithstanding the
foregoing, Allied shall not provide any non-public information to such third
party unless (1) Allied has prior to the date thereof provided such information
to Crown's representatives; (2) Allied has notified Crown in advance of any such
proposed disclosure of non-public information to any such third party, with a
description of the information proposed to be disclosed; and (3) Allied provides
such non-public information pursuant to a nondisclosure agreement with terms
which are at least as restrictive as the nondisclosure agreement heretofore
entered into between Allied and Crown.
In addition to the foregoing, Allied shall not accept or enter into any
agreement concerning an Alternative Acquisition for a period of not less than 48
hours after Crown's receipt of a copy of such proposal of an Alternative
Acquisition. Upon compliance with the foregoing, Allied shall be entitled to (1)
not recommend or change its recommendation concerning the transactions
contemplated herein and (2) enter into an agreement with such third party
concerning an Alternative Acquisition provided that the Allied shall immediately
make payment in full to Crown of the Termination Fee and such payment shall be a
condition to closing the Alternative Acquisition.
If Allied receives any unsolicited offer or proposal to enter into
discussions or negotiations relating to an Alternative Acquisition, Allied shall
notify Crown thereof within twenty-four hours of Allied's receipt thereof,
including information as to the identity of the party making any such offer or
proposal and the specific terms of such offer or proposal, as the case may be.
Allied shall be entitled to provide copies of this Section to third
parties who on an entirely unsolicited basis after the date hereof, contact
Allied concerning an Alternative Acquisition; provided that Crown shall
concurrently be notified of such contact and the delivery of such copy.
4.9. Title Insurance and Surveys.
---------------------------
Allied shall cooperate fully with and assist Crown in the procurement,
at Allied's expense, as soon as practicable, but in no event later than twenty
(20) days after the date hereof, of, at Crown's election, (a) Commitments,
issued by Chicago Title and Trust Company, committing to insure the Company's
title, and showing Allied in title to the Owned Real Property together with
leasehold interests in the Leased Real Property described on Schedule 4.9, in
the amounts indicated on Schedule 4.9 and with extended coverage without
specific exceptions, 3.1 zoning (with parking and showing the existing use as
permitted and conforming), contiguity, location, access to street, survey,
creditor's rights and nonimputation endorsements, subject only to the Real
Estate Permitted Exceptions and exceptions which will be insured over or deleted
at Closing with copies of all title exception documents listed in such
commitments and (b) Surveys of each parcel of the Real Property set forth on
Schedule 4.9 made by licensed surveyors and certified to the Company, as having
been made in compliance with 1997 ALTA/ACSM standards (showing to the extent the
surveyor is willing to provide at a reasonable cost all optional items under
such standards other than items 5 , 6, 7(b), 7(c) and 12, 13, 14, 15, 16) and
showing no encroachments thereon. At Closing, the Company shall receive ALTA
owners and leasehold title insurance policies consistent with the Commitments
and the Surveys. Allied shall pay all costs, fees and expenses in connection
with the procurement of such Commitments, policies and Surveys. Allied shall
execute and deliver at Closing all documents and instruments necessary to
transfer the Real Property to the Company subject only to the Real Estate
Permitted Exceptions, and to obtain the issuance of such title insurance
policies, including the endorsements, including, without limitation, real estate
transfer tax declarations, FIRPTA affidavits, environmental disclosure reports,
if required, and such other documents, affidavits and instruments necessary or
required to transfer the Real Property to the Company and to cause such policies
including the endorsements to be issued. In addition, Allied shall remove, or
cause to be removed, or insure over prior to the Closing all liens, claims,
encumbrances, security interests and other encumbrances from the Owned Real
Property except for those items which are the Real Estate Permitted Exceptions.
To the extent any claim by the Company under any title insurance policy is
reduced by virtue of the imputation to Allied of knowledge or the imputation of
knowledge to the Company solely due to the knowledge of Allied of any fact,
circumstance or condition, any recovery on such claim shall be distributed to
Crown or allocated in such a way that Allied does not share therein, directly or
indirectly, as a member of the Company.
4.10. Bulk Sales Act Compliance.
-------------------------
Based on the inducement offered by Allied's agreements under Sections
8.1(a) and 8.1(c), the parties hereto agree to waive compliance with the
provisions of any applicable Bulk Sales statutes (collectively, the "Bulk Sales
Acts") in connection with the transactions contemplated by this Agreement.
4.11. Management Information Systems.
------------------------------
Prior to the Closing, Allied will (a) reasonably document the location,
procedures and other information relating to the Divisions' computer,
telecommunications and overall management information systems, and such
documentation shall be to a standard and clarity reasonably acceptable to Crown
(and Allied shall coordinate the process of such documentation with Crown) and
(b) obtain, at its sole cost and expense, licenses for the Company for all
software now being used by the Divisions, or licenses which will be transferable
to the Company without the consent of or any payment to the licensor.
4.12. Business Activity of the Company.
--------------------------------
Except as otherwise provided in this Agreement, the Company shall not
conduct any business prior to or on the Closing Date, including, without
limitation, acquiring assets or assuming liabilities.
4.13. Loan Secured by Allied's Interest in the Company.
------------------------------------------------
Allied shall use its best efforts to obtain a loan, secured by, among
other assets, Allied's membership interest in the Company, on terms reasonably
acceptable to Crown, a portion of the proceeds of which will be used, together
with the proceeds of the transactions hereunder, to pay and discharge as of the
Closing Date, all of Allied's obligations under the Credit Agreement.
Article 5
Other Agreements
----------------
5.1. Non-Competition Agreements.
--------------------------
As of the Closing, Allied shall, in consideration for receipt of the
Purchase Price and the Company's assumption of the Assumed Liabilities, enter
into a Non-Competition Agreement (the "Non-Competition Agreement") in the form
attached hereto as Exhibit 5.1.
5.2. Management Services.
-------------------
At Closing, CC Industries, Inc. ("CCI") and the Company shall enter
into a Management Services Agreement in a form to be mutually agreed
upon by the parties prior to the Closing Date.
5.3. Limited Liability Company Agreement.
-----------------------------------
At the Closing, Allied and Crown shall enter into a Limited Liability
Company Agreement for the Company in the form attached hereto as Exhibit 5.3
with such changes to Sections 5.3(e), 5.4(b) and 5.4(c) as shall be agreed upon
by the parties prior to the Closing Date.
5.4. Employment Agreements.
---------------------
The Company shall enter into employment and non-competition agreements
in a form to be mutually agreed upon by the parties prior to the Closing Date
with the following individuals: Bobby Middlebrooks, James Bearden and Robert
Moore, respectively.
5.5. Miscellaneous Insurance Matters.
-------------------------------
At Closing, Allied will at its expense name Crown and the Company, and
their respective partners, shareholders, owners, directors, managers, officers,
employees, agents, affiliates and its and their respective successors, assigns,
partners, heirs and personal representatives, as additional insureds as their
interests may appear with respect to Excluded Liabilities related to products
manufactured and sold by the Divisions and their predecessors on its general
liability, product liability and excess liability insurance policies and furnish
Crown with evidence of such insurance coverage.
At Closing, Company will at its expense name Allied, and its
shareholders, directors, officers, employees, agents, affiliates and its and
their respective successors, assigns, partners, heirs and personal
representatives, as additional insureds as their interests may appear with
respect to Assumed Liabilities related to products manufactured and sold by the
Divisions prior to the Closing on its general liability, product liability and
excess liability insurance policies and furnish Allied with evidence of such
insurance coverage.
5.6. Discharge of Excluded Liabilities and Assumed Liabilities.
---------------------------------------------------------
Allied shall timely pay, perform or discharge, as the case may be, all
of the Excluded Liabilities.
5.7. Name.
----
From and after the Closing Date and consistent with the terms hereof,
Crown shall possess, to the exclusion of Allied and the Divisions, all rights to
the use of the name or marks listed on Schedule 2.23 hereto, and all logos
listed on Schedule 2.23 hereto, in connection with the business of manufacturing
and distributing the Products, whether currently or in the future, manufactured
and distributed by the business of the Divisions. Allied shall change the name
of all subsidiaries and Affiliates of Allied which contains one of the names or
marks listed on Schedule 2.23 hereto, "Bush Hog" and "Great Bend", or a
derivative thereof, to a name which is not so listed, or similar to a name so
listed, promptly as practicable following the Closing Date.
5.8. Payment of Great Bend Bonds.
---------------------------
On or as of the Closing Date, Allied shall either (A) repay in full or
cause to be repaid in full, all indebtedness of Allied pursuant to the Great
Bend Bonds and deliver to the Company and Crown evidence of such payment and
releases of all collateral relating thereto or (B) provide Crown and the Company
with such representations and warranties as shall be reasonably acceptable to
Crown with regard to the Great Bend Bonds, with an agreement with the Trustee of
the Great Bend Bonds to accept funds at Closing sufficient to call the Great
Bend Bonds on March 1, 2000 and to call such bonds on such date and with other
legal protection reasonably acceptable to Crown against Allied's creditors
obtaining the funds to be used to call the bonds in connection with a bankruptcy
or otherwise.
5.9. Great Bend Manufacturing Plant.
-------------------------------
By written notice delivered to Allied by Crown ten (10) days prior to
the Closing Date Crown may elect to include in the Purchased Assets Tracts 1 and
4 in Great Bend, Kansas, as described on Exhibit 1.2(c) and all improvements
thereon, in which event such Owned Real Property shall not be an Excluded Asset
and there shall be no Manufacturing Lease executed and delivered by Allied and
the Company.
Article 6
Conditions Precedent To Obligations Of Crown
--------------------------------------------
The obligations of Crown under this Agreement shall be subject to the
satisfaction, on or prior to the Closing Date, of each of the conditions set
forth below. The waiver of any of these conditions by Crown shall not relieve
Allied of any liability or obligation relating thereto.
6.1. No Misrepresentation or Breach of Covenants and Warranties.
----------------------------------------------------------
Allied's covenants and agreements contained herein shall have been
performed or fulfilled in all material respects; each of the representations and
warranties of Allied contained or referred to herein shall be true and correct
in all material respects on the Closing Date as though made on the Closing Date
except for (a) those representations and warranties set forth in Sections 2.1,
2.4 and 2.14, which shall be true and correct in all respects, (b) those
representations and warranties already qualified by materiality and (c) changes
therein specifically permitted by this Agreement or resulting from any
transaction expressly consented to in writing by Crown and; and there shall have
been delivered to Crown a certificate or certificates to that effect, dated the
Closing Date, signed on behalf of Allied, by its President or any executive
officer.
6.2. Corporate Action.
----------------
Allied shall have taken all corporate action including, without
limitation, the requisite shareholder approval, necessary to approve the
transactions contemplated by this Agreement prior to the execution of this
Agreement, and, upon execution of this Agreement, Allied shall have furnished
Crown with certified copies of the resolutions adopted by its Board of
Directors, in form and substance satisfactory to counsel for Crown, in
connection with such transactions. Prior to Closing, Allied shall have provided
Crown with evidence satisfactory to counsel to Crown, that the transactions
contemplated herein have been approved by Allied's stockholders.
6.3. No Restraint or Litigation.
--------------------------
No action, suit, investigation or proceeding shall have been instituted
and pending or threatened in writing by any third party, governmental or
regulatory agency to restrain, prohibit or otherwise challenge the legality or
validity of the transactions contemplated hereby.
6.4. Necessary Actions.
-----------------
At the Closing, (i) Allied shall have obtained all third-party consents
and approvals, as well as licenses and permits, required for the transfer of
the: (a) Interests to Crown free and clear of all Liens; and (b) Purchased
Assets to the Company free and clear of all Liens, including, without
limitation, the Bank Lien, but subject to the Permitted Exceptions, and
including, without limitation, the consents and approvals required for the
assignment to the Company of the Contracts as set forth on Schedule 6.4, (ii)
all necessary regulatory approvals have been obtained, (iii) the Intercompany
Agreements other than those set forth on Schedule 4.6 shall have been terminated
or modified without penalty or cost to the Divisions or the Company, and (iv)
the consents and estoppel letters of those landlords of Leased Real Property set
forth on Schedule 2.10(b) and other parties to Contracts shall have been
obtained.
6.5. Legal Opinion.
-------------
Crown shall have received an opinion from Gardner, Carton & Douglas,
counsel to Allied, in form and substance reasonably satisfactory to counsel to
Crown, which opinion shall include, without limitation, the representations and
warranties made by Allied in Sections 2.1 and 2.4 (to the best of such counsel's
knowledge after a due and diligent inquiry with regard to conflicts), and
2.17(b) and (c) (to the best of such counsel's knowledge after a due and
diligent inquiry) in a form to be mutually agreed upon by the parties prior to
the Closing Date.
6.6. Release of Obligations under Letters of Credit of the Divisions.
---------------------------------------------------------------
No less than three (3) days prior to the Closing, Allied shall deliver
a schedule of its open Letters of Credit for the Divisions to Crown. At Closing,
the Company shall cause to be delivered to the issuing bank under Credit
Agreement, letters of credit with terms and availability equivalent to Allied's
Letters of Credit for the Divisions outstanding on the Closing Date. No less
than three (3) days prior to the Closing, Allied shall deliver to Crown a
schedule showing all letters of credit relating to the Divisions issued in favor
of Allied including, without limitation, in connection with the sale of products
outside of the United States, indicating on such schedule the specific account
receivables which relate to each such letter of credit. At the Closing, Allied
shall assign to the Company all such letters of credit issued relating to the
Divisions in favor of Allied, having obtained the consent of the issuing banks
thereto, or Allied shall provide substitute letters of credit to the Company
reasonably acceptable to the Company. All costs or fees incurred in connection
with such assignments shall be paid by Allied.
6.7. Estoppel Certificates.
----------------------
Crown shall have received from Allied on or before Closing, without
expense to Crown the Estoppel Certificate. The Estoppel Certificate shall
otherwise be in form satisfactory to Crown.
6.8. Allied Loan.
-----------
Allied shall have: (i) obtained the release of the Bank Lien
conditional only upon payment by Crown of the Estimated Purchase Price and (ii)
obtained release(s) of any other Liens on the Purchased Assets and Interests,
other than the Permitted Exceptions only with respect to the Purchased Assets.
6.9. Other Documentation.
-------------------
Crown shall have received all of the documents and showings required to
be delivered by Allied at the Closing pursuant to Section 1.7(a) hereof or
otherwise referred to in Article 4 or Article 5 herein, including, without
limitation, the commitments and surveys provided in Section 4.9 hereof and such
other documentation reasonably requested by counsel to Crown and necessary and
appropriate to complete the transactions contemplated hereby.
Article 7
Conditions Precedent To Obligations Of Allied
---------------------------------------------
The obligations of Allied under this Agreement shall be subject to the
satisfaction, on or prior to the Closing Date, of each of the conditions set
forth below. The waiver of any of these conditions by Allied shall not relieve
Crown of any liability or obligation relating thereto.
7.1. No Misrepresentation or Breach of Covenants and Warranties.
----------------------------------------------------------
Each of Crown's covenants and agreements contained herein shall have
been performed or fulfilled in all material respects; each of the
representations and warranties of Crown contained or referred to herein shall be
true and correct on the Closing Date as though made on the Closing Date except
for (a) those representations and warranties set forth in Sections 3.1 and 3.2
which shall be true and correct in all respects, (b) those representations and
warranties already qualified by materiality and (c) changes therein specifically
permitted by this Agreement or resulting from any transaction expressly
consented to in writing by Allied; and there shall have been delivered to Allied
a certificate or certificates to such effect, dated the Closing Date, and signed
on behalf of Crown by the President or other executive officer of CCI.
7.2. Company Action.
--------------
Crown shall have taken all Company action necessary to approve the
transactions contemplated by this Agreement, and Crown shall have furnished
Allied certified copies of resolutions adopted by the manager of Crown, in form
and substance satisfactory to counsel for Allied, in connection with such
transactions.
7.3. No Restraint or Litigation.
--------------------------
No action, suit or proceeding shall have been instituted and pending or
threatened in writing by any third party or governmental agency to restrain,
prohibit or otherwise challenge the legality or validity of the transactions
contemplated hereby.
7.4. Certain Approvals.
-----------------
The approvals required by section 6.4(ii) and the approval of Allied's
stockholders shall have been obtained.
7.5. Legal Opinion.
-------------
Allied shall have received an opinion from Gould & Ratner, counsel to
Crown, in form and substance reasonably satisfactory to counsel to Allied
opining to the representations and warranties made by Crown in Sections 3.1 and
3.2 in the form reasonably acceptable to the parties prior to the Closing Date.
7.6. Financial Matters.
-----------------
Crown shall have the financial wherewithal to consummate and perform
its obligations hereunder.
7.7. Other Documentation.
-------------------
Allied shall have received the Purchase Price as set forth in Section
1.5(d) hereof and all of the documents and showings required to be delivered by
Crown at the Closing pursuant to Section 1.7(b) hereof or otherwise contained
herein, and such other documentation reasonably requested by counsel to Allied
and necessary and appropriate to complete the transactions contemplated hereby.
Article 8
Indemnification
---------------
8.1. Indemnification by Allied.
-------------------------
Notwithstanding any investigation by Crown or the occurrence of the
Closing, Allied, with its successors and assigns, shall indemnify and hold Crown
and the Company, jointly and severally, and their respective partners,
shareholders, owners, directors, managers, officers, employees, agents,
affiliates and its and their respective successors, assigns, partners, heirs and
personal representatives (collectively, the "Crown Group"), harmless from,
against or in respect of the aggregate of all Indemnifiable Damages suffered,
incurred or realized by the Crown Group. For this purpose, the term
"Indemnifiable Damages" means the aggregate (after any recovery under title
insurance policies which the Company has rights and under which it agrees to use
commercially reasonable efforts to make claims) of any and all damage, loss,
deficiency, liability, expense (including, but not limited to, any reasonable
attorney's fees, expert witness fees, court costs and expenses), action, suit,
proceedings, demand, settlement, assessment or judgment (but excluding special,
exemplary or consequential damages not related to third party claims or a breach
of the representation set forth in Section 2.30) to or against the Crown Group
arising out of or in connection with:
(a) Any debt, obligation, or liability of Allied or its Affiliates which is
not expressly assumed by the Company herein, including, without
limitation, the Excluded Liabilities, any debt, obligation or liability
in connection with the tax examinations and proceedings disclosed on
Schedule 2.8, the litigation disclosed on Schedule 2.17, whether
arising prior to, on or after the Closing, the Environmental Matters
disclosed on Schedule 2.18, and any liabilities arising in connection
with the matters set forth in Section 1.4
(b) Any breach or violation of or non-performance by Allied of any of its
representations, warranties, covenants or agreements contained in this
Agreement or any other agreement or document delivered at Closing, or
the amount by which the title insurer has failed to pay to either the
Company or Crown 100% of any claim under any of the title insurance
policies provided for in Section 4.9 hereof by reason of a defect,
lien, encumbrance, adverse claim or other matter not known to Crown but
which was known as of the date of the policy to Allied;
(c) Notwithstanding the provisions of Section 4.10, any violation of the
Bulk Sales Laws or other similar laws requiring notice to governmental
and non-governmental creditors caused by consummation of the
transactions contemplated by this Agreement, but only to the extent
such violation relates to debts, obligations and liabilities which are
not Assumed Liabilities; and
(d) Any obligation, liability or commitment to any broker, finder or
financial intermediary incurred by Allied in connection with the
transactions contemplated hereby.
Notwithstanding anything to the contrary in this Agreement, Allied's
indemnification obligations for matters involving, relating to or otherwise
arising out of Environmental Health and Safety Laws, including the Environmental
Matters disclosed on Schedule 2.18, shall extend only to third party or
governmental claims arising from pre-Closing activity. The parties shall
cooperate with respect to the resolution of any claim, including the performance
of any remedial actions, for which indemnification is being sought by Crown and
the Company, and shall agree to risk-based remediation consistent with the
current use of the property, so long as such remediation does not interfere with
or prohibit the Company's ongoing plans and operations. Allied shall have the
right to defend against any obligation to perform remedial activities as ordered
by an appropriate governmental agency or third party or any allegations of
noncompliance with an Environmental Health and Safety Laws.
Crown and the Company shall provide Allied and any of its
representatives and agents, where appropriate, reasonable access to any site or
any of its operations and provide any sampling results or other information
regarding the nature and extent of any environmental claims, if requested,
sufficient to allow Allied to assess any risks present and the appropriateness
of any proposed remedial activities at a site. Crown and the Company shall take
no actions which may aggravate any claim subject to indemnification.
Without limiting the generality of the foregoing, with respect to the
measurement of Indemnifiable Damages, Crown and the Company shall have the right
to be put in the same financial position as it would have been had each of the
representations and warranties of Allied been true and correct and had each of
the covenants and agreements of Allied been performed in full, subject to
Section 8.4.
Allied's obligations pursuant to this Section 8.1 shall be secured
pursuant to the terms of an Indemnity Security Agreement in a form to be
mutually agreed upon by the parties prior to the Closing Date (the "Indemnity
Security Agreement"). The Indemnity Security Agreement shall grant Crown a
security interest in (A) Allied's membership interest in the Company which will
be subordinate to any security interest described in Section 4.13 and (B)
Allied's right to distributions from the Company.
8.2. Indemnification by Crown.
------------------------
Notwithstanding the Closing, Crown and its successors and assigns shall
indemnify and hold harmless Allied, its shareholders, directors, officers,
employees, agents and its successors, assigns, heirs and personal
representatives (collectively, the "Allied Group"), from and with respect to all
Indemnifiable Damages suffered, incurred or realized by Allied Group, together
with their successors and assigns, arising out of or in connection with:
(a) Any breach or violation of, or non-performance by, Crown of any of its
representations, warranties, covenants or agreements contained in this
Agreement or in any document, certificate or schedule required to be
furnished pursuant to this Agreement;
(b) Any obligation, liability or commitment of the Company arising after the
Closing other than Excluded Liabilities; and
(c) Any obligation, liability or commitment to any broker, finder or
financial intermediary incurred by Crown in connection with the
transactions contemplated hereby.
Without limiting the generality of the foregoing, with respect to the
measurement of Indemnifiable Damages, the Allied Group shall have the right to
be put in the same financial position as it would have been had each of the
representatives and warranties of Crown been true and correct and had each of
the covenants and agreements of Crown been performed in full, subject to Section
8.4.
8.3. Indemnification by the Company.
------------------------------
Notwithstanding the Closing, the Company and its successors and assigns
shall indemnify and hold the Allied Group harmless from all Indemnifiable
Damages suffered, incurred or realized by Allied Group, together with their
successors and assigns, arising out of or in connection with the Assumed
Liabilities.
8.4. Limitation of Damages.
---------------------
The foregoing obligations described in Sections 8.1 and 8.2 shall be
subject to and limited by the following principles and limitations:
(a) All representations and warranties of Allied contained in Article 2
of this Agreement shall survive the consummation of the transactions
contemplated by this Agreement from the Closing Date through the date
that is 18 months following the Closing Date and shall thereafter
terminate, provided, however, that notwithstanding the foregoing,
the representations and warranties contained in (1) Sections 2.1,
2.4, 2.10(a) (but only in connection with Owned Real Property for
which title insurance has not been received by Crown as of the
Closing), 2.14 and 2.24 shall be of unlimited duration;
(2) Sections 2.8, 2.22 and 2.30 shall terminate 60 days after the
expiration of the statute of limitations applicable to such matter (as
such periods may be extended by any applicable waivers or extensions
thereof); (3) Section 2.18 shall terminate on the date that is ten (10)
years following the Closing Date; and (4) any provision of Article 2
shall not terminate to the extent that Indemnifiable Damages result
from either Allied's fraud or willful misstatements. All
representations and warranties of Crown contained in Article 3 of this
Agreement shall survive the consummation of the transactions
contemplated by this Agreement from the Closing Date through the
date that is 18 months following the Closing Date and shall
thereafter terminate, provided, however, that notwithstanding the
foregoing, the representations and warranties contained in Sections
3.1 and 3.2 shall be of unlimited duration. Claims first asserted
within the period referred to above shall not be barred and shall
survive indefinitely until such claims are resolved.
(b) Allied shall not be responsible to Crown Group under Section 8.1(b)
unless and until the aggregate of all Indemnifiable Damages suffered
by Crown under that Section 8.1(b) exceeds $200,000 and then Allied
shall be responsible to fully indemnify Crown Group for all
Indemnifiable Damages in excess thereof, provided, however, that this
provision shall not apply to breaches of the representations and
warranties contained in Sections 2.1, 2.4, 2.5, 2.10(a) (last three
sentences, but only in connection with Real Property for which title
insurance described in Section 4.9 has not been received by Crown as
of the Closing), Sections 2.14, 2.22, 2.24 and 2.30, and with respect
to breaches resulting from either Allied's fraud or willful
misstatements, in any such events for which Crown Group shall be
fully indemnified notwithstanding the amount of Indemnifiable
Damages. Crown shall not be responsible to Allied Group under
Section 8.2(c) unless and until the aggregate of all Indemnifiable
Damages suffered by Allied Group under that Section 8.2(c) exceeds
$200,000 and then Crown shall be responsible to fully indemnify Allied
Group for all Indemnifiable Damages in excess thereof, provided,
however, that this provision shall not apply to breaches of the
representations and warranties contained in Sections 3.1 and 3.2
and with respect to breaches resulting from either Crown's fraud or
willful misstatements, in any such events for which Allied Group
shall be fully indemnified notwithstanding the amount of Indemnifiable
Damages.
8.5. Notice of Claims.
----------------
If any claim is made against a party which, if sustained, would give
rise to a liability of the other hereunder, the Claiming Party shall promptly
cause notice of the claim to be delivered to the Non-claiming Party and shall
afford the Non-claiming Party and its counsel, at its sole expense, the
opportunity to defend or settle the claim (provided that the Claiming Party and
its counsel may participate at their sole cost and expense) provided that the
Non-claiming Party admit in writing its responsibility for such claim. Any
notice of a claim shall state with reasonable specificity the representation,
warranty, covenant or agreement allegedly breached, the alleged basis for the
claim, and the amount of liability asserted against the other party by reason of
the claim (if such amount can be reasonably estimated). If such notice and
opportunity are not given, or if any claim is compromised or settled without
notice to and consent of the Non-claiming Party, no liability shall be imposed
on the Non-claiming Party by reason of such claim (unless the claiming party is
prejudiced by any such failure to timely provide notice or assume the defense),
but if notice is given and the Non-claiming Party receiving the notice fails to
assume the defense of the claim or fails to admit in writing its liability with
respect to such claim, the claim may be defended, compromised or settled by the
Claiming Party without the Non-claiming Party's consent and the Non-claiming
Party shall remain liable under this Article 8. Notwithstanding anything
contained in this Section 8.5 to the contrary, the Claiming Party may retain
control over the defense of any claim hereunder if such control is necessary to
(i) prevent its assets or business from being seized, attached or otherwise
encumbered or enjoined as a result of such third-party action or (ii) respond to
and control any action requiring immediate response, such as prayers for
injunctive and other emergency relief. The parties shall cooperate at all times
in reasonable requests for documents, testimony and other forms of assistance in
connection with any claim pursuant to this Section 8.5. The Non-claiming Party
shall not in the defense of any such claim consent to the entry of any judgment
against or affecting the Claiming Party or any Affiliate (other than a judgment
or a dismissal on the merits and without costs) except with the written consent
of the Claiming Party (which shall not be unreasonably withheld or delayed), or
enter into any settlement (except with the written consent of the Claiming
Party, which shall not be unreasonably withheld or delayed) which does not
include as an unconditional term thereof the giving by the claimant or the
plaintiff to the Claiming Party of a full release in respect to such claim.
If the claim does not arise from the claim or demand of a third party,
the Non-claiming Party shall have thirty (30) days after the receipt of the
written notice of such claim to object to the claim by giving written notice to
the Claiming Party specifying the reasons for such objection or objections. If
the Non-claiming Party does not so object to the claim, the total amount of the
claim shall be promptly paid by the Non-claiming Party. If the Non-claiming
Party objects to the claim and the parties are unable to settle any such
dispute, then the parties shall have all rights and remedies at law or in
equity, and either the Claiming Party or Non-claiming Party may commence an
action or proceeding in accordance with Section 11.2 to resolve such dispute.
Article 9
Employees And Employee Benefit Plans
------------------------------------
9.1. Employment.
----------
(a) Within ten (10) days after execution of this Agreement, Allied shall
deliver to the Company a complete list of all Employees. The list shall
include the name, social security number, position and compensation of
each person on the list and indicate which are on disability, layoff,
leave of absence and which are actively at work. Allied shall also
provide such other information regarding such Employees as the Company
shall reasonably require and as is permitted by law.
(b) On and as of the Closing Date, Allied will take all action necessary
to terminate the Employees. In addition, on the Closing Date,
Allied shall cause to be paid to all Employees all payroll sums owing,
including, without limitation, "golden parachute", or other benefits
due to the Employees through the close of business on the Closing Date
or as a result of their termination of employment on or before the
Closing Date, except for Accrued Payroll Items and the Middlebrooks
Retirement Liability, and shall indemnify, defend and hold harmless the
Company from and against all Indemnifiable Damages resulting or arising
from such sums. Allied shall also pay on or before the date such
amounts are customarily paid to Employees (i) all incentive
compensation and bonuses payable to Employees employed by Allied
immediately prior to the Closing Date in accordance with the Allied
Products Management Bonus Plan, the 1999 Incentive Compensation Plan
for Great Bend Manufacturing Company and any similar plan maintained
for Employees based on the performance of the Divisions through the
Closing Date even though such Employees were terminated as of the
Closing Date and (ii) the Christmas bonuses normally payable to
Employees even though such Employees are terminated as of Closing Date.
Effective as of the Closing, the Company shall offer employment to not
less than ninety-five percent (95%) of all Active Employees of the
Divisions on terms and conditions substantially equivalent, except
as otherwise provided in Section 9.1(d), to the terms and conditions
of the Employee's employment with the Divisions prior to the Closing
Date, to be effective on the Closing Date subject to the provisions of
Section 5.4. All Active Employees who accept employment with the
Company, except as otherwise agreed by the Company in writing, shall
be "at-will" employees. Allied shall be solely responsible for all
costs and liabilities other than those associated with the Company's
failure to reinstate an Active or Inactive Employee or a group of
Active or Inactive Employees, whether arising under statute, contract,
common law or from any other source relating to those Employees who (A)
are terminated by Allied prior to the Closing, (B) are Inactive
Employees, (C) are terminated by Allied at the Closing Date and who
decline the offer of employment to join the Company or (D) are not
offered employment by the Company. In the event that an Inactive
Employee is able to return to employment on a full-time basis after
Closing, the Company may offer employment to such Inactive Employee
on terms and conditions comparable to those of similarly situated
employees and, if such offer is accepted, the Company shall be
responsible for all terms and conditions of employment relating to
such employee relating to periods from and after the date of
commencement of employment with the Company, it being understood
that the Company shall have no liability, commitment and obligation to
any Inactive Employee unless and until such Inactive Employee is hired
by the Company in accordance with this sentence and in accordance with
applicable law.
(c) Effective as of the Closing, the Company shall adopt Employee Welfare
Benefit Plans providing benefits to its employees substantially
identical to the benefits provided to Employees of the Divisions
under Employee Welfare Benefit Plans maintained by Allied immediately
prior to the Closing. To the extent possible the Employee Welfare
Benefit Plans providing health and dental benefits adopted by the
Company shall be administered by the same providers or administrators
for the plans maintained by Allied for the Employees. For each
Employee hired by the Company and to the extent not otherwise
required by applicable law, the Company shall cause to be waived any
eligibility waiting periods and preexisting conditions, limitations or
restrictions under the Company's Employee Welfare Benefit Plans which
would not be applicable to the Employee under the corresponding Allied
Employee Welfare Benefit Plan. The Company shall give all Active
Employees who are hired by the Company credit for deductible and other
out of pocket, medical and dental costs incurred by such employees
under the comparable the Allied Employee Welfare Benefit Plans so there
is no loss of benefits or coverage under such plan. Nothing herein
shall prohibit the Company from amending, modifying, replacing or
terminating any such Employee Welfare Benefit Plans at any time after
Closing. Any such employee who, on the Closing Date, is receiving long
term disability benefits pursuant to the Allied's Employee Welfare
Benefits Plans who is disabled and has not met the required waiting
period under the Allied's Employee Welfare Benefit Plans shall not
be entitled to long term disability coverage under any such plans
established by the Company, but rather shall continue to receive such
benefits under the Allied's Employee Welfare Benefit Plans to the
extent provided therein. All claims for reimbursement of expenses
that are reimbursable under the Allied's Employee Welfare Plans and
that were incurred prior to the Closing will be the responsibility of
Allied.
(d) Except for the Middlebrooks Retirement Liability and as provided in
Section 9.2(b), the Company shall have no obligation to adopt or assume
any Employee Plans maintained by Allied and shall have no obligation to
provide benefits to employees equivalent to the benefits provided under
the Allied Products Corporation Retirement Plan, the Bush Hog Division
of Allied Products Corporation's Hourly Wage Employees Pension Plan or
any bonus, incentive compensation or stock option maintained or
provided by Allied.
(e) Allied shall take such action as is necessary to terminate the Bush Hog
Division of Allied Products Corporation Hourly Wage Employees Pension
Plan (the "Money Purchase Plan"), including without limitation,
obtaining a favorable determination letter from the Internal Revenue
Service that such termination does not affect the continuing
qualification of the Money Purchase Plan under Section 401(a) of the
Code, and to distribute to the participants, their account balances in
the Money Purchase Plan. The Company will permit Allied's employees who
become employees of the Company, and who receive an eligible rollover
distribution from the Money Purchase Plan, to rollover such
distribution into a 401(k) plan established by the Company.
9.2. 401(k) Plans.
------------
(a) Allied shall not amend the Allied Products Corporation Smart Plan (the
"Smart Plan") to eliminate or modify the Company Type D Supplemental
Contributions for Employees who are participants in the Smart Plan for
the 1999 Plan Year and Allied shall make such Company Type D
Supplemental Contributions in accordance with the terms of the Smart
Plan for Employees who are participants in the Smart Plan within the
time period required by applicable law and prior to the Transfer Date
defined below.
(b) Company agrees to establish a defined contribution plan which is
qualified under Section 401(a) and (k) of the Code (the "Company
Defined Contribution Plan"), effective no later than the Transfer Date.
In accordance with the provisions of this Section 9.2, Allied agrees to
cause the trustee ("Allied Trustee") of the Allied 401(k) Plans to
transfer to the trustee of the Company Defined Contribution Plan
("Company Trustee"), on the Transfer Date, the Total Salaried Savings
Plan Transfer Amount.
(i) As used herein the "Total Salaried Savings Plan Transfer
Amount" shall be the amount equal to the account balances in
the Allied 401(k) Plans attributable to the participants and
beneficiaries in such plan who are employees of the Company
("Company Employees") as shown on the valuation report for
valuation date occurring on, or immediately before, the
Transfer Date (including any amounts accrued as of such date
but not yet contributed to the Allied 401(k) Plans or not yet
allocated to the account of a Company Employee under the
Allied 401(k) Plans). The Total Salaried Savings Plan Transfer
Amount shall take into account any distributions, in-service
withdrawals or participant loans received by Company Employees
from the Allied 401(k) Plans, including such distributions,
withdrawals or loans received after the Closing Date. The
Total Salaried Savings Plan Transfer Amount shall be
transferred to the Company Trustee entirely in (1) cash or
other assets acceptable to the Company Trustee, and (2)
notes which represent the participant loans of Company
Employees.
(ii) The "Transfer Date" shall be the date designated by the
Company which is at least 45 days after the date Allied is
notified of such Transfer Date. In no event shall the Transfer
Date occur prior to the later of the date (x) the date Allied
has received an opinion of counsel from Company, in form and
substance satisfactory to Allied, that the Company's Defined
Contribution Plan meets the requirements under Section 401(a)
and (k) of the Code in form and in all other material
respects, and (y) the date Company has received an opinion of
counsel from Allied, in form and substance satisfactory to
Company, that the Allied 401(k) Plans each meet the
requirements under Section 401(a) and (k) of the Code in form
and in all other material respects, including
nondiscrimination with respect to the availability of
benefits, rights and features under section 401(a)(4) of the
Code and the regulations promulgated thereunder.
Article 10
Termination
-----------
10.1. Termination.
-----------
Anything contained in this Agreement to the contrary notwithstanding,
this Agreement may be terminated at any time prior to the Closing Date:
(a) By the mutual written consent of Crown and Allied;
(b) By Allied upon the material breach, inaccuracy or non-fulfillment by
Crown of any of its covenants, agreements or representations or
warranties contained herein after thirty (30) days' written notice and
opportunity to cure, which material breach, inaccuracy or
non-fulfillment would have a Material Adverse Effect;
(c) By Crown upon the material breach, inaccuracy or non-fulfillment by
Allied of any of its covenants, agreements or representations or
warranties contained herein after thirty (30) days' written notice and
opportunity to cure;
(d) By Crown, if any of the conditions set forth in Article 6 of this
Agreement have not been satisfied in all material respects on or before
February 29, 2000, and such condition or conditions have not been
waived by Crown, provided, however, that Crown is not in material
breach of this Agreement at such time;
(e) By Allied, if any of the conditions set forth in Article 7 of this
Agreement have not been satisfied in all material respects on or before
February 29, 2000, and such condition or conditions have not been
waived by Allied, provided, however, that Allied is not in material
breach of this Agreement at such time; and
(f) By Allied, if such termination is necessary to allow Allied to enter into an
agreement with respect to a Superior Proposal.
10.2. Remedies.
--------
(a) By Allied. In the event of the existence of Allied's right to terminate
---------
pursuant to Section 10.1(b) or 10.1(e) hereof, Allied may at its sole
election (i) waive such right and close (without waiving any of its
rights under Article 8), (ii) terminate the Agreement and/or (iii)
provided that the existence of such right to terminate is not solely as
a result of matters beyond the control of Crown, seek all remedies
available at law or in equity.
(b) By Crown. In the event of the existence of Crown's right to terminate
--------
pursuant to Sections 10.1(b) or 10.1(d), Crown shall at its election
either (i) waive such right and close (without waiving any of its
rights under Article 8), (ii) terminate the Agreement and/or (iii)
provided that the existence of such right to terminate is not solely as
a result of matters beyond the control of Allied, seek all remedies
available at law or in equity, including the remedy of specific
performance, it being acknowledged that the Purchased Assets and the
Divisions are unique and monetary damages would not be wholly adequate.
(c) Other. In the event that this Agreement shall be terminated pursuant to
-----
Section 10.1(a) or the failure of the conditions set forth in Sections
6.3 or 7.3, all further obligations of the parties under this Agreement
(other than Sections 11.2 and 11.8) shall be terminated without further
liability of any party to the other.
(d) In the event Allied terminates this Agreement pursuant to Section
10.1(f), Crown shall only be entitled to receive from Allied the
Termination Fee, payable by wire transfer of immediately available
funds to an account designated by Crown within two (2) business days
after Allied enters into an agreement with respect to an Alternative
Acquisition, but not later than the closing thereof.
10.3. Risk of Loss.
------------
The risk of any loss to the Assets and all liability with respect to
injury and damage occurring in connection therewith shall be the sole
responsibility of Allied until the completion of the Closing. If any part of the
Assets or any of the Real Property, damage to which would constitute a Material
Adverse Effect, shall be damaged by fire or other casualty prior to the Closing
hereunder, Crown shall have the right and option:
(a) to terminate this Agreement, without liability to Allied; or
(b) to proceed with Closing hereunder, in which event such casualty shall
not constitute a breach by Allied of any representation, warranty or
covenant in this Agreement, and, at its election, receive a credit
against the Purchase Price for the replacement value of the property so
damaged, or be entitled to receive and retain the insurance proceeds
arising from such casualty.
If any part of such properties, damage to which shall not constitute a
Material Adverse Effect, shall be damaged by fire or other casualty prior to the
completion of the Closing hereunder, Crown shall proceed with the Closing
(unless not otherwise obligated to do so pursuant to the terms hereof) and
either (1) receive a credit against the Purchase Price for the value of the
property so damaged, or (2) be entitled to receive and retain the insurance
proceeds arising from such casualty.
Article 11
General Provisions
------------------
11.1. Confidential Nature of Information.
----------------------------------
Each party hereto agrees that it will treat in confidence all
documents, materials and other information (including all Financial Statements)
which it shall have obtained regarding any other party during the course of the
negotiations leading to the consummation of the transactions contemplated
hereby, the investigation provided for herein and the preparation of this
Agreement and other related documents, and, in the event the transactions
contemplated hereby shall not be consummated, all copies of nonpublic documents
and material which have been furnished in connection therewith shall be promptly
returned to the party furnishing the same, shall continue to be treated as
confidential information and shall not be used for the benefit of the party who
returned such confidential information.
11.2. Governing Law and Forum.
-----------------------
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Illinois. All parties agree and consent that all
disputes, claims and controversies hereunder and interpretation hereof shall be
brought in the exclusive forum of the courts located in Cook County, Illinois,
and the parties agree not to remove any action from such forum or claim forum
non conveniens.
11.3. Records, Ongoing Cooperation.
----------------------------
(a) Allied and the Company shall cooperate with each other and make
available or cause to be made available to each other in a timely
fashion such records, tax data, prior tax returns and filings and other
information as may be reasonably required for the preparation by the
Company or Allied of any tax returns, elections, consents or
certificates required to be prepared and filed by the Company or Allied
and any audit or other examination by any taxing authority, or
judicial or administrative proceeding relating to liability for taxes
including, without limitation, commodity taxes, audits, sales taxes and
sales tax audits, and for the satisfaction of any obligations to
employees or former employees (including COBRA obligations). The
Company and Allied will each retain and provide to the other party all
records and other information which may be relevant to any such
obligations or tax return, audit or examination, proceeding or
determination, and will each consult with the other party on a timely
basis prior to entering any final determination of any such audit or
examination, proceeding or determination that affects any amount
required to be shown on any tax return of the other party for any
period. Without limiting the generality of the foregoing, each of the
Company and Allied will retain copies of all tax returns, supporting
work schedules and other records relating to tax periods or portions
thereof ending prior to or on the Closing Date. The Company will
provide Allied with usual and customary tax information for the tax
period beginning January 1, 1999 and ending on the Closing Date (the
"Stub Period"). Allied will prepare calendar year 1998 and the
Stub Period tax returns. The Company shall use reasonable efforts
to deliver such Stub Period tax return information to Allied not later
than February 28, 2000. The Company will provide Allied with any
necessary payroll records attributable to the period prior to the
Closing Date. The Company shall cooperate with Allied to the extent
reasonably necessary for Allied's preparation of its financial
statements and tax returns and in the sharing of financial and
accounting information with respect thereto or with respect to any
audit, examination, or other proceeding with respect thereto.
(b) Allied will continue to keep in place for a period of five (5) years
after the Closing Date (and for an additional five (5) years thereafter
to the extent Allied or its successors or assigns are still then in
business) policies of Excess, Directors and Officers and Fiduciary
Liability Insurances (for ongoing businesses) to insure Allied and the
Divisions for claims which are Excluded Liabilities and normally
insured under such policies. Allied shall cause Crown to be designated
as Additional Insured under such policies with respect to the
Post-Closing Claims. In addition, Allied shall provide Crown with
copies of policies including endorsements showing Crown's status as
Additional Insured on these policies. Such insurance carriers shall
have a "Best's Rating" of "A" and a "Financial Size" of at least "X"
or, if such ratings are not then in effect, the equivalent thereof or
such other financial rating as is reasonably acceptable to Crown.
Allied, Crown and the Company shall cooperate in the defense of all
product liability claims relating to the Divisions, including
reasonable access to all records necessary to defend such claims.
11.4. Notices.
-------
All notices or other communications required or permitted hereunder
shall be in writing in English and shall be deemed given or delivered when
delivered personally, or when sent by registered or certified mail or prepaid
overnight courier or by legible facsimile addressed as follows:
If to Crown, to: Bush Hog Investors, L.L.C.
222 North LaSalle Street, Suite 1000
Chicago, IL 60601
Attn: William H. Crown
Facsimile: 312/984-1490
with a copy to: Gould & Ratner
222 North LaSalle Street, Suite 800
Chicago, IL 60601-1086
Attn: Michael S. Allen, Esq.
Facsimile: 312/236-3241
If to Allied, to: Allied Products Corporation
10 South Riverside Plaza
Chicago, IL 60606
Attn: Corporate Secretary
Facsimile: 312/454-9608
with a copy to: Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610
Attn: William Morrison, Esq./
David A. Rubenstein, Esq.
Facsimile: 312/644-3381
If to the Company, to: Bush Hog, L.L.C.
222 North LaSalle Street, Suite 1000
Chicago, IL 60601
Attn: William H. Crown
Facsimile: 312/984-1490
and to: Allied Products Corporation
10 South Riverside Plaza
Chicago, IL 60606
Attn: Corporate Secretary
Facsimile: 312/454-9608
with a copy to: Gould & Ratner
222 North LaSalle Street, Suite 800
Chicago, IL 60601-1086
Attn: Michael S. Allen, Esq.
Facsimile: 312/236-3241
and to: Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610
Attn: William Morrison, Esq./
David A. Rubenstein, Esq.
Facsimile: 312/644-3381
or to such address as such party may indicate by a notice delivered to the other
parties hereto. Notice is deemed received the same day (in the case of personal
delivery), three (3) days after mailing (in the case of registered mail) and the
next business day (in the case of overnight courier or facsimile transmission).
11.5. Successors and Assigns.
----------------------
(a) The rights of the parties under this Agreement shall not be assignable,
except that Crown may assign all or a portion of its rights, and
delegate all or a portion of its rights, hereunder to an Affiliate or
Affiliates.
(b) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their successors and permitted assigns. Nothing in
this Agreement, expressed or implied, is intended or shall be construed
to confer upon any person other than the parties and successors and
assigns permitted by this Section 11.5 any right, remedy or claim under
or by reason of this Agreement.
11.6. Entire Agreement; Amendments.
----------------------------
This Agreement and the Schedules and Exhibits referred to herein and
the documents delivered pursuant hereto, contain the entire understanding of the
parties hereto with regard to the subject matter contained herein or therein,
and supersede all prior agreements, understandings or intents between or among
any of the parties hereto including without limitation that certain letter of
intent dated July 15, 1999 (the "Letter of Intent") by and between CCI, Henry
Crown and Company and Allied; provided, however, Section 10 of the Letter of
Intent survives this Agreement and remains binding on the parties thereto. The
parties hereto, by mutual agreement in writing, may amend, modify and supplement
this Agreement.
11.7. Waivers.
-------
Any term or provision of this Agreement may be waived, or the time for
its performance may be extended, by the party or parties entitled to the benefit
thereof. The failure of any party hereto to enforce at any time any provision of
this Agreement shall not be construed to be a waiver of such provision, nor in
any way to affect the validity of this Agreement or any part hereof or the right
of any party thereafter to enforce each and every such provision. No waiver of
any breach of this Agreement shall be held to constitute a waiver of any other
or subsequent breach.
11.8. Expenses.
--------
Each party hereto will pay all costs and expenses incident to its
negotiation and preparation of this Agreement and to its performance and
compliance with all agreements and conditions contained herein on its part to be
performed or complied with, including, without limitation, the fees, expenses
and disbursements of its counsel and accountants.
11.9. Sales and Transfer Taxes.
------------------------
Any sales, commodity and transfer taxes imposed in connection with the
transactions contemplated by this Agreement (including the transfer of the
Purchased Assets upon the Formation) shall be borne fifty percent (50%) by
Allied and fifty percent (50%) by Crown.
11.10. Execution of Counterparts.
-------------------------
This Agreement may be executed in one or more counterparts, each of
which shall be considered an original instrument, but all of which shall be
considered one and the same agreement, and shall become binding when one or more
counterparts have been agreed upon by each of the parties and delivered to
Allied and Crown.
11.11. Certain Provisions Relating to Consents.
---------------------------------------
(a) Allied shall use all reasonable efforts prior to and after the
Closing Date to obtain all third party consents that are required of
it in connection with the transactions contemplated by this Agreement.
Such consents shall include the consent to the direct transfer of the
Purchased Assets subject to the Assumed Liabilities to the Company.
Allied shall not obtain any consent that will modify any Contract,
Lease or Permit to Crown's or the Company's material economic
detriment, unless Crown or the Company expressly approves the obtaining
of such consent, which approval shall not be unreasonably withheld.
Crown and the Company shall cooperate as reasonably necessary or
desirable to secure the third party consents, including, without
limitation, providing to such third party information, including
financial information, regarding the Company's intended use of the
Purchased Assets. Allied shall cause all deposits, utilities and
telephone accounts, and similar services used in the business of the
Divisions to be assigned or reregistered to or in the name of the
Company.
(b) To the extent that any Contract or Lease is not capable of being
transferred by Allied to the Company pursuant to this Agreement without
the consent of a third party (including a Governmental Agency) and such
consent is not obtained prior to Closing, or if such transfer or
attempted transfer would constitute a breach or a violation of any law,
nothing in this Agreement will constitute a transfer or an attempted
transfer thereof.
(c) In the event that any such consent is not obtained on or prior to the
Closing Date, and notwithstanding any waiver by the Company, as the
case may be, of the condition set forth in Section 11.11(a) hereof,
Allied will use its reasonable efforts to (i) provide to the Company
the benefits of the applicable Contract or Lease, (ii) cooperate in any
reasonable and lawful arrangement designed to provide such benefits to
the Company and (iii) enforce at the request of the Company and for the
account of the Company at Allied's expense, any rights of Allied
arising from any such Contract or Lease (including the right to elect
to terminate such Contract or Lease in accordance with the terms
thereof upon the request of the Company, as the case may be).
(d) Except to the extent arising from a breach of this Agreement by Allied,
the Company shall bear all costs, fees or expenses paid in connection
with (a) transferring Permits, (b) obtaining new Permits and which
shall include Permits that are temporary in nature to allow the
transfer of such to the Company or any subsequent Permits which are
permanent in nature to enable the Company to operate and continue to
operate the Business or to continue to operate the Business in the
manner as it is currently being conducted, or (c) modification or
alteration of the business of the Divisions or the Purchased Assets or
any capital purchase or expenditure deemed necessary and advisable or
requested or required by any Governmental Agency in order to obtain
such Permit.
11.12. Litigation Support.
------------------
In the event and for so long as any party actively is contesting or
defending against any charge, complaint, action, suit, proceeding, hearing,
investigation, claim or demand in connection with (a) any transaction
contemplated under this Agreement or (b) any fact, situation, circumstance,
status, condition, activity practice, plan, occurrence, event, incident, action,
failure to act or transaction on or prior to the Closing Date involving Allied,
the other party will cooperate with the contesting or defending party and its
counsel in such contest or defense, make available its personnel, and provide
such testimony and access to its books and records as may be necessary in
connection with the contest or defense, at the sole cost and expense of the
contesting or defending party (unless the contesting or defending party is
entitled to indemnification therefor under Article 8). With respect to the
Discrimination Suit, Crown and the Company (i) will waive any conflict arising
from Allied's use of Constangy, Brooks & Smith as its counsel, (ii) will
cooperate in the defense thereof by counsel of their choice, (iii) will be
allowed to participate in any settlement discussions whether or not they are
parties to the suit and whether occurring before or after the Closing Date.
Prior to any settlement of the Discrimination Suit, Allied must obtain the
consent of Crown and Company, which consent shall not be unreasonably withheld
and which consent will be given by Crown and Company if (A) the settlement does
not include deferred payments by Allied with are not adequately secured and for
which the Company could be liable if Allied fails to make such payments, and (B)
the settlement as it relates to the Company's obligation or liability includes
not more than (1) the reasonable hiring and promotion of qualified persons to
open positions, and (2) reasonable changes in employment practices which may
include future, but not retroactive, pay raises to be provided by the Company
and the Company's obligation or liability will not have a Material Adverse
Effect on the business of the Company. With respect to the Discrimination Suit,
Allied (x) will waive any conflict arising from Crown's or the Company's use of
Gould & Ratner and/or Constangy, Brooks & Smith as their counsel, (y) will pay
all legal fees of defense (and court costs, including such fees and costs of
Crown and the Company, whether or not the Company is joined as a party), except
to the extent resulting from actions of the Company alleged to have occurred
after the Closing including, without limitation, violations of consent decrees,
court orders and settlement agreements. In addition, Allied will pay all
monetary damages (whether by judgment or settlement) including, without
limitation, any costs or expenses reasonably incurred by the Company in order to
comply with such settlement or judgment, and the Company will be solely
responsible for implementing any actions required (whether by judgment or a
settlement approved by Crown) which may be required of the Company with respect
to changes in employment practices.
Article 12
Definitions
-----------
12.1. "A/R List".
Refers to a list of all account debtors and the amounts owed to the
Divisions, together with the names and addresses of such account debtors and the
aging of such amounts.
12.2. "Accounts Payable".
Refers to the trade accounts payable to vendors of the Company.
12.3. "Accounts Receivable".
Refers to the trade and other accounts and notes receivable related to
the Divisions.
12.4. "Accrued Commissions".
Has the meaning set forth in Section 1.3(b).
12.5. "Accrued Payroll Items".
Has the meaning set forth in Section 1.3(a).
12.6. INTENTIONALLY OMITTED .
12.7. "Active Employees".
Refers to Employees actively working for the Divisions as of the
Closing.
12.8. "Adjusted Current Assets".
Has the meaning set forth in Section 1.5(a)(i)(A).
12.9. "Adjusted Current Liabilities".
Has the meaning set forth in Section 1.5(a)(i)(B).
12.10. "Adjustment Report".
Refers to the report generated by Allied and/or Allied's Accountant
reflecting the Closing Date Adjusted Net Tangible Investment, the Closing Date
Adjusted Working Capital and the Closing Date Long Term Assumed Liabilities.
12.11. "Affiliate".
Of a Person refers to any other Person directly or indirectly owning,
controlling or holding, with power to vote, ten percent (10%) or more of the
outstanding voting securities of such first-named Person; and any other Person
ten percent (10%) or more of whose outstanding voting securities are directly or
indirectly controlled by or under common control with or of such first-named
Person. As used herein, the term "control," together with "controlled,"
"controlling" or similar variants used herein, refers to the possession,
directly or indirectly, of the power to direct or cause the direction and
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise and includes all directors and executive
officers thereof.
12.12. "Agreement".
Refers to this Limited Liability Company Interest Purchase and Asset
Contribution Agreement.
12.13. "Allied".
Refers to Allied Products Corporation, a Delaware corporation.
12.14. "Allied 401K Plans".
Refers to the Allied Products Corporation Smart Plan and the Allied
Products Corporation Savings Incentive Plan for Bush Hog Salaried Employees.
12.15. "Allied's Accountant".
Refers to Price Waterhouse Coopers, its independent public accounting
firm.
12.16. "Allied Group".
Has the meaning set forth in Section 8.2.
12.17. "Allied Trustee".
Has the meaning set forth in Section 9.2(b).
12.18. "Alternative Acquisition".
Has the meaning set forth in Section 4.8
12.19. "Annual Statement".
Has the meaning set forth in Section 2.5.
12.20. "Arbiter".
Refers to any nationally-recognized accounting firm mutually
satisfactory to Crown and Allied.
12.21. "Assets".
Refers to all of the assets owned or used by the Divisions.
12.22. "Assumed Liabilities".
Has the meaning set forth in Section 1.3.
12.23. "Banks".
Has the meaning set forth in Recital C.
12.24. "Bank Lien"
Has the meaning set forth in Recital C.
12.25. "Base Adjusted Net Tangible Investment".
Means the December 31, 1998 Adjusted Net Tangible Investment of
$23,852,000, which was computed as set forth on Schedule 1.5(a) attached hereto.
12.26. "Base Adjusted Working Capital"
Shall equal Fifty Nine Million Twenty Two Thousand Dollars
($59,022,000), as determined pursuant to Schedule 1.5(a).
12.27. "Base Long Term Assumed Liabilities".
Means the December 31, 1998 Long Term Assumed Liabilities of $1,411,000
which were computed as set forth on Schedule 1.5(a) attached hereto.
12.28. "Bond Trustee".
Has the meaning set forth in Section 1.4(d).
12.29. "Bond Trust Indenture".
Has the meaning set forth in Section 1.4(d).
12.30. "Capitalized Leases"
Refers to the capitalized leases set forth on Schedule 1.5(a) and any
other capitalized leases of Allied.
12.31. "Chicago Office".
Refers to Allied's corporate office at 10 South Riverside Plaza,
Chicago, IL 60606.
12.32. "Claiming Party".
Refers to the party seeking indemnification under Article 8.
12.33. "Closing" and "Closing Date".
Each refer to the date and time referred to in Section 1.6 for the
completion of the purchase of the Interests.
12.34. "Closing Date A/R".
Refers to a statement in good faith valuing the net book value under
GAAP of the Accounts Receivable as of the Closing Date.
12.35. "Closing Date Adjusted Net Tangible Investment".
Has the meaning set forth in Section 1.5(a).
12.36. "Closing Date Adjusted Working Capital".
Has the meaning set forth in Section 1.5(a).
12.37. "Closing Date Balance Sheet".
Has the meaning set forth in Section 1.5(a)(iv)(A).
12.38. "Closing Date Long Term Assumed Liabilities".
Has the meaning set forth in Section 1.5(a)(iii).
12.39. "Closing Date Middlebrooks Retirement Liability".
Has the meaning set forth on Schedule 1.5(a).
12.40. "Closing Date Capitalized Tractor Lease Obligations".
Has the meaning set forth on Schedule 1.5(a).
12.41. "Code".
Refers to the U.S. Internal Revenue Code of 1986, as amended, and any
successor provision.
12.42. "Commitments".
Refers to title insurance commitments for an ALTA Owners Form-1992
policy.
12.43. "Company Defined Contribution Plan".
Has the meaning set forth in Section 9.2(b).
12.44. "Company Employees".
Has the meaning set forth in Section 9.2(b)(i).
12.45. "Company Trustee".
Has the meaning set forth in Section 9.2(b).
12.46. "Contracts".
Has the meaning set forth in Section 12.120(c).
12.47. "Credit Agreement".
Has the meaning set forth in Recital C.
12.48. "Current Product Lines".
Has the meaning set forth in Section 2.32.
12.49. "Crown"
Refers to Bush Hog Investors, L.L.C., a Delaware limited liability
company.
12.50. "Crown Group".
Has the meaning set forth in Section 8.1.
12.51. "December 31, 1998 Balance Sheet".
Refers to the Divisions' balance sheet dated as of December 31, 1998.
12.52. "Discrimination Suit".
Has the meaning set forth in Section 1.4(n).
12.53. "Divisions".
Refers to Allied's Bush Hog (including Universal Turf) and Great Bend
Manufacturing Company divisions.
12.54. "Divisions Agreements".
Refers to the contracts, agreements, leases, distribution agreements,
dealer agreements and franchise agreements, whether or not constituting one of
the Contracts, which are binding on or a benefit to the Divisions.
12.55. "Employees".
Refers to the common law employees of Allied who performed services for
the Divisions.
12.56. "Employee Pension Benefit Plans".
Refers to the Employee Plans described in Section 3(2) of ERISA.
12.57. "Employee Welfare Benefit Plans".
Refers to the Employee Plans described in Section 3(1) of ERISA.
12.58. "Enforceability Exceptions".
Has the meaning set forth in Section 2.4.
12.59. "Environmental Health and Safety Laws".
Has the meaning set forth in section 2.18.
12.60. "Environmental Review".
Refers to a phase I environmental assessment of each parcel of Owned
Real Property and Leased Real Property included in the Assets (or otherwise used
in the Divisions).
12.61. "EEOC".
Refers to the Equal Employment Opportunity Commission.
12.62. "ERISA".
Refers to the Employee Retirement Income Security Act of 1974, as
amended.
12.63. "ERISA Affiliate".
Has the meaning set forth in Section 2.26.
12.64. "Estimated Adjustments".
Has the meaning set forth in 1.5(a)(iv)(E).
12.65. "Estimated Purchase Price".
Refers to the portion of the Purchase Price to be paid at Closing set
forth in Section 1.5(a).
12.66. "Estoppel Certificate".
Refers to a current estoppel certificate from the landlord under each
lease for Leased Real Property, and each other party referred to on Schedule
2.10(b), stating (i) that such real property lease for Leased Real Property is
in full force and effect and has not been amended, modified or supplemented
other than as set forth on Schedule 2.10(b), and that a true, complete and
correct copy is attached thereto (ii) that all rent and other sums and charges
payable under such lease are current and setting forth the date through which
such payments have been made, (iii) the amount of any tenant security or other
similar deposit held by or on behalf of such landlord under such lease, (iv)
that no notice of default on the part of Allied or the Divisions or termination
notice has been served under the lease for such Leased Real Property that
remains outstanding, (v) that to the best of such landlord's knowledge, no
uncured default or termination event or condition exists under such lease and
that no event has occurred or condition exists that, with the giving of notice
or the lapse of time or both, would constitute such a default or termination
event or condition and (vi) that the consummation of the transactions provided
for herein will not constitute a default under such lease or grounds for the
termination thereof or for the exercise of any other right or remedy adverse to
the interests of the tenant thereunder.
12.67. "Excluded Assets".
Has the meaning set forth in Section 1.2.
12.68. "Excluded Liabilities".
Has the meaning set forth in Section 1.4.
12.69. "Existing Liens".
Refers only to the Bank Lien and those Liens described on Schedule
2.10(a).
12.70. "Final Adjusted Net Tangible Investment".
Has the meaning set forth in Section 1.5(a)(iv)(C).
12.71. "Final Long Term Assumed Liabilities".
Has the meaning set forth in Section 1.5(a)(iv)(C).
12.72. "Final Middlebrooks Retirement Liability".
Has the meaning set forth in Section 1.5(a)(iv)(C).
12.73. "Final Adjusted Working Capital".
Has the meaning set forth in Section 1.5(a)(iv)(C).
12.74. "Financial Statements".
Has the meaning set forth in Section 2.5.
12.75. "Fixed Assets".
Has the meaning set forth in Section 12.120(a).
12.76. "Formation".
Refers to the formation of the Company as a Delaware limited liability
company.
12.77. "GAAP".
Shall mean generally accepted accounting principles consistently
applied by the Divisions from and after 1995 so described and promulgated by the
American Institute of Certified Public Accountants which are applicable as of
the date on which any calculation made hereunder is to be effective or as on the
date of any financial statements referred to herein, as the case may be.
12.78. "Governmental Agency".
Shall mean (a) any international, foreign, federal, state, county,
local or municipal government or administrative agency or political subdivision
thereof, (b) any governmental agency, authority, board, bureau, commission,
department or instrumentality, (c) any court or administrative tribunal, (d) any
non-governmental agency, tribunal or entity that is vested by a governmental
agency with applicable jurisdiction, or (e) any arbitration tribunal or other
non-governmental authority with applicable jurisdiction.
12.79. "Governmental Charges".
Means and includes all federal, state, provincial, municipal, local and
foreign income taxes, commodity taxes, payroll taxes, sales taxes, excise taxes,
training taxes, withholding taxes, property taxes, use taxes, and franchise
taxes and all other taxes, customs duties, rates, levies, assessments,
reassessments and other charges, together with all penalties, interest and fines
with respect thereto, payable to any federal, state, provincial, municipal,
local and foreign or other government or governmental agency, authority board,
bureau or commission, domestic or foreign, including all amounts described in
Code Sections 144(a), 147 and 148.
12.80. "Great Bend Bonds".
Has the meaning set forth in Section 1.4(d).
12.81. "Hazardous Materials".
Has the meaning set forth in Section 2.18(a).
12.82. "Inactive Employees".
Refers to Employees of the Divisions who are not classified as Active
Employees as of the Closing Date due to a leave, disability or other physical or
mental condition.
12.83. "Indemnifiable Damages".
Has the meaning set forth in Section 8.1.
12.84. "Indemnity Security Agreement".
Has the meaning set forth in Section 8.1.
12.85. "Intellectual Property Rights".
Individually and collectively, refers to lists, telephone numbers, URL,
website, copyrights, copyright registrations and applications therefor, all
registrations of trademarks, trade names, brand names, labels or other trade
rights and pending applications therefor, service refers to all of Allied's
inventions, improvements, domestic and foreign patents and applications
therefor, customer marks, trade dress, logos, rights in computer software, and
all rights granted or retained in licenses under any of the foregoing and all
other know-how used in connection with the business of the Divisions, including,
but not limited to, confidential, secret and/or proprietary information, all
technical information, inventions, designs and patents, whether or not
patentable, which are used by Allied in connection with the business of the
Divisions.
12.86. "Intercompany Agreements".
Refers to any agreements, commitments and other obligations between the
Divisions, on the one hand, and Allied and their Affiliates, on the other hand.
12.87. "Interests".
Refers to the 80.1% membership interest in the Company to be sold by
Allied to Crown pursuant to Section 1.5.
12.88. "Interim Statements".
Refers to the unaudited interim balance sheets of the kind contemplated
in Section 2.5(i) for the Divisions for each month and three month period
(together with year-to-date statements) beginning with the statements for the
month ending June 30, 1999 and through the month preceding the Closing.
12.89. "Inventory".
Has the meaning set forth in Section 12.120(e).
12.90. "Lease".
Refers to all leases related to the business of the Divisions to
which Allied is either a lessor or lessee on the Closing Date.
12.91. "Leased Real Property".
Refers to Real Property owned by any third party and which Allied or
any Affiliate thereof is lessee thereof.
12.92. "Letters of Credit".
Refers to Allied's letters of credit that are open and have either a
remaining term or an undrawn amount.
12.93. "Letter of Intent".
Has the meaning set forth in Section 11.6.
12.94. "Licenses"
Has the meaning set forth in Section 12.120(d).
12.95. "Liens"
Refers to any mortgage, pledge, security interest, charge or other
encumbrance, claims, easements, defects in title, covenants and other
restrictions or encroachments of any kind.
12.96. "Limited Liability Company Agreement".
Refers to the Limited Liability Company Agreement between Allied and
Crown forming the Company.
12.97. "Manufacturing Lease".
Has the meaning set forth in Section 1.7(a)(xiv).
12.98. "Material Adverse Effect".
Refers to a material adverse change in the business, operations,
financial condition, assets, properties or prospects of either or both
Divisions.
12.99. "Middlebrooks Retirement Liability".
Has the meaning set forth in Section 1.3(i).
12.100. "Money Purchase Plan".
Has the meaning set forth in Section 9.1(e).
12.101. "Most Recent Balance Sheet".
Refers to the unaudited Statement of Assets and Liabilities of the
Divisions as of June 30, 1999, prepared in accordance with GAAP, consistently
applied, except as noted therein.
12.102. "Non-claiming Party".
Refers to the party from whom the Claiming Party is seeking
indemnification.
12.103. "Non-Competition Agreement".
Has the meaning set forth in Section 5.1.
12.104. "Objection Notice".
Refers to the written notice delivered by Crown to Allied delineating
in reasonable detail Crown's objections to the Closing Date Balance Sheet.
12.105. "Offices".
Refers to the Divisions' sales, services and administrative offices at
Selma, Alabama and Great Bend, Kansas.
12.106. "Other Assumed Capitalized Leases".
Has the meaning set forth in Section 1.3(c).
12.107. "Owned Real Property".
Has the meaning set forth in Section 2.10(a).
12.108. "Permit".
Refers to any permit, approval, authorization, license, variance, or
permission required by a Governmental Agency under any applicable laws.
12.109. "Permitted Exceptions".
Refers to all of the Real Estate Permitted Exceptions and Personal
Property Permitted Exceptions.
12.110. "Person".
Refers to an individual, corporation, partnership, firm, joint venture,
syndicate, association, trust, government, governmental agency or board or
commission or authority or any other form of entity or organization.
12.111. "Personal Property Existing Liens".
Refers only to those certain Existing Liens described on Schedule 2.9.
12.112. "Personal Property Permitted Exceptions".
Refers only to those certain Personal Property Existing Liens described
on Schedule 2.14.
12.113. "Plants".
Refers to the Divisions' manufacturing facilities and offices in Great
Bend, Kansas, Selma, Alabama, and Opp, Alabama.
12.114. "Post-Closing Claims".
Refers to those claims brought against Allied and/or the Divisions
subsequent to the Closing Date.
12.115. " Pre-Acquisition Liabilities".
Has the meaning set forth in Section 1.3(h).
12.116. "Prepaids".
Refers to the security deposits and prepaid expenses relating to the
Divisions.
12.117. "Product".
Refers to any product, substance or material manufactured, distributed
or sold by or on behalf of the Divisions or their predecessors.
12.118. "Purchase Price".
Has the meaning set forth in Section 1.5(a).
12.119. "Purchase Price Allocation Schedule"
Has the meaning set forth in Section 1.5(d).
12.120. "Purchased Assets".
Refers to all of the assets and rights of every type or description
whatsoever which are primarily used by, or useful in, the business, affairs or
operations as a going concern of the Divisions as of Closing, including without
limitation, information and tangible assets located at the Chicago Office, free
and clear of all liens, security interests, prior claims, charges, pledges,
encumbrances, claims and equities of every kind except for the Permitted
Exceptions, subject to the Assumed Liabilities including, without limitation,
the following set forth in clauses (a) through (f) below, but excluding the
Excluded Assets.
(a) Fixed Assets. All fixed tangible personal and moveable property of
-------------
every type or description used in connection with the Divisions,
wherever located, and owned, used or leased on the Closing Date,
including without limitation, all machinery, equipment, furniture,
fixtures, tools, dies, patterns, molds, vehicles, facilities,
improvements, computer hardware and all spare parts, accessories and
supplies related thereto ("Fixed Assets"), including, without
limitation, the Fixed Assets identified on Schedule 12.120(a) attached
hereto and made a part hereof.
(b) Real Property. All real or immovable property and fixtures of every
--------------
type or description, whether freehold or leasehold, used in connection
with the Divisions and owned now or on the Closing Date, including
without limitation the Plants and Offices and such other Owned Real
Property identified on Schedule 12.120(b) attached hereto and made a
part hereof, including without limitation all improvements, fixtures,
options and rights and all other appurtenances thereto and rights in
respect thereof.
(c) Leases, Contracts, Options and Other Obligations. All leases,
------------------------------------------------
contracts, agreements, options, manufacturer's warranties, securities
in other businesses which are useful in or related to the Divisions
and other rights related to the Divisions existing on the date hereof,
other than the office lease for the Chicago Office ("Contracts"),
as set forth on Schedule 12.120(c) attached hereto and made a part
hereof, except for Contracts with Allied or Affiliates unless agreed to
in writing by Crown. To the extent that Allied enters into additional
leases, contracts and agreements between the date hereof and the
Closing, which additional leases, contracts and agreements are
entered into in the ordinary course of business and in accordance with
Section 4.2(c) hereof, Allied will update such Schedule and such
additional leases, contracts and agreements shall also be included
within the definition of Contracts.
(d) Licenses and Certificates. To the extent transferable, all
-----------------------------
authorizations, grants, permits and other licenses, including, without
limitation, all licenses and certificates from the federal, state and
local authorities issued in connection with, or used by, the Divisions
("Licenses"), including, without limitation, the Licenses identified on
Schedule 12.120(d) attached hereto and made a part hereof.
(e) Current Assets. All current assets relating to the Divisions of every
---------------
type or description. Prepaids (to the extent specifically agreed to be
purchased by Crown), the Accounts Receivable, and all new and used
inventories (including raw materials, work-in-process and finished
goods) and samples, supplies and spare parts related thereto of all
products sold by the Divisions whether at the Plant, Office, outside
warehouses or in transit thereto or therefrom (the "Inventory").
(f) Other Assets and Rights. All other personal property of every type or
-----------------------
description used in the Divisions, whether tangible or intangible,
including, without limitation, computer software (including source and
object codes), accounting data, trade secrets, catalogues, customer
lists, mailing lists, supplier lists, all rights under life insurance
policies, all of Allied's rights to indemnification against Great Bend
and Universal Turf pursuant to the respective purchase agreements
thereto, the trademarks "Bush Hog" and "Great Bend", associated logos,
and the goodwill associated therewith, and all other Intellectual
Property Rights, rights under acquisition agreements whereby Allied
and/or Affiliates acquired the Assets, rights under any pending
lawsuits or claims, books and records (including such books and
records as are contained in computerized storage media), and including
books and records related to Inventory, purchasing, accounting, sales,
research, engineering, manufacturing, maintenance, repairs, marketing,
banking, Intellectual Property, the Non-Competition Agreement referred
to in Section 5.1, shipping records, personnel files for all active
employees and all files, records, literature and correspondence
(provided, however, that Allied shall be entitled to make and retain
copies of such books and records to the extent they relate to Excluded
Assets or Excluded Liabilities), and other tangible and intangible
property, including goodwill and covenants not to compete, rights of
setoff and rights of recoupment of the Divisions and of causes of
action against third parties as of the Closing Date, and all rights of
Allied under any property, casualty, workers' compensation or other
insurance policy or related insurance services contract which are part
of the Contracts.
12.121. "Real Estate Existing Liens".
Refers only to those certain Existing Liens described on Schedule
2.10(a), paragraph 3.
12.122. "Real Estate Permitted Exceptions".
Refers only to those certain Real Estate Existing Liens described on
Schedule 2.10(a), paragraph 4.
12.123. "R&D Lease".
Has the meaning set forth in Section 1.7(a)(xv).
12.124. "Recalls".
Refers to, collectively, Product recalls, reworks, retrofits and
post-sale warnings.
12.125. "Remediation Costs".
Refers to the costs of any remedial actions reasonably necessary to
comply with the Environmental Health and Safety Laws.
12.126. "Sales Representatives".
Has the meaning set forth in Section 2.31.
12.127. "Series A Bonds".
Has the meaning set forth in Section 1.4(d).
12.128. "Series B Bonds".
Has the meaning set forth in Section 1.4(d).
12.129. "Services".
Collectively refers to the systems, processes, products, equipment and
services of the Divisions (including, but not limited to, all Intellectual
Property and any software embedded in any products and equipment).
12.130. "Significant Customers".
Refers to the [ten (10)] largest customers (measured by dollar volume
of business).
12.131. "Stub Period".
Has the meaning set forth in Section 11.3(a).
12.132. "Superior Proposal".
Has the meaning set forth in Section 4.8.
12.133. "Surveys".
Refers to current plats of survey prepared in conformity with 1997
ALTA/ACSM Standards.
12.134. "Termination Fee".
Means $5,000,000.
12.135. "Total Salaried Savings Plan Transfer Amount".
Has the meaning set forth in Section 9.2(b)(i).
12.136. "Tractor Leases".
Refers to those truck tractor leases described on Schedule 1.5(a).
12.137. "Transfer Date".
Has the meaning set forth in Section 9.2(b)(ii).
12.138. "Year 2000 Readiness".
Means that the Services used in the Divisions' business will correctly
identify, recognize and process four-digit year dates and that the Services
will: (1) continue to function properly with regard to dates before, during and
after the transition to year 2000 including, but not limited to, the ability to
roll dates from December 31, 1999 to January 1, 2000 and beyond with no errors
or system interruptions; (2) accurately perform calculations and comparisons on
dates that span centuries; (3) accept and properly process dates that could span
more than 100 years (e.g., calculating a person's age from their birth date and
the current date); (4) properly sort and sequence dates that span centuries; (5)
understand that the year 2000 starts on a Saturday; (6) recognize that February
29, 2000 is a valid date and that the Year 2000 has 366 days; (7) prohibit use
of date fields for any purpose other than to store valid dates; (8) preclude the
use of 12/31/99 or any other valid date to indicate something other than a date
(e.g., 12/31/99 in a date field refers to "do not ever cancel"); and (9) comply
with and conform to the specifications of American National Standard ANSI
X3.30-1997, Representation for Calendar Date and Ordinal Date for Information
Interchange.
--Balance of page intentionally left blank.--
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first written above.
CROWN:
------
BUSH HOG INVESTORS, L.L.C., a Delaware
limited liability company
By: Henry Crown and Company (Not
Incorporated), an Illinois limited
partnership, its manager
By: /s/ William H. Crown
--------------------
a General Partner
ALLIED:
-------
ALLIED PRODUCTS CORPORATION, a
Delaware corporation
By: /s/ Richard Drexler
-------------------
Its: President
COMPANY:
--------
BUSH HOG, L.L.C., a Delaware limited
liability company
By: Allied Products Corporation
Its: Manager
By: /s/ Richard Drexler
-------------------
Its: President
THIRD AMENDMENT AND WAIVER DATED AS OF OCTOBER 15, 1999
TO CREDIT AGREEMENT DATED AS OF FEBRUARY 1, 1999
This Third Amendment and Waiver (this "Amendment"), dated as
of October 21, 1999, is made by and among ALLIED PRODUCTS CORPORATION, a
Delaware corporation (the "Company"), the financial institutions parties hereto
(the "Banks"), and Bank of America, N.A. (formerly known as Bank of America
National Trust and Savings Association), as agent for the Banks (in such
capacity, the "Agent"). Terms defined in the Credit Agreement (as hereinafter
defined) shall have the same respective meanings when used herein and the
provisions of Section 13 of the Credit Agreement shall apply 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") which
provides, subject to the terms thereof, for the Banks to extend credit to the
Company (in the form of Revolving Loans or Letters of Credit) through November
29, 1999;
WHEREAS, pursuant to that certain letter agreement ("Bush Hog
Letter of Intent") dated July 15, 1999 among the Company, CC Industries, Inc.
and Henry Crown and Company, the parties thereto agreed, subject to reaching a
definitive agreement ("Definitive Agreement"), to form a joint venture that
would own and operate the Bush Hog and Great Bend Manufacturing Company
divisions (collectively "Divisions") of the Company through a newly formed
Delaware limited liability company ("Newco" and sometimes also called "Bush Hog,
L.L.C.");
WHEREAS, on or about October 21, 1999 the Company, Bush Hog,
L.L.C. and Bush Hog Investors, L.L.C., a Delaware limited liability company
("Crown") entered into the Definitive Agreement entitled Limited Liability
Company Interest Purchase and Asset Contribution Agreement dated as of October
21, 1999 (the "Purchase Agreement"), which provides, among other things, for the
Company to (i) form Newco and initially own 100% of the membership interests
therein (the "Newco Formation"), (ii) contribute to Newco assets (the "Purchased
Assets") representing substantially all of the assets (other than Excluded
Assets as defined in the Purchase Agreement) of the Divisions, subject to
various Assumed Liabilities (as defined in the Purchase Agreement) and further
subject to various Permitted Exceptions (as defined therein), including the
liens of the Agent pursuant to the Collateral Documents (the "Newco
Contribution"), (iii) on or before December 31, 1999, sell to Crown 80.1% of the
limited liability interests in Newco (the "Crown Interests") for a cash purchase
price of approximately $120,000,000, subject to adjustment as provided in the
Purchase Agreement (such sale being herein called the "Newco Sale"), and (iv)
the Company and Crown to enter into a Limited Liability Company Agreement (the
"Newco Operating Agreement, and together with the Newco Formation, the Newco
Contribution, and the Newco Sale, collectively, the "Newco Transactions");
WHEREAS, the Company has requested that the Banks (i) amend
the Credit Agreement so as to, among other things, extend the Revolving
Termination Date to December 31, 1999, (ii) consent to the Newco Transactions,
(iii) waive the Company's non-compliance as of certain dates with the cash flow
and fixed charge covenants, and (iv) agree to certain other modifications to the
Credit Agreement as described herein; and
WHEREAS, the Banks and the Agent are willing to so consent and
to so amend and modify the Credit Agreement, subject to 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 are hereby acknowledged), the parties
hereto, intending legally to be bound, hereby agree as follows:
I. AMENDMENT
---------
The Credit Agreement is hereby amended as follows:
1.1 Commitment. Section 1.1.3 of the Credit Agreement is
----------
amended so that the table therein shall read in its entirety:
DATE OR PERIOD AMOUNT
-------------- ------
February 1, 1999 through March 31, 1999 $140,000,000
April 1, 1999 through December 30, 1999 $135,000,000
December 31, 1999 Zero
1.2 Operating Cash Flow. 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 calendar month, not permit its
Consolidated Operating Cash Flow (measured monthly on a
cumulative basis for the related calendar year), to be less
than the amount applicable to such calendar month as follows:
Calendar Month Ending Amount
--------------------- ------
August 31, 1999 $ 518,000
September 30, 1999 $ 3,284,000
October 31, 1999 $ 1,621,000
November 30, 1999 $ 2,589,000
1.3 Newco. Section 10.22 is amended by adding thereto
------
Section 10.22(c) as follows:
(c) Without limitation of the foregoing, the Company
agrees that it will (i) execute and deliver to the Agent the
Company Pledge Agreement and (ii) cause Newco to execute and
deliver to the Agent the Newco Security Agreement, and the
Newco Guaranty, in each case accompanied by such supporting
documents as the Agent shall require.
1.4 Borrowing Base Overadvance. Section 13 of the Credit
----------------------------
Agreement is amended by adding the following at the bottom of the table
in the definition of Borrowing Base Overadvance:
December 1999 $60,754,000
1.5 Extension of Revolving Termination Date. Section 13 of the
---------------------------------------
Credit Agreement is further amended so that the definition of Revolving
Termination Date shall read in its entirety as follows:
Revolving Termination Date shall mean December 31,1999.
1.6 Collateral Documents. Section 13 of the Credit Agreement
---------------------
is further amended by adding thereto the following definitions:
Company Collateral Documents shall mean all Collateral
----------------------------
Documents to which the Company is a party or signatory.
Company Pledge Agreement shall mean the Pledge
---------------------------
Agreement of the Company, substantially in the form of Exhibit F, as
the same may be amended or modified from time to time.
Company Pledge Agreement (Deposit Accounts) shall
----------------------------------------------
mean the Pledge Agreement (Deposit Accounts) dated as of May 12,1999
of the Company, a copy of which is attached in the form of Exhibit G,
as the same may be amended or modified from time to time
Company Security Agreement shall mean the Security
----------------------------
Agreement dated as of May 12, 1999 of the Company, a copy of which
is attached in the form of Exhibit H, as the same may beamended or
modified from time to time.
Newco shall mean Bush Hog L.L.C.
-----
Newco Collateral Documents shall mean all Collateral
--------------------------
Documents to which Newco is a party or signatory.
Newco Guaranty shall mean the Guaranty Agreement of
--------------
Newco, substantially in the form of Exhibit I, as the same may be
amended or modified from time to time.
Newco Security Agreement shall mean a Security
------------------------
Agreement of Newco, substantially in the form of Exhibit J, as the
same may be amended or modified from time to time.
1.7 Loan Documents. Section 13 of the Credit Agreement is
--------------
further amended by adding the following at the end ofthe definition
of Loan Documents:
The term "Loan Documents" includes, without limitation,
all Collateral Documents.
1.8 Subsidiary Definition. Section 13 of the Credit Agreement
----------------------
is further amended by adding the following at the end of the
definition of Subsidiary:
The term "Subsidiary" includes, without limitation, Bush Hog,
L.L.C.
1.9 Exhibits. The Credit Agreement is further amended by
--------
adding thereto Exhibits F, G, H, I, J and K in the forms attached
hereto.
II. CONSENTS AND RELEASES
---------------------
2.1 Consent to Newco Formation. Notwithstanding Sections 10.14
--------------------------
of the Credit Agreement, the Banks hereby consent to the Newco Formation, such
consent being subject to the conditions specified in Section 4.2 of this
Amendment.
2.2 Consent to Newco Contribution. Notwithstanding Section
------------------------------
10.14 of the Credit Agreement, the Banks hereby consent to the Newco
Contribution, such consent being subject to (i) the conditions specified in
Section 4.2 of this Amendment, (ii) the condition that the Newco Contribution
shall not occur until immediately prior to the consummation of the Newco Sale,
and (iii) the condition that until the release by the Agent pursuant to Section
2.5 of this Amendment, the Agent shall continue to have a first perfected
security interest in all of the assets of Newco (other than real estate
interests which are not fixtures).
2.3 Consent to Newco Sale. Notwithstanding Section 10.13 of
---------------------
the Credit Agreement, the Banks hereby consent to the Newco Sale, subject to (i)
the receipt by the Agent of immediately available funds (not to be less than
$118,000,000) representing the Net Sale Proceeds of the Bush Hog Purchase Price
and (ii) the application thereof to the payment or prepayment of the Liabilities
pursuant to Section 6.3 of the Credit Agreement.
2.4.Consent to Newco Operating Agreement. Notwithstanding
--------------------------------------
Sections 10.13 and 10.14 of the Credit Agreement, the Banks hereby consent to
the execution by the Company and Newco of the Purchase Agreement and the Newco
Operating Agreement.
2.5 Releases. Concurrently with the receipt by the Agent of
--------
immediately available funds (not to be less than $118,000,000) representing the
Net Sale Proceeds of the Bush Hog Purchase Price, the Agent shall (and the Banks
hereby direct the Agent to), (i) release the security interest of the Agent in
the assets of Newco and in the assets of the Company representing the Crown
Interests, and (ii) release the Newco Guaranty, all pursuant to a Release to be
executed by the Agent substantially in the form of Exhibit K hereto (it being
understood, however, that the Agent shall retain its security interest in all of
the assets of the Company not hereinabove specifically released).
III. WAIVER
------
3.1 Waiver. The Banks hereby waive (i) noncompliance by the
------
Company as of August 31, 1999 and September 30, 1999 with the minimum
consolidated operating cash flow provision of Section 10.5.2 of the Credit
Agreement, and (ii) noncompliance by the Company for the Fiscal Quarter ended
September 30, 1999 with the fixed charge coverage provision of Section 10.7 of
the Credit Agreement.
3.2 Limitation on Waiver. Except as specifically set forth in
--------------------
Section 3.1 hereof, the foregoing waiver is specific in time and in intent and
does not constitute, nor shall it 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 the foregoing waiver preclude other or further exercise of any right, power
or privilege under this Amendment or the exercise of any other right, power or
privilege, nor shall the 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.
IV. GENERAL
-------
4.1 Representations. The Company hereby represents and
---------------
warrants to the Banks and the Agent that:
(a) The Company is a corporation duly existing and in good
standing under the laws of Delaware.
(b) Newco is a limited liability company duly existing and in
good standing under the laws of Delaware.
(c) The execution, delivery and performance by the Company of
this Amendment and the Company Collateral Documents are within the
Company's power and 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.
(d) The execution, delivery and performance by Newco of the
Newco Collateral Documents are within Newco's power and authority, have
been duly authorized by all necessary 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
articles of organization or operating agreement of Newco, or of any
other agreement binding upon Newco or its property.
(e) This Amendment and the Company Collateral Documents
constitute the legal, valid, and binding obligations of the Company,
enforceable against the Company in accordance with their 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.
(f) The Newco Collateral Documents constitute the legal,
valid, and binding obligations of Newco, enforceable against Newco in
accordance with their 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.
(g) As security for the Liabilities, the Agent has (or in the
case of Newco will have immediately following the Newco Formation) a
valid first priority perfected security interest in all assets of the
Company and Newco (other than real estate interests which do not
constitute fixtures).
(h) 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.
(i) The Company has furnished to the Banks a true and correct
copy of the Purchase Agreement (including attachments thereto).
4.2 Conditions Precedent to Effectiveness. This Amendment
-------------------------------------
shall become effective as of October 21, 1999 (the "Effective Date"), subject,
however, to the receipt by the Agent 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.
(b) the Newco Security Agreement, executed by Newco;
(c) the Newco Guaranty, executed by Newco;
(d) the Company Pledge Agreement, executed by the Company,
together with (i) all certificates and instruments representing the
entire membership interest of the Company in Newco, and (ii) the
agreement of Newco that it will comply with instructions originated by
the Agent without further consent of the Company;
(e) 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;
(f) certified copies of the articles of organization and the
operating agreement of Newco as in effect on the Effective Date,
certified by an authorized person as of the Effective Date;
(g) a good standing certificate for Newco from the Secretary
of State of the State of Delaware (or similar, applicable Governmental
Authority) as of a recent date;
(h) an opinion of Gardner, Carton and Douglas, counsel to the
Company and Newco, substantially in the form of Exhibit I attached
hereto;
(i) an opinion of Mark Standefer, counsel to the Company and
Newco substantially in the form of Exhibit II hereto;
(j) acknowledgment copies of all UCC-l financing statements
filed, registered or recorded to perfect the security interests of the
Agent, or other evidence satisfactory to the Agent that there has been
filed, registered or recorded all financing statements and other
filings, registrations and recordings necessary and advisable to
perfect the Liens of the Agent in accordance with applicable law;
(k) written advice relating to such Lien and judgment searches
as the Agent shall have requested, and such termination statements or
other documents as may be necessary to confirm that the Collateral
furnished by Newco is subject to no other Liens in favor of any Persons
(other than Permitted Liens);
(l) evidence of the payment of all legal fees and expenses of
the Agent heretofore billed to the Company;
(m) A certificate of the President or a Vice-President of the
Company to the effect that (i) all necessary consents or approvals with
respect to this Amendment have been obtained; and (ii) attached thereto
is a true and correct copy of the Purchase Agreement;
(n) 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; and
(o) 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.
4.3 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.
4.4 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 Loan Documents.
4.5 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 of 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 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 supersedes 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.
* * *
<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, a
Delaware corporation
By: /s/ Mark C. Standefer
---------------------
Name: Mark C. standefer
---------------------
Title: Vice President
---------------------
BANK OF AMERICA , N.A. (formerly
known as Bank of America National Trust
and Savings Association), as Agent
By: /s/ David A. Johnson
-----------------------
Name: David A. Johnson
-----------------------
Title: Vice President
-----------------------
BANK OF AMERICA , N.A. (formerly known
as Bank of America National Trust and
Savings Association), in its individual
corporate capacity
By: /s/ Peter J. Gates, Jr.
-----------------------
Name: Peter J. Gates, Jr.
-----------------------
Title: Vice President
-----------------------
LASALLE NATIONAL BANK
By: /s/ Mary Lou Bartlett
------------------------
Name: Mary Lou Bartlett
------------------------
Title: First Vice President
------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
--------------------------------------------
THIS STSTEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1999 AND THE CONSOLIDATED STATEMENT
OF INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOW FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000003941
<NAME> ALLIED PRODUCTS CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1.000
<CASH> 914
<SECURITIES> 0
<RECEIVABLES> 74,938
<ALLOWANCES> 1,321
<INVENTORY> 72,938
<CURRENT-ASSETS> 162,131
<PP&E> 134,343
<DEPRECIATION> 54,297
<TOTAL-ASSETS> 257,253
<CURRENT-LIABILITIES> 193,688
<BONDS> 1,797
0
0
<COMMON> 140
<OTHER-SE> 56,717
<TOTAL-LIABILITY-AND-EQUITY> 257,253
<SALES> 226,196
<TOTAL-REVENUES> 226,196
<CGS> 199,632
<TOTAL-COSTS> 199,632
<OTHER-EXPENSES> 40,015
<LOSS-PROVISION> 910
<INTEREST-EXPENSE> 8,236
<INCOME-PRETAX> (13,451)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,451)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,451)
<EPS-BASIC> (1.14)
<EPS-DILUTED> (1.14)
</TABLE>
