<PAGE>
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- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
<TABLE>
<S> <C>
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
------- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
------- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
</TABLE>
COMMISSION FILE NUMBER 1-5530
ALLIED PRODUCTS CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 38-0292230
- - -------------------------------------------- --------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
- - -------------------------------------------- --------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (312) 454-1020
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of Each Class Name of Each Exchange on Which Registered
- - -------------------------------------------- --------------------------------------------
COMMON STOCK--$.01 PAR VALUE NEW YORK AND PACIFIC
</TABLE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
___
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes _X_ No ___
As of March 31, 2000, 11,869,664 shares of common stock were outstanding, and
the aggregate market value of the shares of common stock (based upon the closing
price on the New York Stock Exchange) held by nonaffiliates of the Company was
approximately $29,255,115. Determination of common stock ownership by affiliates
was made solely for the purpose of responding to this requirement, and the
Registrant is not bound by this determination for any other purpose.
The Company's definitive Proxy Statement (which will be filed at a later date)
for the Annual Meeting of Stockholders scheduled to be held May 24, 2000 and
Annual Report to security holders for the year ended December 31, 1999 are
incorporated by reference in Part III and Part IV herein.
The Exhibit Index is located on page 55.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
Allied Products Corporation ("Company") was organized under Delaware law in
1967 as the successor to a Michigan corporation which was formed in 1928. Its
principal executive offices are at 10 South Riverside Plaza, Chicago, Illinois
60606 and its telephone number is (312) 454-1020.
During 1999, the Company's operations were divided into two business
segments--the Agricultural Products Group (which consisted of the Bush Hog and
Great Bend divisions) and the Industrial Products Group.
On March 7, 2000, the Company (i) transferred to a newly organized limited
liability company ("New Bush Hog") substantially all of the assets and certain
liabilities of the Bush Hog and Great Bend divisions constituting its
Agricultural Products Group in exchange for all of the outstanding membership
interests of New Bush Hog (ii) sold membership interests representing 80.1% of
the total outstanding membership interests of New Bush Hog to a limited
liability company owned by members of the Henry Crown family of Chicago ("Bush
Hog Investors") for a purchase price of approximately $126,500,000 subject to
post closing adjustments. On March 23, 2000, the Company agreed to sell its
remaining New Bush Hog membership interest to Bush Hog Investors on or before
June 30, 2000 for a purchase price of $31,426,134, less net balance sheet
adjustments of New Bush Hog from March 7 through the closing. The Company
anticipates that the purchase price as adjusted will be approximately
$28,000,000. The operations of the former Agricultural Products Group are
reflected in the accompanying financial statements as discontinued operations.
Allied Products Corporation manufactures large metal stamping presses
through its Industrial Products Group which consists of the Verson, Precision
Press Industries, Verson Pressentechnik and the Verson Standard Products
Division operations. The Company's Agricultural Products Group, which
manufactured implements and machinery used in agriculture, landscaping and
ground maintenance businesses, was sold subsequent to the end of 1999--see Note
3 of Notes to Consolidated Financial Statements. The Company's Coz division,
which was part of the Industrial Products Group and supplied thermoplastic
compounds and additives, was sold in the fourth quarter of 1997. All
manufacturing operations are within the United States.
Approximately 13%, 4% and 8% of the Company's net sales from continuing
operations in 1999, 1998 and 1997, respectively, were exported principally to
Canada and Mexico.
INDUSTRIAL PRODUCTS GROUP
PRODUCTS. The Verson division manufactures a broad line of both medium and
large technologically advanced mechanical and hydraulic metal forming presses.
These products are used in the manufacture of components for the automotive,
appliance, office equipment, farm equipment, ordnance, aerospace and general
metal working industries. A transfer press is a specialized mechanical press
that combines a series of operations by transferring a work piece from one
station to another inside of a single press. Each station in the press has a
separate die that is individually adjustable. This process allows all
operations, from initial draw to finished product, to take place in one press,
resulting in increased output and reduced labor expense. Prices vary by type and
size. Size categories for transfer presses range from "A" (largest) to "D"
(smallest). An "A" transfer press is generally 13 to 15 feet wide, 80 to 90 feet
long and stands four stories tall. By comparison, a "B" transfer press is
approximately 10 feet wide, 60 feet long and four stories tall. The difference
between these machines is the component part size they stamp. Investment in a
large transfer press can range from $15-$35 million.
Approximately 10-15% of Verson's revenue was generated by customer special
services. Items included in the special services area are: repair parts,
complete remanufacturing of used presses, contract machining and manufacturing,
die consultation and training. In addition to the fabrication and machining of
components, Verson provides complete tooling and engineering services necessary
for turnkey systems.
Complimenting the manufacturing of presses by Verson, a new division of
Allied Products, Precision Press Industries ("PPI"), began operation in November
1997. PPI is engaged in the fabrication of large components weighing up to
240,000 pounds and is located in a 40,000 square foot facility in Hobart,
Indiana. The Company believes PPI uses some of the most sophisticated welding
machinery and processes available. Supplier agreements, production scheduling
and control methods enable PPI to work in a just-in-time format. Extensive
employee training and ongoing process documentation activities are intended to
provide that PPI operates in accordance with ISO9000 guidelines. The division
currently does work exclusively for the Verson division, but retains the
capability to perform custom fabrication work for third party customers.
2
<PAGE>
During the fourth quarter of 1998, the Company formed a joint venture with
Theodor Grabener GmbH & Co. KG of Germany and Automatic Feed Company of
Napoleon, Ohio, that will help the two American companies more effectively
penetrate the European market for large stamping presses and related systems.
The new entity, Verson Pressentechnik GmbH, is located in Netphen-Werthenbach,
Germany, and is expected to benefit from the resources of the Grabener group of
companies.
The joint venture, in which Verson holds a 60% stake, will act as the main
commercial and technical support arm for the activities of both Verson and
Automatic Feed in Europe. Its European staff will have the responsibility of
marketing Verson and Automatic Feed products to customers throughout Europe.
Drawing on the strengths of the Grabener group of companies, the joint venture
also will assist in customizing Verson and Automatic Feed equipment to meet the
requirements of European customers, and it will provide on-going training and
service support once the equipment is up and running at a customer's plant.
During the first quarter of 2000, the Company formed the Verson Standard
Products Division. The new division is located in Williamsville, New York and
will compete in the low tonnage press market offering standard designs.
Manufacturing activities will be primarily outsourced.
On October 14, 1997, the Company sold its Coz division. Coz provided a
complete line of thermoplastic resins and related services to the plastic
molding and extrusion industry.
MARKETING. Verson's marketing group department is headed by a Vice
President of Marketing and Sales, with responsibility for all Verson products
and services. Verson sells and promotes its products by using a direct sales
force that concentrates in strategically significant markets and contract
representatives which focus on lower volume potential markets.
Verson's major customers are the U.S. automobile manufacturers (both U.S.
and foreign owned) and first and second tier automotive parts producing
companies, which, on average, account for approximately 85-90% of Verson's
annual revenue. The other major market served by Verson is the appliance
industry where the division's customers include major brand names.
The Company believes Verson is the technology leader, having designed the
world's first transfer press in 1939, the world's first electronic feed in 1981,
a cross bar feed in 1992 which significantly improves production, and more
recently, a Dynamic Orientation-Registered Trademark- system which further
improves production and saves space.
COMPETITION. There are only a few companies in the world that supply large
transfer press systems similar to those provided by Verson. Verson is now the
only American owned company competing in this upper end segment. Principal
competition comes from German and Japanese manufacturers. Press manufacturers
compete on the basis of technology, capability, reliability and price. The
barriers to entry for new competitors are high due to the large capital
expenditures required.
INDUSTRY. Domestic automobile manufacturers are seeking to become more
cost-effective by requiring quality parts, implementing just-in-time concepts,
obtaining price reductions from suppliers, redesigning cost out of automobiles,
and restructuring and automating their manufacturing processes.
In response to these market factors and an unprecedented incoming order rate
in 1994, the Verson division completed a 40,000 square foot expansion of its
assembly facilities in 1995. An additional 117,000 square foot expansion of its
assembly facilities was completed at the end of 1998. These additions have
significantly expanded the division's capacity for manufacturing large transfer
presses and have increased the divisions's fixed costs.
SALES BACKLOG
Sales backlog associated with continuing operations as of December 31, 1999
was $51,401,000 compared to $145,268,000 at December 31, 1998. Over 90% of the
backlog orders are expected to be filled prior to the end of 2000.
EMPLOYEES
The Company's continuing operations currently employ approximately 800
individuals, including approximately 500 employees at the Verson division who
are represented by a union. While the Company considers its relations with its
Verson division employees to be satisfactory, the Company suffered a strike
during the summer of 1997 at the expiration of the last union contract. The
contract agreed to upon settlement of the strike expires in June 2000.
RAW MATERIALS AND SOURCES OF SUPPLY
The principal raw materials used by all of the Company's manufacturing
operations include steel and other metals and purchased components. During 1999
the materials needed by Allied Products generally were available from a variety
of sources in adequate quantities and at prevailing market prices. No one
supplier is responsible for supplying more than 10% of the principal raw
materials used by Allied Products.
3
<PAGE>
PATENTS, TRADEMARKS AND LICENSES
Allied Products owns the federally registered trademarks "Verson," which is
used on its metal forming presses, and "ETF", "MultiMode" and "Dynamic
Orientation" which are used on the electronically controlled transfer feeds
manufactured by the Verson division. Allied Products considers each of the above
registered trademarks to be material to its business. While Allied Products
believes that the other trademarks used by each of its operations are important,
none of the patents, licenses, franchises or such other trademarks are
considered material to the operations of its business.
MAJOR CUSTOMERS
Approximately 66%, 52% and 55% of the Company's net sales from continuing
operations in 1999, 1998 and 1997, respectively, were derived from sales by the
Industrial Products Group to the three major U.S. automobile manufacturers.
During 1999, Daimler-Chrysler and General Motors accounted for approximately 44%
and 18%, respectively, of net sales from continuing operations and Ford
accounted for less than 10% of net sales from continuing operations. In
addition, Magna Corporation accounted for approximately 13% of net sales from
continuing operations in 1999. With the exception of the customers noted above,
no material part of the Company's business is dependent upon a single customer.
SEASONALITY
Sales and cash receipts for the Company's continuing operations are not
generally affected by seasonality.
ENVIRONMENTAL FACTORS
Reference is made to Note 10 of Notes to Consolidated Financial Statements
regarding environmental factors and matters.
DISCONTINUED OPERATIONS--AGRICULTURAL PRODUCTS GROUP
The Company's former Agricultural Products Group consisted principally of
two divisions, the Bush Hog division and the Great Bend division. The Bush Hog
division offered a comprehensive line of implements and machinery used by
farmers, ranchers, large estate owners, commercial turf mowing and landscape
contractors, golf courses and municipalities. Implements and machinery sold by
Bush Hog include rotary cutters, tractor mounted loaders, hay mowers, tillers,
cultivators, backhoes, zero-turn mowers, landscape tools, and turf and golf
course mowing equipment.
Bush Hog rotary cutters are used to shred stalks after the crop has been
harvested, to mow pasture, for land maintenance and for governmental
right-of-way mowing. Front end loaders are used by farmers and ranchers for
material handling Cultivators are used for weed control after crops have been
planted.
The Great Bend division was a manufacturer of front end loaders with
significant geographical marketing emphasis in the Midwest, Southwest and high
plains areas of the United States. Like Bush Hog, Great Bend offered a complete
line of quality front end loaders, with particular emphasis on high lift loaders
which adapt to higher horsepower tractors.
FORWARD-LOOKING STATEMENTS
Some of the information contained in the above discussion may contain
forward-looking statements that are subject to certain risks, uncertainties and
assumptions. Such forward-looking statements are intended to be identified in
this document by the words "anticipate," "expect," "estimate," "objective,"
"possible" and similar expressions. Actual results may vary. Reference is made
to the "Safe Harbor Statement" contained under Item 7--Management's Discussion
and Analysis of Financial Condition and Results of Operations.
4
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names and ages of the Company's Executive
Officers, together with all positions and offices held with the Company by such
officers as of March 17, 2000.
<TABLE>
<CAPTION>
NAME POSITION WITH ALLIED PRODUCTS AGE
- - ---- ----------------------------- --------
<S> <C> <C>
Richard A. Drexler.......... Chairman, President and Chief Executive and Financial Officer 52
Robert J. Fleck............. Vice President--Accounting, Chief Accounting and Administrative Officer 52
Mark C. Standefer........... Vice President, General Counsel and Secretary 45
</TABLE>
No family relationships exist among the executive officers, however,
Mr. Richard A. Drexler is the son of Lloyd A. Drexler, a director of the
Company. In conjunction with the sale of an 80.1% interest in the Agricultural
Products Group, Bobby Middlebrooks, formerly a Senior Vice President of the
Company, resigned from the Company on March 7, 2000.
Each executive officer has been employed by Allied Products for over 10
years. Pursuant to Allied Products' By-laws, each officer is elected annually by
the Board of Directors.
Mr. Drexler, who became Chairman in 1993, has been President and a Director
of Allied Products since 1982 and has been Chief Executive Officer since 1986
and Chief Financial Officer since 1998. Mr. Drexler served as Acting Chief
Financial Officer from 1991 to 1992, Chief Financial Officer from 1989 to 1990
and Chief Operating Officer from 1981 to 1986. He was also Chief Financial
Officer from 1977 to 1987. Prior to becoming President, Mr. Drexler served as
Executive Vice President, Senior Vice President of Administration, Vice
President of Administration, Staff Vice President--Development, and Director of
Planning. Mr. Drexler is also acting Chairman and Chief Executive Officer of the
Verson division of the Industrial Products Group.
Mr. Fleck has been Vice President--Accounting since 1985, Chief Accounting
Officer since 1986 and Chief Administrative Officer since 1997. From 1983 to
1985 he was Staff Vice President--Accounting and prior to that he served as
Corporate Controller and in various other accounting positions for Allied
Products. Prior to joining Allied Products in 1974, he was an internal auditor
with Marquette Cement Company, a national cement manufacturing company.
Mr. Standefer was elected Vice President, General Counsel and Secretary in
1997. From 1995 to 1997 he was Staff Vice President, Assistant General Counsel
and Assistant Secretary, and from 1986 to 1995 Assistant General Counsel and
Assistant Secretary. Mr. Standefer joined Allied Products in 1984 as Staff
Attorney. Prior to joining Allied Products, he was Staff Attorney for Sun
Electric Corporation.
SIGNIFICANT EMPLOYEES OF THE COMPANY
The following table sets forth the name and age of a significant employee of
the Company, together with all positions and offices held with the Company by
such employee as of March 17, 2000.
<TABLE>
<CAPTION>
NAME POSITION WITH ALLIED PRODUCTS AGE
- - ---- ----------------------------- --------
<S> <C> <C>
David J. Nelson............. Executive Vice President and Chief Operating Officer of the Verson Division 39
</TABLE>
Mr. Nelson has been Executive Vice President and Chief Operating Officer of
the Verson Division since 1999. From 1997 to 1999 he was Vice President of
Operations. Mr. Nelson joined the Verson Division in 1984 as a Project Engineer
in Tooling, then moved to the Marketing Group in which he held various positions
including Vice President of Sales & Marketing.
5
<PAGE>
ITEM 2. PROPERTIES
Manufacturing operations of the Industrial Products Group are conducted in
Chicago, Illinois and Hobart, Indiana in owned facilities containing
approximately 561,000 square feet. In addition, small offices located in
Detroit, Michigan, Williamsville, New York and Netphen-Werthenbach, Germany are
being leased by the Industrial Products Group. The Corporate Offices, located in
Chicago, Illinois, are also leased.
Management is of the opinion that all facilities are of sound construction,
in good operating condition and are adequately equipped for carrying on the
business of the Company.
ITEM 3. LEGAL PROCEEDINGS
Reference is made to Note 10 of Notes to Consolidated Financial Statements
with respect to the Company's involvement in legal proceedings as a defending
party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
6
<PAGE>
PART II
ITEM 5. MARKET PRICE OF THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's common stock is listed on the New York and Pacific Stock
Exchanges. The price range of the common stock on the New York Stock Exchange is
as follows:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------
BEGINNING OF
1999 YEAR END OF YEAR 1999 QTR. HIGH LOW
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common $ 6 5/16 $3 9/16 1 $ 7 1/2 $ 2 15/16
- - -----------------------------------------------------------------------------------------------------------------------------
2 5 7/8 2 1/2
- - -----------------------------------------------------------------------------------------------------------------------------
3 5 5/8 3
- - -----------------------------------------------------------------------------------------------------------------------------
4 4 7/8 3 3/16
- - -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- - ------------------------------------- -------------------
1999 DIVIDEND
- - ------------------------------------- -------------------
<S> <C>
Common $.0400
- - -------------------------------------
.0400
- - -------------------------------------
.0400
- - -------------------------------------
.0400
- - -------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------
BEGINNING OF
1998 YEAR END OF YEAR 1998 QTR. HIGH LOW
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common $24 $6 5/16 1 $25 3/16 $20 1/4
- - -----------------------------------------------------------------------------------------------------------------------------
2 24 3/4 20 1/16
- - -----------------------------------------------------------------------------------------------------------------------------
3 22 7/8 6 3/16
- - -----------------------------------------------------------------------------------------------------------------------------
4 8 7/8 5 7/8
- - -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- - ------------------------------------- -------------------
1998 DIVIDEND
- - ------------------------------------- -------------------
<S> <C>
Common $.0400
- - -------------------------------------
.0400
- - -------------------------------------
.0400
- - -------------------------------------
.0400
- - -------------------------------------
</TABLE>
As of March 17, 2000, the approximate number of holders of record of the
Company's common stock ($.01 par value) was 2,200.
The Company paid no dividends from 1982 until 1995. Restrictions from paying
dividends were removed in 1995. Subsequent to the end of 1995, the Company
increased its quarterly dividend from $.0167 per share to $.0333 per share.
During the third quarter of 1997, the Company increased its quarterly dividend
to $.04 per share. Subsequent to the end of 1998, dividend payments were limited
to $2,000,000 per year under the Second Amended and Restated Credit Agreement
and the First Amendment and Waiver to the Credit Agreement. On March 16, 2000,
the Company announced that it had suspended the payment of quarterly dividends.
The payment of cash dividends is not permitted under a loan agreement entered
into effective March 29, 2000--see Note 5 of Notes to Consolidated Financial
Statements.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales from continuing
operations (C)....................... $143,775,000 $137,020,000 $151,091,000 $166,060,000 $150,757,000
Income (loss) from continuing
operations (C)....................... $(34,340,000) $(29,786,000) $ 4,840,000 $ 9,210,000 $ 27,642,000
Earnings (loss) per common share
(diluted) from continuing
operations (A)(B)(C)................. $(2.90) $(2.51) $.39 $.67 $1.89
Total assets........................... $256,611,000 $275,804,000 $195,064,000 $172,509,000 $167,303,000
Long-term debt (including capitalized
leases and redeemable preferred
stock) (D)........................... $ 2,351,000 $ 2,298,000 $ 670,000 $ 489,000 $ 315,000
Cash dividend declared per common
share (A)............................ $.16 $.16 $.147 $.133 $.05
</TABLE>
- - --------------------------
(A) Restated prior to 1997 to reflect the effect of a three-for-two stock split
in 1997.
(B) Restated prior to 1997 to reflect the effect of adopting SFAS 128--Earnings
per Share--in 1997.
(C) Restated prior to 1999 to reflect the effects of discontinued
operations--see Note 3 of Notes to Consolidated Financial Statements.
(D) Includes debt associated with discontinued operations.
The accompanying Notes to Consolidated Financial Statements
are an integral part of this summary.
7
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
OVERVIEW
SUBSEQUENT EVENT: SALE OF AGRICULTURAL PRODUCTS GROUP
On March 7, 2000, the Company (i) transferred to a newly organized limited
liability company ("New Bush Hog") substantially all of the assets and certain
liabilities of the Bush Hog and Great Bend divisions constituting its
Agricultural Products Group in exchange for all of the outstanding membership
interests of New Bush Hog and (ii) sold membership interests representing 80.1%
of the total outstanding membership interests of New Bush Hog to a limited
liability company owned by members of the Henry Crown family of Chicago ("Bush
Hog Investors") for a purchase price of approximately $126,500,000 subject to
post closing adjustments. The estimated pretax gain on the sale of approximately
$39,900,000 will be recorded in the first quarter of 2000. Immediately following
the closing, New Bush Hog borrowed approximately $18,000,000 and distributed the
proceeds to its members, including approximately $3,600,000 to the Company.
In contemplation of the transaction and to help finance the build up of
receivables and inventories in the Agricultural Products Group during
December 1999 and January and February 2000, the Company borrowed $5,000,000
from an affiliate of Bush Hog Investors. The loan was repaid on the closing of
the transaction on March 7, 2000. Simultaneously with the closing, the Company
borrowed $18,000,000 from LaSalle Bank, N.A. secured by its 19.9% membership
interest in New Bush Hog. The Company applied a portion of these new borrowings,
together with the distribution from New Bush Hog and the cash proceeds received
from Bush Hog Investors, net of fees and expenses, to repay the Company's
current outstanding bank indebtedness and amounts due to the Bush Hog Investors
affiliate. On March 23, 2000, the Company agreed to sell its remaining New Bush
Hog membership interest to Bush Hog Investors on or before June 30, 2000 for a
purchase price of $31,426,134, less net balance sheet adjustments of New Bush
Hog from March 7, 2000 through the closing. The Company anticipates that the
purchase price as adjusted will be approximately $28,000,000. This sale was
driven, in part, by the Company's need for additional liquidity and, in part, as
a pre-condition to obtaining further credit. The Company will repay its
$18,000,000 loan with a portion of the proceeds of the sale of its remaining New
Bush Hog interest. On March 29, 2000, the Company entered into a credit
agreement with Foothill Capital Corporation which provides the Company with a
line of credit of up to approximately $30,000,000 subject to borrowing base
limitations.
With the above described disposition of the Agricultural Products Group, the
Company has included the operations of the Agricultural Products Group, an
allocation of all direct financing, administrative, other expenses and income
taxes and a pro rata allocation of interest expense (based upon the group's
proportionate share of consolidated invested capital) under the caption
"Discontinued operations, net of tax" in the accompanying Consolidated
Statements of Income (Loss). Previously issued Consolidated Statements of Income
(Loss) have been revised to reflect the effect of the discontinued operations.
The Company's remaining operations consist of the operations of the Industrial
Products Group.
VERSON'S OPERATING PROBLEMS
In August 1996 and April 1997, the Company's Verson division received major
orders from Ford and General Motors, respectively, for the design and
manufacture of a total of six automated, multi-station stamping presses. Ford
ordered two and General Motors ordered four of the presses. All six of the
presses incorporated a new state-of-the-art "three-slide" design which was
considered superior in speed and efficiency to any transfer press previously
manufactured. Verson believes that it was the first manufacturer to design and
manufacture a stamping press incorporating this design. These orders were to be
completed over a three-year period from 1997 through 1999. The contracts for the
two presses to be manufactured for Ford specified delivery in January and April
of 1998, while the contracts for the four presses to be manufactured for General
Motors specified delivery in February, April, August, and October of 1999. By
agreement, the specified delivery dates were revised to May, August, September,
and December of 1999 shortly after the orders were accepted. In June 1997 and
May 1998, Verson received orders from Chrysler Corporation for four identical
large automated multi-station stamping presses with two slides only, but
incorporating other new design features. The orders called for completion of
these presses during 1998 and 1999. Projected revenues from these major orders
for a total of ten presses approximated $195,000,000.
While Verson was designing and building these multi-slide presses described
above, the division also accepted orders to manufacture and deliver
approximately 15 smaller presses. Most of these presses were to be delivered
between November of 1998 and September of 1999. While these presses were of a
less complicated
8
<PAGE>
design, the combined impact on engineering and production was significant.
In hindsight, it appears that when added to Verson's other press business,
the orders for the ten large, newly designed multi-slide presses severely
strained Verson's then existing press manufacturing capacity. During 1997 and
1998 the Company took steps to expand Verson's facility, hire more engineering
and manufacturing staff and increase its total capacity. The cost of the
physical expansion at Verson was approximately $30,000,000, and included the
addition of approximately 117,000 square feet to the Verson assembly building
plus other infrastructure improvements. The expansion was not completed early
enough to alleviate production scheduling difficulties, however. The expansion
in fixed assets together with significant increases in indirect labor increased
Verson's overhead costs.
In addition, Verson experienced significant difficulties during 1998 in the
manufacture of the multi-slide and other presses under the above-described
orders in a timely and cost effective manner. The decline in manufacturing
efficiency was traceable in part to overcrowded conditions and in part to the
inefficiencies which can occasionally arise in the manufacture of new products.
These manufacturing delays in turn caused delays and additional costs in the
manufacture of virtually all presses in 1998 and led Verson to rely heavily on
subcontractors for the manufacture of certain components in order to meet
delivery commitments. As described in more detail below, difficulties primarily
associated with the manufacture of presses under the major orders described
above and the resulting stresses on manufacturing capacity caused Verson and the
Company to incur losses in 1998 and 1999. These difficulties, along with a
decline in new press orders during 1999 and an increased cost structure which
has adversely affected margins on new orders are expected to continue to have a
negative impact on earnings in 2000.
Verson began work in 1997 on the two presses covered by the Ford order.
Verson revised its cost estimates on these presses by $3,700,000 in
February 1998 and at the same time increased its cost estimates on other presses
by $1,600,000.
During the third quarter of 1998, Verson experienced difficulties in the
manufacture of the two Ford presses, and significantly revised its cost
estimates on all six of the three-slide presses (the Ford and GM orders), as
well as on other presses. As a consequence, the Company announced the
recognition of a pretax charge of approximately $16,000,000. Approximately
$5,300,000 of this charge was subsequently recorded in 1997. In the fourth
quarter of 1998, events of the third quarter continued to have a significant
negative impact on costs to complete projects. Given these ongoing circumstances
and concern over further escalation of costs, Verson undertook a comprehensive
review of the compilation of costs and revenue recognition associated with each
press in relation to revised delivery schedules, current estimated costs to
complete the presses in production and available manufacturing capacity. Verson
recorded additional changes to cost estimates of approximately $21,000,000 to
reflect the recognition of estimated losses on certain orders in process and a
revision of estimated costs on other orders.
Verson's increased workload translated into the need for additional
manufacturing, office and hourly personnel and to increases in recruitment costs
and exempt and hourly wages along with related fringe benefits. The pressure to
meet delivery schedules resulted in increased shop overtime and the new facility
added higher depreciation costs. A prolonged computer system implementation and
the lower productivity associated with recently hired employees altered the
historical relationship between direct and indirect hours.
The Company believes that the reduction in gross margins for the ten large
presses described above as well as its standard press business during 1998 and
1999 was attributable primarily to unanticipated subcontracting costs associated
with the overload in the Verson factory and increases in overhead costs.
Verson's backlog as of December 31, 1999, composed of revenues totaling
$51,401,000 to be recorded in future years on orders received which had a total
sales value of approximately $211,000,000. The backlog included revenues of
approximately $26,000,000 on orders for which estimated losses were recorded in
1998 and 1999 and on which no gross margin is expected to be recognized in 2000
and 2001. The December 31, 1999 backlog for Verson also included future revenue
of approximately $3,000,000 to be recorded principally in 2000 for which Verson
anticipates gross margins lower than levels realized prior to 1998. The
remaining backlog at December 31, 1999 (approximately $22,000,000) included
future press revenues as well as orders for parts and field services with
anticipated pre-1998 historical gross margins. The total backlog of $51,401,000
compares to a backlog of $145,268,000 a year earlier. The low level of Verson's
backlog at December 31, 1999 reflects the relatively low level of new press
orders booked in 1999--approximately $24,000,000, compared to in excess of
$100,000,000 in 1998. In view of the low backlog and the portion of the backlog
representing no margin work, the Company anticipates that revenues from
continuing operations will decline significantly in
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2000 and the Company will continue to incur operating losses.
In view of the difficulties in estimating costs encountered by Verson in
1998 and the first half of 1999, the Company during 1999 did not recognize any
gross profit margin on press orders until the particular press in process
reached a point in production where the gross profit margin could be reasonably
estimated--see Note 1 of Notes to Consolidated Financial Statements--Revenue
Recognition. This method of accounting for gross margins on presses will be
continued until such time as Verson is satisfied that its methods of estimating
costs have been validated. The 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 and year-to-year results.
The Company's difficulties in completing orders during 1998 and 1999 could
adversely affect its relationships with one or more of its customers and
therefore could have a negative impact on the Company's ability to obtain future
business from such customers. In particular, the Company experienced delays in
completing presses for each of the three major auto manufacturers during 1998
and 1999. Together these customers accounted for approximately 52% and 66% of
the Company's sales from continuing operations in 1998 and 1999, respectively.
The Company also experienced delays in completing many of its smaller presses.
In response to General Motors' concerns that the Company's cash flow problems
would further delay or preclude the Company from completing four presses that
were in various stages of production, the Company recently entered into
amendments to purchase orders with General Motors.
Under the terms of the amendments, the Company and General Motors agreed to
revised shipping, payment and testing schedules. Most of the components of the
first two presses were shipped in the fall of 1999 and the first quarter of
2000. Delivery dates (and related payments) for the third and fourth presses
have been extended so that the components of the last press will not be shipped
until the fourth quarter of 2000 and final payment will not be received until
the first quarter of 2002, following completion of assembly and testing at the
General Motors facility. The third press must be assembled and tested at Verson
by the end of January 2001. Upon fulfillment of certain conditions set forth in
the amendments, General Motors 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 presses covered
by this order. However, General Motors has reserved the right to cancel its
order for the last two presses, if the Company at any time fails to provide
reasonable assurances regarding its financial condition and continuing ability
to complete the presses pursuant to the revised schedule. Such cancellation
could have a material adverse effect on the Company. The Company's
work-in-process inventories at December 31, 1999 included costs of components
for the last two presses totaling $21,357,000.
In addition, the Company also has had discussions with some of its suppliers
who have expressed concern that the Company's financial condition has caused
increasingly slower payment on invoices. To date, the Company has been able to
negotiate with its major suppliers to continue to supply the Company with the
raw materials necessary for the Company to fulfill its press orders, but there
can be no assurance that such deliveries will continue if the Company is unable
to timely pay its suppliers.
OPERATING RESULTS
The Company's operations consist of one business segment--the Industrial
Products Group--plus the Corporate Office. Since the sale of the Company's Coz
division in 1997, the Industrial Products Group consists of the Company's
Verson, Precision Press Industries ("PPI") and Verson Pressentechnik operations.
PPI was established in the fourth quarter of 1997 and is engaged in the
fabrication of large components and the assembly of small presses for the Verson
division. In October 1998, the Company's Verson division formed a joint venture
with Theodor Grabener GmbH & Co., KG of Germany and Automatic Feed Company of
Napoleon, Ohio, that will help the two American companies more effectively
penetrate the European market for large stamping presses and related systems.
The new entity, Verson Pressentechnik GmbH, is located in Netphen-Werthenbach,
Germany.
1999 COMPARED TO 1998
CONTINUING OPERATIONS
Net sales from continuing operations for 1999 were $143,775,000 compared to
net sales from continuing operations of $137,020,000 reported in 1998. Loss
before taxes from continuing operations was $34,340,000 in 1999 compared to the
loss before taxes from continuing operations of $35,999,000 in the prior year.
The relatively modest reduction in the loss in 1999 was primarily attributable
to an improvement in gross margins, offset in part by an increase in interest
expense. The net loss for 1999 was $26,765,000 ($2.26 per common share-diluted)
compared to a net loss of $14,113,000 ($1.19 per common share-diluted) in 1998.
The increase in net sales was attributable to increased revenues recognized
on the production of
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larger presses (size B and higher) in the current year. During 1999 the Company
substantially completed production on orders for four large presses from
Chrysler and continued production on the General Motors order for four large
presses. Net sales of smaller presses as well as other products (parts,
rebuilding of presses, etc.) in 1999 did not change significantly from levels of
the prior year.
In both 1999 and 1998, the Company reported a gross loss (i.e., cost of
goods sold exceeded revenues). In 1999, the cost of goods sold exceeded revenues
by $4,186,000, while in 1998 the amount was $10,094,000. Two factors which
affected the negative margins reported in 1998 continued to affect margins in
1999. First, the Industrial Products Group's sales backlog at December 31, 1998
included revenues of approximately $50,000,000 on loss jobs. Additional losses
were recorded on those jobs in 1999. The December 31, 1998 backlog also included
future revenues of approximately $95,000,000, including approximately
$92,000,000 recognized in 1999, for which anticipated gross margins were lower
than historical levels prior to 1998. The Company recorded cumulative contract
losses of $22,079,000 and $12,079,000 (including reserves of $5,142,000 and
$8,813,000 for estimated future losses expected to be incurred on jobs in
process) associated with jobs in process having a total sales value of
$103,430,000 and $104,734,000 at December 31, 1999 and 1998, respectively.
Second, the Industrial Products Group reported no gross profit on any press
manufactured during 1999 until a point in production when all manufacturing
costs could be reasonably estimated. In 1999 that point was when the press
reached the final assembly stage. Reference is made to Note 1 of Notes to
Consolidated Financial Statements--Revenue Recognition.
The gross losses recorded in 1999 and 1998 reflect the positive effect
($2,900,000 and $5,000,000, respectively) of payments relating to the recovery
of a claim associated with a prior period. The Company does not expect any
additional recoveries relating to this claim.
Because of the difficulties the Verson division encountered in 1998, Verson
failed to meet delivery date requirements provided in several press orders.
Verson recorded charges for penalties of approximately $600,000 and $1,200,000
in 1998 and 1999, respectively. The division may receive additional claims for
significant penalty payments or damages in 2000 and 2001. At December 31, 1999,
the division has reserves of approximately $1,800,000 for these potential
claims.
Selling and administrative expenses increased by $862,000 in 1999 compared
to 1998. Increases in other administrative expenses more than offset a reduction
in compensation expense related to exercises of stock options ($0 in 1999
compared to $1,119,000 in 1998), lower professional service costs related to the
installation of new systems (approximately $425,000) and decreased employment
costs following the curtailment of new hires in 1999 (approximately $275,000).
Major factors in the increase in 1999 over 1998 were increases in Verson's bad
debt provision (approximately $1,200,000), the full year effect of the Company's
matching contributions under its 401(k) retirement plans which began in the
fourth quarter of 1998 (approximately $700,000), expenses related to the Verson
Pressentechnik division formed in the last quarter of 1998 (approximately
$300,000) and increased professional, legal and bank fees related to several
loan agreement amendments and other matters (approximately $1,100,000).
Interest expense for both continuing and discontinuing operations in 1999
was $11,383,000 compared to interest expense of $6,201,000 in 1998. Interest
expense in 1998 was partially offset by the capitalization of $979,000 of
interest costs relating to the Company's building expansion project at the
Verson division. The increase in interest expense in 1999 over 1998 was the
result of a combination of an increase in average borrowings and an increase in
average interest rates. At year end average interest rates on borrowings
outstanding under new and amended credit agreements were 10.2% in 1999 compared
to 7.2% in 1998. Reference is made to Note 12 of Notes to Consolidated Financial
Statements in relation to an analysis of other (income) expense in 1999 and
1998.
Reference is made to Note 4 of Notes to Consolidated Financial Statements
for an analysis and explanation of the current and deferred provision (benefit)
for income taxes in 1999 and 1998.
DISCONTINUED OPERATIONS
Discontinued operations for 1999 and 1998 include the operations of the
Agricultural Products Group, an allocation of all direct financing,
administrative, other expenses and income taxes and a pro rata allocation of
interest expense. Net sales associated with discontinued operations in 1999
totaled $143,897,000 compared to net sales of $136,814,000 in 1998. Increases in
net sales were primarily related to turf/landscape products (approximately
$5,500,000) and improved loader sales (approximately $6,000,000). 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
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<PAGE>
line sales were also associated with product development and the acquisition of
the Great Bend Manufacturing Company in April 1998. The increases were partially
offset by the effects of lower sales of cutter and disc mower products
(approximately $6,000,000) in 1999. Sales of these products have been impacted
by the effect of lower commodity prices for a majority of major crops and for
most livestock segments. Livestock prices improved in the last quarter of 1999.
Gross profit margins decreased by approximately 2.0 percentage points in
1999 due primarily to the effects of increased cash discounts, unfavorable labor
variances and shipping costs. Additional cash discounts have been offered to
dealers in 1999 to help reduce the amount of dealer inventory levels and to
remain competitive in the market place. Unfavorable labor variances were the
result of increased labor rates and the mix of products produced during the
year. The increase in shipping costs was primarily associated with freight cost
concessions granted to dealers. Similar concessions were offered by competing
agricultural products manufacturers. Increases in selling and administrative
expenses in 1999 over 1998 (approximately $1,650,000) were related to the
acquisition of the Great Bend division and Universal Turf operations as noted
above and to an increased pension accrual ($400,000).
Income net of taxes from discontinued operations was $7,575,000 in 1999, a
decrease of approximately $8,100,000 from income net of taxes from discontinued
operations of $15,673,000 in 1998. In addition to the decline in gross profits
and the increase in selling and administrative expenses noted above, allocated
interest expense was approximately $2,700,000 higher in 1999 and litigation and
product liability expenses increased by approximately $1,600,000 in 1999. There
was an income tax benefit of $1,317,000 in 1998, none in 1999.
1998 COMPARED TO 1997
CONTINUING OPERATIONS
Net sales from continuing operations for 1998 were $137,020,000 compared to
net sales from continuing operations of $151,091,000 in 1997. The loss before
taxes from continuing operations was $35,999,000 in 1998 compared to income
before taxes from continuing operations of $7,681,000 in the prior year. The net
loss for 1998 was $14,113,000 ($1.19 per common share-diluted) compared to net
income of $15,646,000 ($1.27 per common share-diluted) in 1997.
The decrease in net sales from continuing operations in 1998 was related to
the loss of revenue from the Coz division which was sold in the early part of
the fourth quarter of 1997. Revenue and profits are recognized on a percentage
of completion basis at the Verson division. As described above, difficulties
primarily associated with the manufacture of presses under major orders and the
resulting stresses on manufacturing capacity caused Verson to incur losses in
1998. Operating results in 1998 and 1997 were favorably affected by the
Company's recovery of a claim associated with prior periods of $5,000,000 in
1998 and $2,500,000 in1997.
Selling and administrative expenses decreased modestly in 1998 compared to
the prior year with decreases in corporate office administrative expenses
offsetting higher selling and administrative expenses at the Verson division.
Staff expansions and the establishment of an international sales and marketing
department resulted in an increase in salaries and travel costs of approximately
$1,800,000 at the Verson division. These increases were partially offset by the
effect of the sale of the Coz division in the last quarter of 1997. Corporate
administrative expenses decreased by approximately $1,350,000 in 1998 compared
to the prior year due to the impact of reduction in staffing levels, the
subleasing of a portion of the corporate office during 1998 and decreased
compensation expenses related to stock option exercises.
Interest expense from continuing and discontinued operations in 1998 totaled
$6,201,000 compared to interest expense of $3,306,000 in the prior year. A
portion of interest expense in 1998 ($2,469,000) and 1997 ($1,417,000) was
allocated to discontinued operations based upon the discontinued operation's
proportionate share of consolidated invested capital. The overall increase in
interest expense before allocation was associated with increased borrowing needs
related to higher consolidated receivable levels (associated with increases at
all manufacturing operations of the Company) and increased inventory levels
(primarily associated with the Verson division where orders for a total of 9
multi-station transfer presses were in production at December 31, 1998 and
shipment and production delays had occurred). Other borrowing needs included
fixed asset additions during 1998 (primarily including the Verson plant
expansion), the acquisitions of Great Bend and Universal Turf in the second
quarter of 1998 and the impact of the stock buyback program from prior years.
Interest expense in 1998 was partially offset by the capitalization of $979,000
of interest costs relating to the Company's building expansion project at the
Verson division.
Reference is made to Note 12 of Notes to Consolidated Financial Statements
for an analysis of other (income) expense in 1998 and 1997.
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<PAGE>
Reference is made to Note 4 of Notes to Consolidated Financial Statements
for an analysis and explanation of the current and deferred provision (benefit)
for income taxes in 1998 and 1997.
DISCONTINUED OPERATIONS
Discontinued operations for 1998 and 1997 include the operations of the
Agricultural Products Group, an allocation of all direct financing,
administrative, other expenses and income taxes and a pro rata allocation of
interest expense. Net sales associated with discontinued operations in 1998
totaled $136,814,000 compared to net sales of $119,471,000 in 1997.
Approximately half of the increase was related to the acquisitions of the Great
Bend and Universal Turf operations in the second quarter of 1998. The remainder
of the increase was principally associated with increased cutter sales by the
Bush Hog division to cattle ranchers, particularly in the first half of the
year. Cattle ranchers use the cutters for grazing pasture maintenance. Cutter
sales in 1998 were also favorably affected by new/redesigned products for the
turf and landscaping market for utilization by commercial turf (sod) growers and
by golf courses for maintenance. During the last half of 1998, sales were
negatively affected by lower prices for major crops (corn, wheat, soybeans) and
livestock commodities (cattle and hogs), which reduced farm income.
Income before taxes decreased by approximately $2,800,000 in 1998 compared
to the prior year. Gross profit margins decreased in 1998. Decreases were
principally related to increased discounts offered to dealers and the impact of
the mix of products sold. These decreases were partially offset by favorable
manufacturing variances resulting from increased facility utilization and
increased labor efficiencies at the Bush Hog division in 1998 and the effect of
increased sales volume noted above from the acquisitions of Great Bend and
Universal Turf. Selling and administrative expenses increased in 1998 in the
Agricultural Products Group compared to the prior year. The majority of the
increase related to the acquired operations of Great Bend and Universal Turf.
Other increases were associated with increased commissions (due to increased
sales volume) and advertising costs in 1998.
FINANCIAL CONDITION
DECEMBER 31, 1999
Working capital associated with a combination of continuing operations and
discontinued operations at December 31, 1999 was $(43,432,000) and the current
ratio was .79 to 1.00. Net accounts receivable from continuing operations
declined during 1999 by $5,241,000, reflecting an increase in the reserve for
doubtful accounts and the lower level of billings in the Verson division in the
last quarter of 1999 compared to the fourth quarter of the prior year. A
decrease of $20,542,000 in inventory levels of continuing operations during 1999
was attributable in part to a larger amount in 1999 ($36,580,000) compared to
1998 ($25,902,000) of customer payments accounted for as a reduction of
inventories.
Fixed asset additions associated with continuing operations in 1999 totaled
$7,085,000 including approximately $3,600,000 relating to completion of the
assembly building addition at Verson. There were no major fixed asset
dispositions in 1999.
The net decrease in accounts payables associated with continuing operations
in 1999 ($13,901,000) reflects the effect of reduced production levels in the
Industrial Products Group and the reduction in customer deposits accounted for
as accounts payable. Verson initially accounts for customer deposits received
against orders as accounts payable. 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. The increase in accrued expenses
($3,298,000) was primarily associated with increased accruals for legal matters
as discussed in Note 10 of Notes to Consolidated Financial Statements and the
accrual of costs related to the sale of an 80.1% interest in the Agricultural
Products Group subsequent to the end of 1999. Net borrowing under the revolving
credit agreement increased by $11,400,000 in 1999.
Current and noncurrent assets and current and noncurrent liabilities
associated with discontinued operations consist of assets and liabilities of the
former Agricultural Products Group. The assets and liabilities of that Group
were transferred to a new entity and the Company recorded a gain on the sale of
an 80.1% interest in the entity on March 7, 2000.
DECEMBER 31, 1998
Working capital associated with a combination of continuing operations and
discontinued operations at December 31, 1998 was $(14,955,000) and the current
ratio was .92 to 1.00. Net accounts receivable from continuing operations
increased by $5,162,000, attributable largely to the shipment of a large press
in the last quarter of 1998. Net inventory levels increased by $16,270,000
during 1998. Increases in inventory levels reflecting the large number of
presses in production at the end of 1998 ($25,083,000) were partially offset by
inventory valuation reductions in 1998 of $8,813,000.
Fixed asset additions ($31,459,000) included construction costs associated
with an assembly building expansion project at the Verson division. The project
approximately doubled the size of Verson's assembly
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facility and is expected to increase the division's assembly capacity by
approximately 30%. Funds to finance these additions include borrowings under the
Amended and Restated Credit Agreement. Other than the sale of the former
White-New Idea facility in Coldwater, Ohio (which had been leased to the
purchaser of the operation since 1994), there were no major asset dispositions
in 1998.
Accounts payable and accrued expenses increased by $29,324,000 during 1998.
The increase was consistent with the increase in accounts receivable and
inventories for the year, before taking into account an inventory valuation
reduction.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in the operating activities related to the Company's
continuing operations totaled $12,361,000, $26,451,000, and $14,944,000 during
1999, 1998 and 1997 respectively, a total in excess of $53,000,000 over three
years. Cash used in 1999 and 1998 ($38,812,000) included losses from continuing
operations for the two years ($64,126,000). Cash used in 1997 included increased
inventory levels. Net cash used in investing activities related to continuing
operations amounted to $7,011,000 in 1999 and $27,142,000 in 1998. Net cash
provided by investing activities in 1997 was $4,638,000, reflecting proceeds
from the sale of the Company's Coz division, net of additions at Verson.
Investing activities in 1999 and 1998 primarily related to the expansion of
Verson's assembly capacity.
Net cash provided by the operating activities related to discontinued
operations was $12,790,000, $7,862,000 and $12,929,000 in 1999, 1998 and 1997,
respectively, a total of $33,581,000 over three years. Cash flow used for
investing activities for discontinued operations related primarily to plant
additions and acquisitions. No significant cash was used in financing
activities.
At December 31, 1999, the Company's sales backlog associated with continuing
operations was $51,401,000 compared to $145,268,000 at December 31, 1998. All of
the backlog was related to the Verson division, and consisted of revenue not yet
recorded representing the uncompleted portion of presses currently being
manufactured, press equipment, the manufacturing of which has been subcontracted
to outside sources, unearned revenue associated with the installation of presses
and unfilled orders for part sales. Approximately 90% of the production against
these orders will be completed in 2000. In general, accumulated production costs
of these press orders are not invoiced until shipment of the related press or
press component. As indicated earlier, the Company believes that its relatively
low backlog will translate into significantly lower revenues from continuing
operations in 2000.
The Company recently reduced the manufacturing workforce at the Verson
division by approximately 50 individuals. Additional manufacturing (direct and
indirect) reductions as well as reductions in the non manufacturing areas are
likely in the near future depending on the level of new orders received. Other
cost reduction measures are being reviewed so as to reduce future cash needs and
increase profitability. The potential cost reductions could lead to a
restructuring charge in 2000.
Reference is made to Note 4 of Notes to Consolidated Financial Statements
for a discussion of income taxes and deferred tax assets.
Reference is made to Note 10 of Notes to Consolidated Financial Statements
for a discussion of outstanding environmental and legal issues and other
contingent liabilities. To the extent that any of these claims are not covered
by insurance or are ultimately resolved for amounts in excess of the Company's
applicable insurance coverage, they could have a significant negative impact on
the Company's cash flow and its ability to finance its operations.
Reference is made to Note 5 of Notes to Consolidated Financial Statements
for a discussion of changes in the Company's loan agreements during 1999.
As of December 31, 1999, the Company had cash and cash equivalents of
$1,054,000 and additional funds of $3,421,000 available under its Second Amended
and Restated Credit Agreement. In addition, the Company had the capacity to
borrow up to $5,000,000 under a loan agreement with Henry Crown and Company. See
Note 5 to Notes to Consolidated Financial Statements.
SUBSEQUENT EVENTS
Simultaneous with the transfer of assets and liabilities to New Bush Hog and
the sale of an 80.1% membership interest in New Bush Hog to Bush Hog Investors
on March 7, 2000, the Company repaid all of its outstanding bank indebtedness
and the Company's banks released their security interests in the assets
transferred to New Bush Hog, as well as in all of the Company's other assets.
The Company funded this repayment with the net proceeds received from Bush Hog
Investors, a distribution from New Bush Hog of approximately $3,600,000 plus new
borrowings described below. See Note 5 of Notes to Consolidated Financial
Statements.
On March 7, 2000, the Company entered in a Loan and Security Agreement with
LaSalle Bank N.A. ("LaSalle"). Under the terms of the agreement, the Company
borrowed $18,000,000 at a floating prime
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(prime less 100 basis points) rate. Amounts outstanding under the agreement are
due September 7, 2002. Prepayment is allowed without penalty. The loan is
secured by a first lien on the Company's 19.9% interest in New Bush Hog.
The Company also entered into a new $30,000,000 credit facility with
Foothill Capital Corporation (Foothill) effective March 29, 2000. The new credit
facility has a three year term, maturing in March 2003, and consists of a term
loan sub-line of $10,600,000 and a revolving credit facility which may be drawn
upon from time to time up to the lower of $19,400,000 and an amount based upon a
percentage of eligible accounts receivable and eligible inventories relating to
presses which are within 60 days of shipment, as determined by Foothill subject
to reserves as determined by Foothill (the "Borrowing Base"). The amount
available under the term loan sub-line is reduced by $176,667 monthly commencing
in September 2000. The maximum remaining amount due at maturity in March 2003 is
$5,123,323. All amounts due under the facility become immediately due and
payable in the event of a material adverse change. Interest is payable monthly
at a floating prime rate (prime plus 200 basis points on the term loan, prime
plus 125 basis points on the revolver and prime plus 150 basis points on letter
of credit financing). In the event of a default, the interest rate increases by
300 basis points. Foothill received a closing fee of $300,000 and will also
receive a monthly fee of $50,000 for each month an advance against special
projects accounts receivable is outstanding under the revolving credit facility.
With certain exceptions, the penalty for prepayment is $900,000 (3% of the
maximum credit available) in the first year, declining to 2% and 1% in the
second and third years. Certain portions of the Borrowing Base will be
determined in June, following Foothill's review and determination of eligible
receivables.
In connection with the Foothill loan, the Company granted a lien upon and
security interests in substantially all of its assets. The loan agreement
requires that the Company sell its remaining interest in New Bush Hog on or
before June 30, 2000. Restrictions in the Foothill loan agreement include, among
other things, limitations on capital expenditures, liens and guaranties and
restrictions on acquisitions, investments and dividends without Foothill's
consent. Financial covenants include a covenant that earnings before interest,
taxes, depreciation and amortization (EBITDA), exclusive of extraordinary gains,
exceed the amounts listed below as of the dates and for the periods indicated:
<TABLE>
<S> <C> <C>
June 30, 2000 last three months ($1,300,000)
September 30, 2000 last six months ($3,500,000)
December 31, 2000 last nine months ($4,600,000)
March 31, 2001 last twelve months ($3,900,000)
June 30, 2001 last twelve months ($3,000,000)
September 30, 2001 last twelve months $1,300,000
December 31, 2001 last twelve months $7,600,000
</TABLE>
While the Company projects that it will be able to comply with this
covenant, the Company's EBITDA for future periods cannot be predicted with a
reasonable degree of certainty. The Company's future operating results depend,
among other things, upon the receipt in the next several months and continuing
thereafter of new press orders in appropriate sequences and bearing appropriate
margins. Because the Borrowing Base is limited solely to a percentage of
eligible accounts receivable and inventories relating to presses which are
within 60 days of shipment (and not to a percentage of total inventories as
well), the credit facility is not a source of financing for the substantial
work-in-process inventories frequently required in the Company's business. This
will limit the number and magnitude of press orders without customer deposits
which the Company may accept.
On March 23, 2000, the Company agreed to sell its New Bush Hog membership
interest to Bush Hog Investors for $31,426,134, less 19.9% of net balance sheet
adjustments of New Bush Hog through the closing date. On March 7, 2000, New Bush
Hog reduced its net worth by approximately $18,000,000 by making distributions
to its members including approximately $3,600,000 to the Company. The Company
therefore expects to receive from the sale approximately $28,000,000 plus the
Company's pro rata share of New Bush Hog's undistributed income through the
closing. The sale is scheduled to close on or before June 30, 2000.
Approximately $4,000,000 of the sale proceeds will be escrowed as security for
the Company's indemnification obligations under the Company's initial sale of an
80.1% membership interest to Bush Hog Investors. The Company will apply
$18,000,000 of the proceeds from the sale of its membership interest in New Bush
Hog to prepay its outstanding indebtedness to LaSalle under the loan agreement
described above.
The Company is installing a horizontal boring mill acquired in an
installment sale for approximately $5,000,000 and is negotiating a five-year
financing lease to finance the acquisition. The Company believes that the
acquisition of this new equipment will permit the Company to reduce
subcontracting on future major press orders.
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OUTLOOK
The sale of an 80.1% membership interest in New Bush Hog and the proposed
sale of the Company's remaining membership interest in New Bush Hog will have a
positive effect on the Company's working capital, equity and debt-to-equity
ratio. At the same time, the effect of the sale is to deprive the Company of the
cash flow generated by the operating activities of its former Agricultural
Products Group ($12,790,000 and $7,862,000, respectively in 1999 and 1998).
The principal sources of liquidity for the Company's continuing operations
will be its operating cash flows, if any, and borrowings under the new credit
facility with Foothill. The Company projects that after application of the net
proceeds of the sale of an 80.1% interest in New Bush Hog, it will require
approximately $37,000,000 in cash in 2000 to, among other things, (1) discharge
certain accrued liabilities and claims arising out of events associated with
operations of the Agricultural Products Group before March 7, 2000,
(2) extinguish the remainder of its outstanding indebtedness to banks,
(3) reduce outstanding payables, (4) finance peak working capital requirements
of the Industrial Products Group and (5) finance the acquisition of new
equipment. Verson's peak working capital requirements could vary significantly,
either higher or lower, from the projected level. The working capital needs of
Verson will depend upon the magnitude of new press orders, the timing of the
receipt of those orders, the timing of production under the orders and the
extent to which the Company receives progress payments on those orders. The
Company's working capital projections are also conditioned upon successful
negotiation of the Verson labor agreement which expires in June 2000. The
Company anticipates that its projected cash and capital requirements will be
funded in part by the proceeds (net of escrow requirements) from the sale of its
remaining New Bush Hog membership interest (approximately $24,000,000) and a
financing lease (approximately $5,000,000), with the remainder being financed by
borrowings under the Foothill credit facility.
The key challenges faced by the Company's Industrial Products Group include:
1. New Profitable Business. The Group's operating results in 2000 will be
adversely affected by (a) the current low level of the Group's backlog
($51,401,000 at December 31, 1999 compared to $145,268,000 a year
earlier) and (b) the fact that approximately 50% of the current backlog
represents no margin work booked in 1997. Because of the fall off in new
orders in 1999 and the first quarter of 2000, Verson is expected to have
excess capacity during 2000, revenues are expected to decline
substantially and the Company anticipates that it will incur an
operating loss. The group's long term viability depends upon the
generation of new orders with appropriate margins as well as a timely
adjustment of the Company's cost structure consistent with the level of
orders received.
2. Management of Major Projects. The Company has been working to correct
the operating problems of its Industrial Products Group and has taken
several significant steps which it believes will help to correct the
problems. These steps include changes in the group management team,
development of a new planning system that will help the Company plan and
track engineering, purchasing and manufacturing costs, and the
acquisition of equipment which should enable the Company to reduce
outsourcing work. The group in the future must demonstrate its ability
to estimate costs of major projects accurately and to manage those
projects so that they are completed on time and on budget.
3. Adequacy of Financial Resources. The Company and one of its customers
amended several related press orders to address the customer's concern
that the Company may lack the necessary financial resources to complete
orders already in production. The customer has conditionally agreed to
permit the completion of the orders pursuant to a revised schedule,
subject to the customer's ongoing review of the Company's financial
status. Similarly, due to the Company's financial condition, the Company
was slow during 1999 and the first quarter of 2000 to make payments to
its creditors, including its suppliers. This has raised concern among
suppliers about whether to continue to supply the Company and extend
additional credit. Two additional challenges that the Company faces in
its business are (1) the business must carry relatively large
work-in-process inventories because of the significant periods of time
necessary to plan, design and build large metal forming presses and
(2) the business is subject to the timing, severity and duration of
automotive customer buying cycles. The Company must have the ability to
obtain financing, including customer deposits, in order to address these
challenges.
16
<PAGE>
The Company has obtained the Foothill credit lines of up to $30,000,000
secured by the assets of its Verson division and anticipates that it will enter
into a financing lease during the second quarter of 2000 to finance capital
equipment purchased during the first quarter of 2000 at a cost of approximately
$5,000,000. These financings are subject to preconditions regarding the
Company's eligible borrowing base and to on-going compliance requirements, which
if not met would permit Foothill and/or the financing lease lessor to declare an
event of default under the applicable agreements. The Company's ability to meet
these requirements is dependent on future results which cannot be predicted with
certainty.
Although the Foothill credit lines (with the exceptions previously noted) do
not provide for loans against work-in-process and raw material inventories, the
Company believes that it has financing in place for calendar year 2000 that will
be adequate to support the initiatives necessary in 2000 to improve the
operations of Verson and secure new orders. While there can be no assurance that
additional financing will not be necessary at some point in 2000, currently the
credit line appears sufficient to address projected fluctuations in working
capital and cash requirements. If these lines of credit become inadequate or an
event of default is declared, the Company will be required to pursue alternative
financing sources at that time.
MARKET RISK
The Company's market risk is the exposure to adverse changes in interest
rates. At December 31, 1999, the Company's total debt outstanding (revolving
credit agreement and capitalized leases) totaled $134,483,000. Capitalized lease
debt ($3,783,000) was represented by fixed rate financing and was not subject to
market rate fluctuations. The remaining portion of the Company's debt at
December 31, 1999 ($130,700,000) was subject to the terms of the Amended and
Restated Credit Agreement that provided for interest rates at either a floating
prime (prime plus 250 basis points) or fixed LIBOR rate, plus 400 basis points.
The base interest rates were periodically agreed to with the lender for fixed
periods of 30 to 90 days. The balance outstanding at December 31, 1999
approximated fair market value. A hypothetical immediate 10% increase in
interest rates would adversely affect 2000 earnings and cash flow by
approximately $1,335,000 based on the composition of debt levels at
December 31, 1999.
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. As of the date of the filing of this annual report on Form 10-K, the
Company has not experienced any Year 2000 problems, either internally or with
third party vendors or customers. Although the Company is not aware of any Year
2000 problems experienced by its third party vendors and does not expect that
its operations will be affected by any Year 2000 problems in the future, there
can be no assurance that the Company's operations will not be affected by Year
2000 problems. However, the Company believes that the possibility of significant
interruptions of normal operations is remote.
CAUTIONARY FACTORS
This report and other documents or oral statements which have been and will
be prepared or made in the future contain or may contain forward-looking
statements by or on behalf of the Company. Such statements are based upon
management's expectations at the time they are made. Actual results may differ
materially. In addition to the assumptions and other factors referred to
specifically in connection with such statements, the following factors, among
others, could cause actual results to differ materially from those contemplated.
The Company's principal continuing business involves designing,
manufacturing, marketing and servicing complex medium and large metal forming
presses. Significant periods of time are necessary to plan, design and build
these complex machines. With respect to new presses, there are risks of customer
acceptances and start-up or performance problems. Large amounts of capital are
required to be devoted by the Company's customers to purchase and install these
presses. The installation of the press may be an integral part of a customer's
program for the introduction and manufacture of a new model of an automobile or
appliance. The Company's success in obtaining and managing a relatively small
number of sales opportunities, including the Company's success in securing
progress payments for such sales and meeting the requirements of warranties and
guarantees associated with such sales, can affect the Company's financial
performance.
Other factors that could cause actual results to differ materially from
those contemplated include:
- Factors relating to the Company's ability to obtain financing and
refinancing, to comply with covenants in its loan agreements and to
maintain a satisfactory credit standing with its suppliers.
- Factors affecting customers' purchases of new equipment, rebuilds, parts
and services such as: the restructuring and automation of customer
17
<PAGE>
manufacturing processes, the cash flows of customers; consolidations in
the automobile industry; work stoppages at customers; and the timing,
severity and duration of automotive customer buying cycles.
- Factors affecting the Company's ability to capture available sales
opportunities, including: customers' perceptions of the quality and value
of the Company's products as compared to competitors' products; customers'
perceptions of the advantages of dealing with a single press manufacturer;
whether the Company has successful reference installations demonstrate the
speed, efficiency and reliability of new presses to customers; customers'
perceptions of the health and stability of the Company as compared to its
competitors; the availability of manufacturing capacity at the Company's
factory and changes in the value of the dollar relative to German and
Japanese currencies.
- Factors affecting the Company's ability to successfully manage sales it
obtains, such as: the accuracy of the Company's cost and time estimates
for major projects; the adequacy of the Company's systems to manage major
projects and its success in completing projects on time and within budget;
the Company's success in recruiting and retaining managers and key
employees; wage stability and cooperative labor relations; and plant
capacity and utilization.
- Factors affecting the Company's general business, such as: unforeseen
patent, tax, product, environmental, employee health or benefit, or
contractual liabilities; nonrecurring restructuring and other special
charges; changes in accounting or tax rules or regulations; reassessments
of asset valuations for such assets as receivables, inventories, fixed
assets and intangible assets; and leverage and debt service.
SAFE HARBOR STATEMENT
Statements contained within the description of the business of the Company
contained in Item 1, the Management's Discussion and Analysis of Financial
Conditions and Results of Operation as well as within the non 10-K portion of
the 1999 Annual Report that relate to future operating periods are subject to
risks and uncertainties that could cause actual results to differ from
management's projections. Operations of the Company include the manufacturing
and sale of agricultural and industrial machinery. 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.
Additional risks and uncertainties under the sections "Outlook" and "Cautionary
Factors" within the Management's Discussion and Analysis of Financial Condition
and Results of Operation should also be noted. The Company's outlook is based
upon assumptions relating to the factors discussed above.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated herein by reference to
the section entitled, "Market Risk" in the Company's Management's Discussion and
Analysis of Financial Condition and Results of Operations.
18
<PAGE>
(This page has been left blank intentionally.)
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of Allied Products Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income (loss), shareholders' investment and cash
flows listed in the index appearing under Part IV of Form 10-K (Item 14(a)1),
present fairly, in all material respects, the consolidated financial position of
Allied Products Corporation and its subsidiaries at December 31, 1999 and 1998,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. In addition, in
our opinion, the financial statement schedule listed in the index appearing
under Part IV of Form 10-K (Item 14(a)2) presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and the
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
the financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
April 3, 2000
20
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net sales from continuing operations............ $143,775,000 $137,020,000 $151,091,000
Cost of products sold........................... 147,961,000 147,114,000 123,099,000
------------ ------------ ------------
Gross profit (loss)........................... $ (4,186,000) $(10,094,000) $ 27,992,000
------------ ------------ ------------
Other costs and expenses:
Selling and administrative expenses........... $ 22,113,000 $ 21,251,000 $ 21,440,000
Interest expense.............................. 6,205,000 3,732,000 1,889,000
Other (income) expense, net................... 1,836,000 922,000 $ (3,018,000)
------------ ------------ ------------
$ 30,154,000 $ 25,905,000 $ 20,311,000
------------ ------------ ------------
Income (loss) before taxes from continuing
operations.................................... $(34,340,000) $(35,999,000) $ 7,681,000
Provision (benefit) for income taxes:
Current....................................... -- 12,000 84,000
Deferred...................................... -- (6,225,000) 2,757,000
------------ ------------ ------------
Income (loss) from continuing operations........ $(34,340,000) $(29,786,000) $ 4,840,000
Discontinued operations, net of tax............. 7,575,000 15,673,000 10,806,000
------------ ------------ ------------
Net income (loss)............................... $(26,765,000) $(14,113,000) $ 15,646,000
============ ============ ============
Earnings (loss) per common share:
Basic:
Continuing operations....................... $(2.90) $(2.51) $0.40
0.64 1.32 0.89
------------ ------------ ------------
Discontinued operations.....................
$(2.26) $(1.19) $1.29
============ ============ ============
Income (loss) per common share..............
Diluted:
$(2.90) $(2.51) $0.39
Continuing operations.......................
0.64 1.32 0.88
------------ ------------ ------------
Discontinued operations.....................
$(2.26) $(1.19) $1.27
============ ============ ============
Income (loss) per common share..............
Weighted average shares outstanding:
Basic......................................... 11,838,000 11,895,000 12,107,000
============ ============ ============
Diluted....................................... 11,838,000 11,895,000 12,353,000
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
21
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 1,054,000 $ 727,000
------------ ------------
Notes and accounts receivable, less allowances of
$1,130,000 and $266,000, respectively................... $ 20,460,000 $ 25,701,000
------------ ------------
Inventories:
Raw materials........................................... $ 3,571,000 $ 5,591,000
Work in process......................................... 43,094,000 61,616,000
------------ ------------
$ 46,665,000 $ 67,207,000
------------ ------------
Deferred tax asset........................................ $ 8,995,000 $ 10,540,000
------------ ------------
Prepaid expenses.......................................... $ 228,000 $ 315,000
------------ ------------
Current assets associated with discontinued operations.... $ 84,073,000 $ 77,374,000
------------ ------------
Total current assets.................................. $161,475,000 $181,864,000
------------ ------------
Plant and Equipment, at cost:
Land...................................................... $ 1,671,000 $ 1,688,000
Buildings and improvements................................ 52,435,000 49,036,000
Machinery and equipment................................... 36,603,000 32,863,000
------------ ------------
$ 90,709,000 $ 83,587,000
Less--Accumulated depreciation and amortization........... 32,023,000 26,971,000
------------ ------------
$ 58,686,000 $ 56,616,000
------------ ------------
Other Assets:
Deferred tax asset........................................ $ 4,165,000 $ 4,165,000
Deferred charges (goodwill), net of amortization.......... 1,134,000 1,313,000
Other..................................................... 2,853,000 2,511,000
Noncurrent assets associated with discontinued
operations.............................................. 28,298,000 29,335,000
------------ ------------
$ 36,450,000 $ 37,324,000
------------ ------------
$256,611,000 $275,804,000
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
22
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Current Liabilities:
Revolving credit agreement................................ $130,700,000 $119,300,000
Current portion of long-term debt......................... 1,023,000 223,000
Accounts payable.......................................... 32,659,000 46,560,000
Accrued expenses.......................................... 22,648,000 19,350,000
Current liabilities associated with discontinued
operations.............................................. 17,877,000 11,386,000
------------ ------------
Total current liabilities............................. $204,907,000 $196,819,000
------------ ------------
Long-term debt, less current portion shown above............ $ 378,000 $ 572,000
------------ ------------
Other long-term liabilities................................. $ 5,442,000 $ 4,557,000
------------ ------------
Noncurrent liabilities associated with discontinued
operations................................................ $ 2,814,000 $ 2,126,000
------------ ------------
Commitments and Contingencies
Shareholders' Investment:
Preferred stock:
Undesignated--authorized 2,000,000 shares at
December 31, 1999 and 1998; none issued............... $ -- $ --
Common stock, par value $.01 per share; authorized
25,000,000 shares; issued 14,047,249 shares at
December 31, 1999 and 1998.............................. 140,000 140,000
Additional paid-in capital................................ 97,971,000 98,377,000
Retained earnings (deficit)............................... (12,524,000) 16,131,000
------------ ------------
$ 85,587,000 $114,648,000
Treasury stock at cost: 2,200,203 and 2,228,640 shares at
December 31, 1999 and 1998, respectively................ (42,517,000) (42,918,000)
------------ ------------
Total shareholders' investment........................ $ 43,070,000 $ 71,730,000
------------ ------------
$256,611,000 $275,804,000
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
23
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Income (loss) from continuing operations..... $ (34,340,000) $ (29,786,000) $ 4,840,000
Income from discontinued operations.......... 7,575,000 15,673,000 10,806,000
------------- ------------- ------------
Net income (loss).......................... $ (26,765,000) $ (14,113,000) $ 15,646,000
Adjustments to reconcile income (loss) from
continuing operations to cash provided from
(used for) operating activities:
Gains on sales of operating and
nonoperating assets...................... (75,000) (1,829,000) (1,628,000)
Depreciation and amortization.............. 5,288,000 3,316,000 2,867,000
Amortization of deferred charges........... 179,000 179,000 177,000
Deferred income tax provision (benefit).... -- (6,225,000) 2,757,000
Provision for doubtful accounts............ 1,367,000 179,000 30,000
Provision for inventory valuation.......... 12,122,000 8,813,000 --
Stock option compensation.................. -- 1,119,000 1,375,000
Changes in noncash assets and liabilities,
net of effects of assets/businesses
acquired or sold and noncash
transactions:
(Increase) decrease in accounts
receivable............................. 3,874,000 (5,341,000) 1,081,000
(Increase) decrease in inventories....... 8,420,000 (25,083,000) (20,795,000)
(Increase) decrease in prepaid
expenses............................... 87,000 70,000 (297,000)
Increase (decrease) in accounts payable
and accrued expenses................... (9,921,000) 29,324,000 (4,628,000)
Other, net................................. 638,000 (1,187,000) (723,000)
Adjustment to reconcile income from
discontinued operations to cash provided
from (used for) discontinued operations.... 5,215,000 (7,811,000) 2,123,000
------------- ------------- ------------
Net cash provided from (used for) operating
activities................................. $ 429,000 $ (18,589,000) $ (2,015,000)
------------- ------------- ------------
Cash Flows from Investing Activities:
Additions to plant and equipment............. $ (7,085,000) $ (30,459,000) $(10,564,000)
Proceeds from sales of plant and equipment... 74,000 3,317,000 465,000
Proceeds from sales of assets/businesses..... -- -- 14,737,000
Net cash used in discontinued operations..... (1,708,000) (19,222,000) (4,731,000)
------------- ------------- ------------
Net cash used for investing activities....... $ (8,719,000) $ (46,364,000) $ (93,000)
------------- ------------- ------------
Cash Flows from Financing Activities:
Borrowings under revolving credit
agreements................................. $ 124,000,000 $ 186,000,000 $122,000,000
Payments under revolving credit agreements... (112,600,000) (117,100,000) (98,600,000)
Payments of short and long-term debt......... (361,000) (218,000) (152,000)
Purchases of treasury stock.................. -- (1,624,000) (21,572,000)
Dividends paid............................... (1,890,000) (1,904,000) (1,770,000)
Stock rights/option transactions............. (119,000) 91,000 2,096,000
Net cash used in discontinued operations..... (413,000) (174,000) (118,000)
------------- ------------- ------------
Net cash provided from financing
activities................................. $ 8,617,000 $ 65,071,000 $ 1,884,000
------------- ------------- ------------
Net increase (decrease) in cash and cash
equivalents.................................. $ 327,000 $ 118,000 $ (224,000)
Cash and cash equivalents at beginning of
year......................................... 727,000 609,000 833,000
------------- ------------- ------------
Cash and cash equivalents at end of year....... $ 1,054,000 $ 727,000 $ 609,000
============= ============= ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
24
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
----------- ---------- ----------
<C> <S> <C> <C> <C>
Supplemental Information:
(A) Noncash investing and financing activities:
1. Assets acquired through the assumption of
debt......................................... $ 1,632,000 $1,559,000 $ 526,000
=========== ========== ==========
2. Treasury shares issued in lieu of cash for the
Company's Incentive Compensation Plan........ $ 114,000 $ -- $ --
=========== ========== ==========
(B) Interest paid during year...................... $11,564,000 $6,033,000 $3,225,000
=========== ========== ==========
(C) Income/franchise taxes paid, net of (refunds),
during year.................................. $ (351,000) $1,072,000 $1,313,000
=========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
25
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
COMMON AND TREASURY STOCK
<TABLE>
<CAPTION>
COMMON TREASURY
($.01 PAR VALUE STOCK,
PER SHARE) AT COST
--------------- ------------
<S> <C> <C>
Balance at December 31, 1996................................ $ 94,000 $(23,539,000)
Issuance of 4,682,405 common shares in connection with a
three-for-two stock split............................... 46,000 --
Purchase of 974,930 common shares for treasury purposes... -- (21,572,000)
Treasury shares issued (188,273) in connection with the
exercises of stock options.............................. -- 2,858,000
-------- ------------
Balance at December 31, 1997................................ $140,000 $(42,253,000)
Purchase of 144,943 common shares for treasury purposes... -- (1,624,000)
Treasury shares issued (60,566) in connection with the
exercises of stock options.............................. -- 959,000
-------- ------------
Balance at December 31, 1998................................ $140,000 $(42,918,000)
Treasury shares issued (28,437) in lieu of cash for the
Company's Incentive Compensation Plan................... -- 401,000
-------- ------------
Balance at December 31, 1999................................ $140,000 $(42,517,000)
======== ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
26
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
ADDITIONAL PAID-IN CAPITAL AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
PAID-IN EARNINGS
CAPITAL (DEFICIT)
----------- ------------
<S> <C> <C>
Balance at December 31, 1996................................ $97,586,000 $ 18,272,000
Net income for the year................................... -- 15,646,000
Common dividends declared and paid--$.147 per share....... -- (1,770,000)
Issuance of 4,682,405 common shares in connection with a
three-for-two stock split............................... (46,000) --
Treasury shares issued in connection with the exercises of
stock options........................................... 613,000 --
Tax benefit associated with stock option exercises........ 365,000 --
----------- ------------
Balance at December 31, 1997................................ $98,518,000 $ 32,148,000
Net loss for the year..................................... -- (14,113,000)
Common dividends declared and paid--$.16 per share........ -- (1,904,000)
Treasury shares issued in connection with the exercises of
stock options........................................... (141,000) --
----------- ------------
Balance at December 31, 1998................................ $98,377,000 $ 16,131,000
Net loss for the year..................................... -- (26,765,000)
Common dividends declared and paid--$.16 per share........ -- (1,890,000)
Treasury shares issued in lieu of cash for the Company's
Incentive Compensation Plan............................. (287,000) --
Purchase of Shareholder Rights............................ (119,000) --
----------- ------------
Balance at December 31, 1999................................ $97,971,000 $(12,524,000)
=========== ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements
27
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION--
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries. All significant intercompany items and
transactions have been eliminated.
NATURE OF OPERATIONS--
Allied Products Corporation's continuing operations manufacture large metal
stamping presses through its Industrial Products Group. The Company's
Agricultural Products Group, which manufactured implements and machinery used in
agriculture, landscaping and ground maintenance businesses, was sold subsequent
to the end of 1999--see Note 3. The Company's Coz division, which was part of
the Industrial Products Group and supplied thermoplastic compounds and
additives, was sold in the fourth quarter of 1997. All manufacturing operations
are within the United States. Implements and machinery manufactured by the
discontinued Agricultural Products Group are primarily sold through dealerships
in the United States with some limited export sales to Canada. Metal stamping
presses produced by the Industrial Products Group are sold directly to the end
users which include automobile manufacturers, first and second tier automotive
parts producing companies and the appliance industry. Automobile manufacturers
and automotive parts producing companies account for approximately 95% of
consolidated net sales from continuing operations in 1999. Press sales generally
are concentrated in the United States and Mexico.
USE OF ESTIMATES--
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Due to the
nature of percentage of completion estimates, it is reasonably possible that
cost estimates will be revised in the near term.
REVENUE RECOGNITION--
Sales by the discontinued Agricultural Products Group are recorded when
products are shipped to independent dealers in accordance with industry
practices. Provisions for sales incentives and other sales related expenses are
made at the time of the sale.
Revenue and costs related to press manufacturing within the Industrial
Products Group are recognized on the percentage of completion method. Prior to
1997, the Company's basis for measuring progress on contracts was based
primarily on internal labor hours. At the time, labor hours of Company employees
were considered a reasonable indicator of the progress on the contract. In late
1996, because of a significant increase in the Company's backlog, significantly
more subcontracting was starting to be initiated on each project. In the first
quarter of 1997, it was concluded that using Verson labor hours as a basis for
measuring progress was not consistent with how business was being done. The
Company concluded that it was more appropriate to use a production milestone
approach by individual press in the first quarter of 1997. This approach to
measuring progress focused on engineering, manufacturing and final check-out as
the key measures on individual presses manufactured under one contract. At the
beginning of each job, cost and revenue estimates were made for both engineering
and manufacturing work. Estimates were also made on the amount of time the
engineering and manufacturing work would take to complete.
Under this contract milestone approach, the key progress measures were based
on the estimated timeframe assoiated with the engineering and production process
of each individual press. The determination of progress was based upon the
months of engineering or production incurred, compared to total engineering or
production scheduled for each individual press.
28
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
Verson personnel monitored progress on individual presses on an ongoing
basis. Such monitoring would result in changes based upon changes in the
estimated time to complete engineering and manufacturing work.
In the fourth quarter of 1998, the Company undertook a comprehensive review
of the compilation of costs and revenue recognition associated with each press
and recorded additional changes to cost estimates of approximately $21,000,000.
The Company determined that, in an environment where there were significant
production delays, subcontract delays, internal space constraints, cost overruns
and inefficiencies, reassessment of the appropriateness of measuring progress
based on contract milestones was required. Commencing in the fourth quarter of
1998, the Company discontinued using contact milestones to measure contract
progress and began measuring progress on contracts based on the percentage that
incurred costs to date bear to the total estimated costs after giving effect to
the most recent estimates of total costs.
The cumulative impact of revisions in total cost estimates during the
manufacturing process is reflected in the period in which the changes become
known. On press orders where margin levels cannot be reasonably estimated, the
Company does not recognize any gross profit margin until the particular press in
process reaches a point in production where the gross profit margin can be
reasonably estimated. Margins are then recognized over the remaining period of
production. Certain press orders contain penalties for late delivery. Such
penalties are considered part of the cost of the press when late delivery of the
press appears probable. Losses expected to be incurred on jobs in process are
charged to income as soon as such losses are known. The Company has recorded
cumulative contract losses of $22,079,000 and $12,079,000 (including reserves of
$5,142,000 and $8,813,000 at December 31, 1999 and 1998, respectively, for
estimated future losses expected to be incurred on jobs in process) associated
with several jobs in process having a total sales value of $103,430,000 and
$104,734,000 at December 31, 1999 and 1998, respectively. Other uncertainties
associated with these contracts make it reasonably possible that additional
losses could occur in the near term--see Note 10.
ACCOUNTS RECEIVABLE--
Current accounts receivables for the discontinued Agricultural Products
Group are net of provisions for sales incentive programs and returns and
allowances. Extended payment terms (up to one year) are offered to dealers in
the form of floor plan financing which is customary within the industry. Such
receivables (with the exception of receivables associated with service parts)
are generally not collected until the dealer sells the related piece of
equipment to a retail customer. The Company maintains a security interest in the
equipment related to such receivables to minimize the risk of loss.
INVENTORIES--
The basis of all of the Company's inventories is determined by using the
lower of FIFO cost or market method.
Included in work in process inventory are accumulated costs ($49,105,000 at
December 31, 1999 and $70,400,000 at December 31, 1998) associated with
contracts under which the Company recognizes revenue on a percentage of
completion basis. These balances include unbilled actual production costs
incurred plus a measure of estimated profit/loss ($3,786,000 loss at December
31, 1999 and $695,000 profit at December 31, 1998) recognized in relation to the
sales recorded, less customer payments ($36,580,000 at December 31, 1999 and
$25,902,000 at December 31, 1998) associated with the work in process inventory.
A significant portion of the work in process inventory will be completed,
shipped and invoiced prior to the end of the following year.
PLANT AND EQUIPMENT--
Expenditures for the maintenance and repair of plant and equipment are
charged to expense as incurred. Expenditures for major replacement or betterment
are capitalized. Interest costs of $979,000 were capitalized in 1998 (none in
1999 or 1997) in relation to the construction of a building
29
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
addition at the Verson division of the Industrial Products Group. The cost and
related accumulated depreciation of plant and equipment replaced, retired or
otherwise disposed of is removed from the accounts and any gain or loss is
reflected in earnings.
DEPRECIATION--
Depreciation of the original cost of plant and equipment is charged to
expense over the estimated useful lives of such assets calculated under the
straight-line method. Estimated useful lives are 20 to 40 years for buildings
and improvements and 3 to 12 years for machinery and equipment.
DEFERRED CHARGES (GOODWILL)--
Deferred charges (goodwill) associated with the 1986 acquisition of Verson
(cost of approximately $13,113,000) is being amortized on a straight line basis
over a period of 20 years.
VALUATION OF LONG-LIVED ASSETS--
Long-lived assets such as property, plant and equipment and goodwill are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. If the fair value is less than
the carrying amount of the asset, a loss is recognized for the difference.
STOCK SPLIT--
On July 24, 1997, the Company announced that the Board of Directors
authorized a three-for-two stock split effected by means of a stock dividend to
shareholders of record on August 15, 1997. A total of 4,682,405 additional
common shares were issued in conjunction with the stock split. The Company
distributed cash in lieu of fractional shares resulting from the stock split.
All applicable share and per share data have been adjusted for the stock split.
EARNINGS (LOSS) PER COMMON SHARE--
Basic earnings (loss) per common share is based on the average number of
common shares outstanding--11,838,000, 11,895,000 and 12,107,000 for the years
ended December 31, 1999, 1998 and 1997, respectively. Diluted earnings (loss)
per common share is based on the average number of common shares outstanding, as
noted above, increased by the dilutive effect of outstanding stock
options--246,000 for the year ended December 31, 1997. For the years ended
December 31, 1999 and 1998, dilutive securities were excluded from the
calculation of diluted loss per share as their effect would have been
antidilutive.
INCOME TAXES--
Income taxes are accounted for under the asset and liability method in
accordance with FASB SFAS 109--Accounting for Income Taxes. See Note 4.
STATEMENT OF CASH FLOWS--
The Company considers investments with original maturities of three months
or less to be cash equivalents.
FINANCIAL INSTRUMENTS--
The fair value of cash and cash equivalents approximates the carrying value
of these assets due to the short maturity of these instruments. The fair value
of the Company's debt, current and long-term, is estimated to approximate the
carrying value of these liabilities based upon borrowing rates currently
available to the Company for borrowings with similar terms.
RECLASSIFICATIONS--
The Consolidated Statements of Income (Loss) for the years ended
December 31, 1998 and 1997 reflect certain inmaterial adjustments between
continuing and discontinued operations made to a previous unaudited presentation
of such amounts.
30
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
2. ACCRUED EXPENSES:
The Company's accrued expenses related to continuing operations consist of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Salaries and wages............................... $ 1,943,000 $ 2,800,000
Warranty......................................... 5,563,000 4,687,000
Self insurance accruals.......................... 2,871,000 2,875,000
Pensions, including retirees' health............. 5,362,000 4,644,000
Taxes, other than income taxes................... 949,000 888,000
Environmental matters............................ 2,376,000 1,225,000
Other............................................ 3,584,000 2,231,000
----------- -----------
$22,648,000 $19,350,000
=========== ===========
</TABLE>
3. ACQUISITIONS AND DISPOSITIONS:
ACQUISITIONS--
In April 1998, the Company acquired for cash substantially all of the assets
and assumed certain liabilities of Great Bend Manufacturing Company ("Great
Bend") located in Great Bend, Kansas. Great Bend manufactures and sells
tractor-mounted front end loaders which are used principally in agricultural
applications. The Company also acquired for cash in April 1998 substantially all
of the assets of Universal Turf Equipment Corporation ("Universal Turf") located
in Opp, Alabama. Universal Turf manufactures and sells turf maintenance
implements including reel mowers, verti-cut mowers, reel grinders and spraying
equipment. Both operations acquired are part of the discontinued Agricultural
Products Group. Total cash purchase price for both of these operations was
$10,953,000.
In October 1998, the Company's Verson division formed a joint venture with
Theodor Grabener GmbH & Co. KG of Germany and Automatic Feed Company of
Napoleon, Ohio, that will help the two American companies more effectively
penetrate the European market for large stamping presses and related systems.
The new entity, Verson Pressentechnik GmbH, is located in Netphen-Werthenbach,
Germany. This operation, in which Verson holds a 60% stake, is part of the
Industrial Products Group. These acquisitions, taken individually and in the
aggregate, are not material to the Company's consolidated operations.
DISPOSITIONS--
During the fourth quarter of 1997, the Company sold for cash (approximately
$14,700,000) substantially all of the assets of its Coz division. The purchaser
also assumed certain specified liabilities associated with this division. The
sale resulted in a pretax gain of approximately $1,530,000 and is included in
Other (income) expense under the caption "Net gain on sales of operating and
non-operating assets"--see Note 12.
At the end of 1993, the Company sold for cash substantially all of the
assets and liabilities of the White-New Idea Farm Equipment division. In
connection with this sale, the purchaser was required to purchase the real
estate located in Coldwater, Ohio upon the issuance of a covenant not to sue and
related no further action letter by the Ohio Environmental Protection Agency.
The Company completed the necessary environmental remediation during 1997 and,
in 1998, the purchaser acquired the real estate for cash resulting in a gain of
approximately $1,947,000, which is included in Other (income) expense under the
caption "Net gain on sales of operating and non-operating assets"--see Note 12.
DISCONTINUED OPERATIONS--
On July 16, 1999, the Company announced that it had signed a letter of
intent with CC Industries, Inc., a privately held firm headquartered in Chicago,
to form a new joint venture that would own and
31
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
operate the Company's divisions (Bush Hog and Great Bend) of the Agricultural
Products Group. On March 7, 2000, the Company's shareholders approved the
Limited Liability Company Interest Purchase and Asset Contribution Agreement
("Purchase Agreement") by and among the Company, Bush Hog, L.L.C., a Delaware
limited liabillity company ("New Bush Hog") and Bush Hog Investors, L.L.C., a
Delaware limited liability company ("Bush Hog Investors").
Pursuant to the Purchase Agreement, the Company agreed (i) to transfer to
New Bush Hog substantially all of the assets and certain liabilities of the Bush
Hog and Great Bend divisions constituting the Agricultural Products Group in
exchange for all of the outstanding membership interests of New Bush Hog and
(ii) to sell to Bush Hog Investors membership interests representing 80.1% of
the total outstanding membership interests of New Bush Hog for a purchase price
of $126,494,000, subject to post-closing adjustments. This sale was consummated
on March 7, 2000. Upon consummation of the joint venture, New Bush Hog owns
substantially all of the assets of the Agricultural Products Group subject to
some of its liabilities, the Company has significantly reduced its bank
indebtedness, Bush Hog Investors became the owner of 80.1% of the outstanding
membership interests of New Bush Hog and the Company owned 19.9% of the
outstanding membership interests of New Bush Hog.
The Company retained all liabilities and obligations for claims made with
respect to events or injuries occurring before the closing, including product
liability, workers' compensation and environmental claims and claims regarding
employment practices. The liabilities retained by the Company include
liabilities under existing product liability claims, any additional claims,
including product liability claims, arising out of events associated with
operations of the Agricultural Product Group before the closing, and workers'
compensation claims, for which the Company has provided reserves of
approximately $5,600,000. The Company also remains responsible for monetary
liabilities, if any, under a race discrimination class action suit brought by
seven former or present employees of the Company's Bush Hog division--see
Note 10. The Company also retains the obligation to make future contributions,
if any, required to fund obligations under the Bush Hog Salaried Pension Plan.
Benefits under the Plan will be frozen as of the closing. Certain of these
obligations, which are contingent, may effect future results of operations if
and when such obligations become probable and estimable. In addition, the
Company retains liabilities for taxes and other governmental charges relating to
operations before the closing and liabilities under employee benefit plans,
which plans, other than the Bush Hog Salaried Pension Plan, are to be
discontinued at closing.
Following completion of the transaction, the Company retains a minority
interest in New Bush Hog, which will be recorded on a cost basis, and will have
no ability to control the direction and development of New Bush Hog. Under the
cost method of accounting, the investment in New Bush Hog will be reflected in
the Company's balance sheet at cost and dividends from New Bush Hog will be
taken into income as they are received to the extent distributions are not a
return of capital. New Bush Hog is obligated to pay quarterly dividends
approximately equal to quarterly income, subject to certain conditions contained
in the Limited Liability Company Agreement.
The Company applied the net proceeds from the sale to repay existing
indebtedness. The one time gain on the sale of the Agricultural Products Group
business, which will be recognized in the first quarter of 2000 and subject to
final adjustment, is estimated at the closing of the transaction as follows:
<TABLE>
<S> <C>
Purchase price.............................................. $126,494,000
Estimated net assets of discontinued operations sold at
closing................................................... (82,458,000)
Estimated transaction costs................................. (2,319,000)
Estimated pension curtailment gain.......................... 2,578,000
Estimated deferred income taxes on asset sold............... (4,403,000)
------------
Estimated gain on sale before taxes......................... $ 39,892,000
============
</TABLE>
32
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
On March 7, 2000, the Company received a distribution of approximately
$3,600,000 from New Bush Hog, which the Company recorded as a return of capital.
On March 24, 2000, the Company announced that it had signed a definitive
agreement to sell its remaining 19.9% interest in New Bush Hog to Bush Hog
Investors for a purchase price of approximately $27,800,000 subject to
post-closing adjustments. The sale, which is expected to close prior to the end
of the second quarter of 2000, is expected to result in a pretax gain of
approximately $9,800,000.
The Company has included the operations of the Agricultural Products Group,
an allocation of all direct financing, administrative, other expenses and income
taxes and a pro rata allocation of interest expense (based upon the group's
proportionate share of consolidated invested capital) under the caption
"Discontinued operations, net of tax" in the accompanying Consolidated
Statements of Income (Loss). Previously issued Consolidated Statements of Income
(Loss) have been revised to reflect the effect of the discontinued operations.
In addition, current and noncurrent assets and liabilities associated with the
above noted discontinued operations have been reclassified in the accompanying
balance sheets.
Summarized results of discontinued operations for the years ended December
31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net sales....................... $143,897,000 $136,814,000 $119,471,000
============ ============ ============
Income before taxes............. $ 7,575,000 $ 14,356,000 $ 17,154,000
Provision (benefit) for income
taxes......................... -- (1,317,000) 6,348,000
------------ ------------ ------------
Discontinued operations, net of
tax........................... $ 7,575,000 $ 15,673,000 $ 10,806,000
============ ============ ============
</TABLE>
Allocated interest expense was $5,145,000, $2,464,000 and $1,417,000 for the
years ended December 31, 1999, 1998 and 1997, respectively. Provision (benefit)
for income taxes has been allocated based on amounts identified with continuing
operations with the remaining provision (benefit) being allocated to
discontinued operations.
4. INCOME TAXES:
Provision (benefit) for income taxes related to continuing operations in
1999, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Federal--current...................... $ -- $ -- $ 35,000
Federal--deferred..................... -- (6,225,000) 2,757,000
State--current........................ -- 12,000 49,000
----------- ----------- ----------
Total provision (benefit)............. $ -- $(6,213,000) $2,841,000
=========== =========== ==========
</TABLE>
33
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
The provision (benefit) for income taxes related to continuing operations in
1999, 1998 and 1997 differs from amounts computed by applying the statutory rate
to pretax income as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
------------ ------------ ----------
<S> <C> <C> <C>
Income tax provision (benefit) at
statutory rate................... $(12,019,000) $(10,425,000) $2,688,000
Current net operating loss not
benefitted....................... 12,019,000 8,414,000 --
State income tax, net of federal
tax benefit...................... -- 8,000 32,000
Permanent book over tax differences
on acquired assets............... -- 62,000 62,000
Reversal of deferred tax
liability........................ -- (4,225,000) --
Other, net......................... -- (47,000) 59,000
------------ ------------ ----------
Total provision (benefit).......... $ -- $ (6,213,000) $2,841,000
============ ============ ==========
</TABLE>
The significant components of net deferred tax assets were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss and tax credit
carryforwards................................ $46,662,000 $52,052,000
Self-insurance accruals........................ 2,654,000 2,507,000
Inventories.................................... 4,871,000 3,942,000
Receivables.................................... 412,000 97,000
Sale/leaseback transaction..................... 1,557,000 1,557,000
Employee benefits, including pensions.......... 3,616,000 3,788,000
Warranty....................................... 2,029,000 1,602,000
Environmental matters.......................... 867,000 447,000
Other.......................................... 1,094,000 765,000
Temporary differences associated with
discontinued operations...................... 5,497,000 4,520,000
----------- -----------
Net deferred tax asset before valuation
allowance.................................... $69,259,000 $71,277,000
Valuation allowance............................ (50,602,000) (52,052,000)
----------- -----------
Net deferred tax asset......................... $18,657,000 $19,225,000
=========== ===========
</TABLE>
Changes in the valuation allowance during 1999 were associated with the
expiration of certain net operating loss carryforwards offset by the effect of
net operating loss carryforwards associated with the current year and additional
valuation allowances related to certain timing differences at December 31, 1999.
The prospects for future earnings of the Company makes it more likely than
not that the Company will utilize the benefits arising from a portion of the net
deferred tax asset noted above. However, no benefit was recorded in 1999 for the
increase in temporary differences as it is likely the items comprising the
increase will reverse and become net operating loss carryforwards in the near
term. Additionally, upon the sale of the discontinued operations in the first
quarter of 2000, an estimated $5,600,000 charge related to certain temporary
differences associated with continuing operations will be recorded. This charge
is for a valuation allowance for certain temporary differences that are expected
to reverse and become, in the near term, net operating loss carryforwards
subject to
34
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
expiration. The valuation allowance was based on management's belief that unless
the Industrial Products Group is able to reduce production costs and return to
profit levels experienced prior to 1997, the sale of the Agricultural Products
Group will further decrease the likelihood of the Company being able to utilize
all of its remaining tax loss carryforwards. During 1998, the Company recorded a
deferred tax benefit of $5,639,000 as a part of that year's tax benefit. This
benefit represents a reversal of a tax liability accumulated in years prior to
1998. The net operating loss carryforwards expire between 2000 and 2014, and
investment tax credit carryforwards of $635,000 expire between 2000 and 2004.
The Company provided a valuation allowance in both 1999 and 1998 for
deferred tax assets related to net operating loss, tax credit carryforwards and
certain timing differences based upon a determination that current negative
evidence outweighs positive evidence with respect to realization being more
likely than not in the future for these components of the net deferred tax
asset. The Company projects that future Federal income tax provisions and
payments will be based upon the Alternative Minimum Tax rate as substantial tax
loss carryforwards still exist for tax reporting purposes.
Tax returns for the years subsequent to 1995 are potentially subject to
audit by the Internal Revenue Service.
5. FINANCIAL ARRANGEMENTS:
The Company's debt, including $1,401,000 at December 31, 1999 ($795,000 at
December 31, 1998) related to continuing operations of which $1,023,000
($223,000 at December 31, 1998) is current, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Capitalized lease obligations, at interest rates up to 12%
(weighted average of 8.3% and 7.8% at December 31, 1999
and 1998, respectively), due in varying amounts through
2005 (Note 6)............................................. $3,783,000 $2,925,000
Less current portion........................................ 1,432,000 627,000
---------- ----------
$2,351,000 $2,298,000
========== ==========
</TABLE>
Scheduled maturities of the noncurrent portion of long-term debt at
December 31, 1999 are due as follows:
<TABLE>
<S> <C>
2001........................................................ $ 559,000
2002........................................................ 388,000
2003........................................................ 348,000
2004........................................................ 571,000
2005........................................................ 485,000
----------
$2,351,000
==========
</TABLE>
During 1996, the Company entered into an Amended and Restated Credit
Agreement with two banks. The Amended and Restated Credit Agreement was
subsequently amended during 1997 and 1998. Effective February 1, 1999, the
Company entered into a Second Amended and Restated Credit Agreement ("Credit
Agreement") with the same two banks, replacing the Amended and Restated Credit
Agreement. During 1999, the Company entered into four amendments and waivers to
the Credit Agreement. As of December 31, 1999, the amended Credit Agreement
provides for up to $135,000,000 of borrowings and/or letters of credit at either
a floating prime (prime plus 250 basis
35
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
points) or fixed LIBOR (LIBOR plus 400 basis points) rate. The Company granted a
lien upon and security interests in all of the assets (except real estate) of
the Company and its subsidiaries to the lenders and was required to meet certain
periodic financial tests. The Company was not in compliance with certain
provisions of the Credit Agreement and related amendments at various times
throughout 1999. Amendments to the Credit Agreement provided for waivers of
compliance through December 31, 1999. In return for a waiver of non-compliance
with certain covenants, the bank required that events of default under the
Credit Agreement be expanded to include failure to complete the joint venture
involving the sale of the Agricultural Products Group.
In contemplation of the sale of an 80.1% interest in the Agricultural
Products Group and to help finance the build up of receivables and inventories
within this group during December and the first quarter of 2000, an affiliate of
Bush Hog Investors agreed, under the Loan and Security Agreement ("Bush Hog
Investors Loan") dated as of December 16, 1999, to loan the Company up to
$5,000,000, secured by the group's real property in Selma, Alabama. Borrowings
under this agreement were to bear interest at floating prime (prime plus 400
basis points). No amounts were borrowed under this agreement during 1999.
During 1998, the Company entered into an interest rate lock in anticipation
of a private debt placement of up to $75,000,000. The Company anticipated that
by entering into a private placement agreement, favorable fixed interest rates
could be obtained on a long-term basis and that exposure to floating interest
rates under the Amended and Restated Credit Agreement would be reduced. During
the fourth quarter of 1998, the Company suspended efforts to secure financing
through a private placement. Hedging losses of $3,005,000 were incurred in 1998
in the final settlement of the interest rate lock and are included in Other
(income) expense under the caption "Treasury lock settlement"--see Note 12.
Also during 1998, the Company entered into an interest rate swap agreement
for a notional amount of $50,000,000, expiring May 2001. Under the terms of the
swap agreement, the Company paid the counterparty a fixed rate of interest
(5.99%) and received in return a floating rate based on LIBOR. This interest
rate swap had the effect of turning $50,000,000 of the Company's floating rate
debt under its credit agreement into a fixed rate obligation. At December 31,
1998, the fixed interest rate paid by the Company under the swap agreement
exceeded the average borrowing rate under the Credit Agreement by .64%. This
rate differential was recorded as interest expense on a monthly basis. The swap
fair market value at December 31, 1998 was a negative $1,100,000. The Company's
weighted average interest rate, independent of the interest paid on the interest
rate swap, was approximately 7% at December 31, 1998 (7.2% including the
interest paid on the interest rate swap). During the third quarter of 1999, the
interest rate swap was terminated at no cost to the Company.
The weighted average interest rate on borrowings outstanding at
December 31, 1999 and 1998 were 10.2% and 7.2%, respectively.
SUBSEQUENT EVENT--
Effective February 11, 2000, the Company entered into a Fifth Amendment and
Consent to the Credit Agreement. The amended agreement provided for up to
$138,000,000 of borrowings and/or letters of credit and extended the termination
date of the agreement to March 7, 2000.
On March 7, 2000, the Company entered into a Loan and Security Agreement
with LaSalle Bank National Association ("LaSalle"). Under the terms of the
agreement, the Company may borrow up to $18,000,000 at a floating prime (prime
less 100 basis points) rate within three months after the closing of the
agreement. Amounts outstanding under the agreement are due 30 months after
closing. Prepayment is allowed without penalty. The loan is secured by a first
lien on the Company's 19.9% interest in New Bush Hog. Subsequent to closing of
this agreement, the Company borrowed the maximum amount available under the
agreement. These proceeds, combined with the proceeds received from the sale of
an 80.1% interest in the operations of the Agricultural Products Group, were
36
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
applied to repay the Company's indebtedness outstanding under the Second Amended
and Restated Credit Agreement, the Company's indebtedness outstanding under the
Bush Hog Investors Loan and costs associated with the sale.
The Company also entered into a new credit facility with Foothill Capital
Corporation ("Foothill") effective March 29, 2000. The new credit facility has a
three year term, maturing in March 2003, and consists of term loan of
$10,600,000 and a revolving credit facility which may be drawn upon from time to
time up to the lower of $19,400,000 or an amount based upon a percentage of
eligible accounts receivable and eligible inventories relating to presses which
are within sixty (60) days of shipment, as determined by Foothill subject to
reserves as determined by Foothill (the "Borrowing Base"). The amount available
under the term loan sub-line is reducedby $176,667 monthly commencing in
September 2000. The maximum remaining amount due at maturity in March 2003 is
$5,123,323. Interest is payable monthly at a floating prime rate (prime plus 200
basis points on the term loan and prime plus 125 basis points on the revolver).
In the event of a default, the interest rate increases by 300 basis points.
Foothill received a closing fee of $300,000 plus a monthly fee of $50,000 for
each month a balance is outstanding under the revolving credit facility. With
certain exceptions, the penalty for prepayment is $900,000 (3% of the maximum
credit available) in the first year, declining to 2% and 1% in the second and
third years. Certain portions of the Borrowing Base will be determined in June,
following Foothill's review and determination of eligible receivables.
In connection with the Foothill loan, the Company granted a lien upon and
security interests in substantially all of its assets (except its membership
interest in New Bush Hog). The loan agreement requires that the Company sell its
remaining interest in New Bush Hog on or before June 30, 2000. Restrictions in
the Foothill loan agreement include, among other things, limitations on capital
expenditures, liens and guaranties and restrictions on acquisitions and
investments and does not permit the payment of cash dividends. Additionally,
Foothill can accelerate repayment in the event of a material adverse change in
the business, as defined in the agreement. Financial covenants include a
covenant that earnings before interest, taxes, depreciation and amortization
("EBITDA"), exclusive of extraordinary gains, exceed the amounts listed below as
of the dates and for the periods indicated:
<TABLE>
<S> <C> <C>
June 30, 2000.............................. last three months $(1,300,000)
September 30, 2000......................... last six months $(3,500,000)
December 31, 2000.......................... last nine months $(4,600,000)
March 31, 2001............................. last twelve months $(3,900,000)
June 30, 2001.............................. last twelve months $(3,000,000)
September 30, 2001......................... last twelve months $ 1,300,000
December 31, 2001.......................... last twelve months $ 7,600,000
</TABLE>
While the Company projects that it will be able to comply with this
covenant, the Company's EBITDA for future peirods cannot be predicted with a
reasonable degree of certainty. The Company's future operating results depend,
among other things, upon the receipt in the next several months and continuing
thereafter of new press orders in appropriate sequences and bearing appropriate
margins. Because the borrowing base is limited solely to a percentage of
eligible accounts receivable and eligible inventories relating to presses which
are within sixty (60) days of shipment (and not to a percentage of total
inventories as well), the credit facility is not a source of financing for the
substantial work in process inventories frequently required in the Company's
business. This will limit the Company's ability to accept press orders which do
not include customer deposits.
6. LEASES:
CAPITAL LEASES--
The Company leases various types of manufacturing, office and transportation
equipment.
37
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
Capital leases included in Machinery and equipment in the accompanying
balance sheets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Capitalized cost................................... $5,143,000 $3,622,000
Less--Accumulated amortization..................... 1,634,000 1,081,000
---------- ----------
$3,509,000 $2,541,000
========== ==========
</TABLE>
See Note 5 for information as to future debt payments relating to the above
leases. Capital leases associated with continuing operations included
capitalized cost of $1,244,000 less accumulated amortization of $485,000 at
December 31, 1999 and capitalized cost of $988,000 less accumulated amortization
of $283,000 at December 31, 1998.
OPERATING LEASES--
Rent expense for operating leases, which is charged against income, was as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Minimum rentals........................ $1,184,000 $1,215,000 $1,989,000
Contingent rentals..................... 204,000 87,000 41,000
---------- ---------- ----------
$1,388,000 $1,302,000 $2,030,000
========== ========== ==========
</TABLE>
Contingent rentals are composed primarily of truck fleet unit charges for
actual usage. Some leases contain renewal and purchase options. The leases
generally provide that the Company pay taxes, maintenance, insurance and certain
other operating expenses. Operating lease expense associated with continuing
operations totaled $338,000, $295,000 and $925,000 for the years ended December
31, 1999, 1998 and 1997, respectively.
At December 31, 1999, future minimum rental payment commitments under
operating leases that have initial or remaining noncancelable lease terms in
excess of one year are as follows:
<TABLE>
<CAPTION>
MINIMUM
ANNUAL SUBLEASE NET MINIMUM
RENTAL RENTAL ANNUAL RENTAL
PAYMENTS INCOME PAYMENTS
---------- --------- -------------
<S> <C> <C> <C>
Year ending December 31,
2000................................. $ 711,000 $ (63,000) $ 648,000
2001................................. 651,000 (65,000) 586,000
2002................................. 519,000 (66,000) 453,000
2003................................. 460,000 (68,000) 392,000
2004................................. 129,000 (23,000) 106,000
---------- --------- ----------
$2,470,000 $(285,000) $2,185,000
========== ========= ==========
</TABLE>
Net minimum annual rental payments associated with continuing operations
were $348,000 for 2000, $333,000 for 2001, $309,000 for 2002, $269,000 for 2003
and $87,000 for 2004.
7. PREFERRED STOCK:
The Company has 2,000,000 shares of authorized preferred stock of which
350,000 shares are designated as Series B Variable Rate Cumulative Preferred
Stock and 150,000 shares are designated as Series C Cumulative Preferred Stock.
All shares of the Series B and Series C Preferred Stock have
38
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
been redeemed. In conjunction with the declaration of a dividend of the
preferred share purchase right in 1999, the Company designated 13,000 shares as
Series D Junior Participation Preferred Stock--see Note 8. The remaining
1,487,000 shares of authorized preferred stock are undesignated and unissued at
December 31, 1999.
8. COMMON STOCK AND OPTIONS:
The Company has an incentive stock plan ("1977 plan") which authorizes stock
incentives for key employees in the form of stock awards, stock appreciation
rights and stock options. Options under the 1977 plan, which are granted at fair
market value at date of grant, are non-qualified options (not "incentive stock
options" as defined by the Internal Revenue Code). Options currently outstanding
under the 1977 plan become exercisable to the extent of 25% one year from date
of grant and 25% in each of the next three years, and expire 10 years from the
date of grant. There were no stock awards issued under this plan in 1999, 1998
or 1997. No stock appreciation rights have been granted to date under this plan.
At December 31, 1999, there are no options outstanding under this plan.
Additional stock incentives will not be issued under this plan.
In 1990, the Company's Board of Directors approved a new incentive stock
plan, the 1990 Long Term Incentive Stock Plan ("1990 plan") which authorizes
stock incentives for key employees in the form of stock awards and stock
options. The 1990 plan, as amended, authorizes the issuance of up to 1,500,000
shares of the Company's Common Stock. Options under the 1990 plan, which are
granted at fair market value at date of grant, may be granted as either
incentive stock options or non-statutory stock options. Options granted become
exercisable to the extent of 50% one year from date of grant and the remaining
50% two years from date of grant. Since the inception of the 1990 plan, the
Company has issued options to purchase 1,398,877 shares (net of forfeitures) of
the Company's Common Stock at prices between $1.00 and $19.00 per share. There
are 309,650 options outstanding under this plan at December 31, 1999 and are
included in the following table. At December 31, 1999, the Company has the
capacity to issue an additional 101,123 stock incentives under the 1990 plan.
In 1994, shareholders approved a new incentive plan, the 1993 Directors
Incentive Plan ("1993 plan") which authorizes the issuance of stock options to
members of the Board of Directors who are not employees of the Company. Options
under the 1993 plan, which are granted at fair market value at date of grant,
are granted as non-statutory stock options. Options granted become exercisable
to the extent of 50% one year from date of grant and the remaining 50% two years
from date of grant. Since the inception of the 1993 plan, the Company has issued
options to purchase 114,750 shares of the Company's Common Stock at prices
between $8.34 and $19.01 per share. All options issued are outstanding under
this plan at December 31, 1999 and are included in the table below.
In 1997, shareholders approved a new incentive stock plan, the 1997
Incentive Stock Plan ("1997 plan") to replace the 1990 plan and the 1993 plan
described above. The 1997 plan permits a committee of the Company's Board of
Directors to grant incentive awards in the form of non-qualified stock options,
incentive stock options, stock awards including restricted stock, stock
appreciation rights and performance units to key employees and non-employee
directors. The 1997 plan authorizes the issuance of up to 750,000 shares of the
Company's Common Stock pursuant to the grant or exercise of stock options, stock
appreciation rights, restricted stock and performance units. Non-qualified stock
options issued under this plan were granted at fair market value at date of
grant. Options granted become exercisable over a period of up to three years
from date of grant with no option exercisable prior to one year from date of
grant. Since the inception of the 1997 plan, the Company has issued options to
purchase 709,400 shares (net of forfeitures) of the Company's Common Stock at
prices between $3.625 and $24.875. All options issued under this plan (net of
forfeitures) are outstanding at December 31, 1999 and are included in the table
below. At December 31, 1999, the Company has the capacity to issue an additional
40,600 stock incentives under the 1997 plan.
39
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
Stock option transactions in 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year........................ 1,059,940 $12.11 810,360 $13.89 931,758 $12.15
Granted................... 170,000 3.68 369,100 8.31 110,000 24.65
Exercised................. -- -- (111,520) 12.09 (188,273) 11.14
Expired................... (22,065) 15.92 -- -- (375) 16.09
Forfeited................. (74,075) 13.66 (8,000) 16.41 (42,750) 15.87
--------- ------ --------- ------ -------- ------
Outstanding at end of year.... 1,133,800 $10.68 1,059,940 $12.11 810,360 $13.89
========= ====== ========= ====== ======== ======
Options exercisable at end of
year........................ 808,600 $12.59 610,340 $13.09 523,529 $10.93
Weighted average fair value of
options granted during the
year........................ $ 1.23 $ 1.89 $ 6.60
</TABLE>
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Risk free interest rate........................ 6.29% 4.29% 6.10%
Dividend yield................................. 3.56% 0.97% 0.70%
Expected lives................................. 4 years 4 years 4 years
Volatility..................................... 45.10% 22.50% 23.00%
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- -------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
RANGES OF EXERCISE PRICES SHARES LIFE PRICE SHARES PRICE
------------------------- --------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$1.75-5.875 197,150 8.79 years $ 3.55 27,150 $ 2.70
7.9375-12.92 578,150 6.27 years 8.32 428,450 8.45
15.26-24.875 358,500 6.60 years 18.40 353,000 18.37
--------- ------
$1.75-24.875 1,133,800 6.81 years $10.68 808,600 $12.59
========= ======
</TABLE>
At December 31, 1999, the Company has four stock options plans, which are
described above. The Company applied Accounting Principles Board (APB) Opinion
25 and related interpretations in accounting for these plans. Compensation costs
recognized in relation to certain stock option exercises amounted to $1,119,000
and $1,375,000 for the years ended December 31, 1998 and 1997, respectively. No
compensation costs have been recognized for the years ended December 31, 1999,
1998 and 1997 in relation to the issuances of options in each of the respective
years. Had compensation costs for the Company's stock option plans been
determined based on the fair value at the grant date for options
40
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
granted under these plans consistent with the method of SFAS 123--Accounting for
Stock-Based Compensation, the Company's net income (loss) and earnings (loss)
per share would have been revised to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C> <C>
Net income (loss) As reported $(26,765,000) $(14,113,000) $15,646,000
Pro forma (27,536,000) (14,978,000) 15,135,000
Basic earnings (loss) per share As reported $ (2.26) $ (1.19) $ 1.29
Pro forma (2.33) (1.26) 1.25
Diluted earnings (loss) per share As reported $ (2.26) $ (1.19) $ 1.27
Pro forma (2.33) (1.26) 1.23
</TABLE>
On February 15, 1991, the Company declared a dividend distribution of one
right ("1991 Right") to purchase an additional 1.5 shares of the Company's
Common Stock for $50 on each 1.5 shares of Common Stock outstanding. On
August 10, 1999, the Company's Board of Directors authorized the redemption of
these 1991 rights for the price of $.01 per right from all holders of record as
of July 30, 1999.
On July 28, 1999, the Company's Board of Directors declared a dividend of
one preferred share purchase right ("Right") for each outstanding share of
common stock, par value $.01 per share, of the Company ("Common Shares") to the
stockholders of record on July 30, 1999 ("Record Date"). Each Right entitles the
registered holder to purchase from the Company one one-thousandth of a share of
Series D Junior Participating Preferred Stock of the Company, no par value per
share ("Preferred Shares"), at a price of $50.00 per one one-thousandth of a
Preferred Share ("Purchase Price"), subject to adjustment. In the event that any
person or group of affiliated or associated persons acquires beneficial
ownership of 15% or more of the outstanding Common Shares, or a person filing a
Schedule 13G or 13D with no intent to change the control of the Company on the
date of the agreement acquires beneficial ownership of 20% or more of the
outstanding Common Shares (each an "Acquiring Person"), each holder of a Right,
other than the Rights beneficially owned by the Acquiring Person (which will
thereafter be void), will thereafter have the right to receive upon exercise
that number of Common Shares having a market value of two times the exercise
price of the Right. If the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold after a person or group has become an Acquiring Person, each
holder of a Right (other than Rights beneficially owned by Acquiring Person,
which will be void) will thereafter have the right to receive that number of
shares of common stock of the acquiring company which at the time of such
transaction will have a market value of two times the exercise price of the
Right. The distribution date is the earlier of: (i) 10 days following a public
announcement that a person or group of affiliated or associated persons have
acquired beneficial ownership of 15% or more of the outstanding Common Shares
or, in the case of a person filing a Schedule 13G or 13D with no intent to
change the control of the Company, 10 days following a public announcement that
such person has acquired beneficial ownership of 20% or more of the outstanding
Common Shares; or (ii) 10 business days (or such later date as may be determined
by action of the Board of Directors of the Company prior to such time as any
person or group of affiliated persons becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 15% or more of the outstanding Common Shares.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on July 31, 2009 ("Final Expiration Date"), unless the Final Expiration
Date is extended or unless the Rights are earlier redeemed or exchanged by the
Company.
41
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
9. RETIREMENT, PENSION AND POSTRETIREMENT HEALTH PLANS:
The Company sponsors several defined benefit pension plans which cover
certain union and office employees. Benefits under these plans generally are
based on the employee's years of service and compensation during the years
immediately preceding retirement. The Company's general funding policy is to
contribute amounts deductible for Federal income tax purposes.
The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets over the two-year period ending
December 31, 1999, and a statement of the financial status as of December 31,
1999 and 1998:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year........ $40,601,000 $38,606,000
Service cost................................... 953,000 718,000
Interest cost.................................. 2,633,000 2,684,000
Amendments..................................... 299,000 56,000
Actuarial losses............................... 362,000 2,227,000
Benefits paid.................................. (2,579,000) (3,690,000)
----------- -----------
Benefit obligation at end of year.............. $42,269,000 $40,601,000
=========== ===========
Change in plan assets:
Fair value of plan assets at beginning of
year......................................... $36,768,000 $46,162,000
Actual return on plan assets................... 6,276,000 (6,849,000)
Employer contributions......................... -- 1,145,000
Benefits paid.................................. (2,579,000) (3,690,000)
----------- -----------
Fair value of plan assets at end of year....... $40,465,000 $36,768,000
=========== ===========
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Funded status:
Funded status at end of year................... $(1,804,000) $(3,833,000)
Unrecognized transition obligation............. (276,000) (482,000)
Unrecognized prior service cost................ 1,555,000 1,927,000
Unrecognized net actuarial (gain).............. (3,765,000) (772,000)
----------- -----------
Accrued pension cost at end of year............ $(4,290,000) $(3,160,000)
=========== ===========
</TABLE>
The projected benefit obligation and accumulated benefit obligation for
pension plans with accumulated benefit obligations in excess of plan assets were
$1,794,000 and $1,277,000, respectively, as of December 31, 1999 and $1,484,000
and $802,000, respectively, as of December 31, 1998. There were no assets
associated with these related plans.
The expected long-term rate of return used in determining the net periodic
pension cost in all years was 7.5%. The actuarial present value of the benefit
obligation was determined using a discount rate of 7.5% in 1999, 6.75% in 1998
and 7.5% in 1997. The rate of compensation increase used to measure the benefit
obligation in three plans was 5%. All other plans are based on current
compensation levels.
The plans' assets include common stocks, fixed income securities, short-term
investments and cash. Common stock investments include approximately 612,710 and
281,810 shares of the Company's Common Stock at December 31, 1999 and 1998,
respectively.
42
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
The following table provides the amounts recognized in the balance sheet as
of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Accrued benefit liability......................... $(4,290,000) $(3,299,000)
Intangible asset.................................. -- 139,000
----------- -----------
Accrued pension cost at end of year............... $(4,290,000) $(3,160,000)
=========== ===========
</TABLE>
Net periodic pension costs as they relate to defined benefit plans were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Service cost......................... $ 953,000 $ 718,000 $ 758,000
Interest cost........................ 2,633,000 2,684,000 2,717,000
Expected return on plan assets....... (2,893,000) (2,938,000) (2,678,000)
Amortization of transition
obligation......................... (206,000) (472,000) (473,000)
Amortization of prior service
costs.............................. 671,000 277,000 328,000
Amortization of actuarial (gain)
loss............................... (29,000) (409,000) (327,000)
----------- ----------- -----------
Net periodic pension cost (income)... $ 1,129,000 $ (140,000) $ 325,000
Curtailment loss..................... -- -- 210,000
----------- ----------- -----------
Net periodic pension cost (income)
after curtailment.................. $ 1,129,000 $ (140,000) $ 535,000
=========== =========== ===========
</TABLE>
Curtailment loss in 1997 was related to the retirement of certain Corporate
executives. Net periodic pension cost (income) after curtailment related to
continuing operations were $312,000, $(265,000) and $160,000 for the years ended
December 31, 1999, 1998 and 1997, respectively. As part of the Agricultural
Products Group sale, the Company retained liabilities under the Bush Hog
Salaried Pension Plan. The Company estimates a $2,578,000 pension curtailment
gain will arise when the Company assumes the pension plan obligations and assets
related to this plan.
Certain employees of the Company are also eligible to become participants in
the Save Money and Reduce Taxes ("SMART") 401(k) plan. Under terms of the plan,
the trustee is directed by each employee on how to invest the employee's
deposit. As of December 31, 1999 and 1998, assets of the SMART plan include
approximately 401,000 and 434,000 shares, respectively, of the Company's Common
Stock.
Effective October 1, 1998, the Company instituted the Allied Products
Corporation Savings Incentive 401(k) Plan for Bush Hog salaried employees.
Except for supplemental contributions that are payable under the SMART Plan,
terms of the plan are identical to those of the SMART plan. Employees eligible
under this new plan are not eligible for the SMART plan. Effective with the sale
of the Agricultural Products Group, benefits could no longer be earned under
this plan.
Also effective October 1, 1998, the Company instituted a matching provision
for voluntary deposits by employees (up to 6% of their salaries) on the basis of
$1 for every $2 deposited. This matching feature is available to participants in
the SMART plan and the Allied Products Corporation Savings Incentive Plan. The
Company's total contribution into these plans amounted to approximately $900,000
($359,000 associated with continuing operations) in 1999 and $205,000 ($90,000
associated with continuing operations) in 1998.
43
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
Effective January 1, 1998, the Company instituted a supplemental
contribution feature to the SMART plan described above. This discretionary
noncontributory feature replaces the Target Benefit Plan and a defined
contribution plan--see below. Currently, all employees eligible for the SMART
plan receive an allocation which is based upon a percentage of the earnings of
the employees. The Company's total supplemental contribution amounted to
approximately $1,240,000 ($759,000 associated with continuing operations) in
1999 and $680,000 ($215,000 associated with continuing operations) in 1998.
Effective January 1, 1995, the Company instituted a noncontributory defined
contribution retirement plan called the Target Benefit Plan. All non union
employees not covered by pension plans were covered under the Target Benefit
Plan. Under the terms of the Target Benefit Plan, the Company made an
actuarially determined annual contribution based upon each eligible employee's
years of service and earnings as defined. Provisions for the contribution to
this plan in 1997, all of which were associated with continuing operations, were
$664,000. Effective January 1, 1998, this plan was terminated. On this date, all
employees previously receiving benefits under this plan now receive benefits
under the SMART plan described above. Benefits earned under the Target Benefit
Plan were transferred to the SMART plan.
The Company also has a defined contribution retirement plan which covers
certain employees. There are no prior service costs associated with this plan.
The Company follows the policy of funding retirement contributions under this
plan as accrued. Contributions to this plan, all of which were associated with
discontinued operations, were $222,000 in 1997. Benefits under this plan were
frozen effective January 1, 1998. On this date, all employees previously
receiving benefits under this plan now receive benefits under the SMART plan
described above.
The Company provides medical benefits for retirees and their spouses at the
Verson division and certain other former employees of several noncontinuing
operations. Accruals for such costs are recognized in the financial statements
over the service lives of these employees. Contributions are required of most
retirees for medical coverage. The current obligation was determined by
application of the terms of the related medical plans, including the effects of
established maximums on covered costs, together with relevant actuarial
assumptions and health-care cost trend rates projected at annual rates ranging
ratably from 7.2% for retirees under age 65 (and for retirees age 65 and older)
in 2000 to 5% over 7 years. The effect of a 1% annual increase (decrease) in
these assumed cost trend rates would increase the accumulated postretirement
benefit obligation by approximately $103,000 and $68,000 for the years ended
December 31, 1999 and 1998, respectively. The annual service and interest costs
would not be materially affected.
The following table provides a reconciliation of the changes in the plans'
benefit obligations over the two year period ending December 31, 1999 and a
statement of the financial status as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year................... $ 864,000 $ 799,000
Service cost.............................................. 73,000 55,000
Interest cost............................................. 82,000 56,000
Actuarial (gains) losses.................................. 327,000 50,000
Benefits paid............................................. (133,000) (96,000)
----------- -----------
Benefit obligation at end of year......................... $ 1,213,000 $ 864,000
=========== ===========
</TABLE>
44
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Funded status:
Funded status at end of year.............................. $(1,213,000) $ (864,000)
Unrecognized prior service cost........................... 9,000 10,000
Unrecognized net actuarial (gain) loss.................... 175,000 (175,000)
----------- -----------
Accrued postretirement benefit cost at end of year........ $(1,029,000) $(1,029,000)
=========== ===========
</TABLE>
Net periodic postretirement benefit costs include the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Service cost................................................ $ 73,000 $ 55,000 $ 50,000
Interest cost............................................... 82,000 56,000 56,000
Amortization of unrecognized net (gains) losses............. 7,000 (10,000) (11,000)
Amortization of prior plan amendments....................... 1,000 1,000 1,000
-------- -------- --------
Net periodic postretirement benefit cost.................... $163,000 $102,000 $ 96,000
======== ======== ========
</TABLE>
Measurement of the postretirement benefit obligation was based on a discount
rate of 7.5% in 1999, 6.75% in 1998 and 7.5% in 1997.
10. ENVIRONMENTAL, LEGAL AND CONTINGENT LIABILITIES:
ENVIRONMENTAL MATTERS--
The Company's manufacturing plants generate both hazardous and nonhazardous
wastes, the treatment, storage, transportation and disposal of which are subject
to federal, state and local laws and regulations. The Company believes that its
manufacturing plants are in substantial compliance with the various federal,
state and local laws and regulations, and does not anticipate any material
expenditures to remain in compliance.
Under the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended ("CERCLA"), and other statutes, the United States
Environmental Protection Agency ("EPA") and the states have the authority to
impose liability on waste generators, site owners and operators, and others
regardless of fault or the legality of the original disposal activity.
Accordingly, the Company has been named as a potentially responsible party
("PRP"), or may otherwise face potential liability for environmental remediation
or cleanup, in connection with the sites described below that are in various
stages of investigation or remediation. Under applicable law, the Company, along
with each other PRP, could be held jointly and severally liable for the total
remediation costs of PRP sites.
At one site, the Company is one of seven PRP's because of its apparent
absentee ownership of four parcels of land from 1967 to 1969 which may have held
part or all of one or more settling ponds operated by a tenant business. The
Company has already paid $85,000 as its share of a settlement of an EPA demand
for $415,000 in past response costs, and the EPA has sought payment from the
PRP's of an additional $572,000 in response costs. The Company is not aware of
any other parties' inability to pay. The EPA has ordered the Company and one
other PRP to undertake the design and construction of the remediation project.
All PRP's have agreed to undertake the design and construction of the
remediation project pursuant to a financial participation agreement. The EPA
estimates the present value of the cost to implement its selected cleanup method
to be approximately $1,869,000. The Company has accrued its estimated share of
the remaining cleanup cost which is not considered significant. The Company has
also filed a claim against its insurers.
45
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
Pursuant to a consent decree entered into in November 1991 with the U.S.
Department of Justice, the Company closed and remediated a landfill leased by
the Company and formerly used for the disposal of spent foundry sands. During
1995, remedial action required by the consent decree was completed, and the EPA
approved the Remedial Action Report submitted by the Company. The Company's
remaining obligations under the consent decree include periodic inspections,
monitoring and maintenance as needed.
The Company has also been named as a PRP, along with numerous parties, at
various hazardous waste sites undergoing cleanup or investigation for cleanup.
The Company believes that at each of these sites, it has been improperly named
or will be considered to be a "de minimus" party.
The Company is a defendant in an action filed in July 1991 in the United
States District Court, Northern District of New York where a private party, ITT
Commercial Finance Corp., seeks recovery of costs associated with an
environmental cleanup at a site formerly owned by the Company. At this site,
which the Company or one of its subsidiaries owned from 1968 until 1976, the
plaintiff and current owner seeks to recover in excess of $4,000,000, including
attorney fees, from the Company and other defendants. The Company has denied
liability and asserted cross-claims against the co-defendants. Trial is
currently scheduled to commence in May 2000. The Company has also filed claims
against its insurers.
The Company is in the process of investigating or has determined the need to
perform environmental remediation or clean up at certain manufacturing sites
formerly operated and still owned by the Company. At the sites where the Company
has determined that some remediation or cleanup is required, the Company has
provided for the estimated cost for such remediation or cleanup.
One site, located in Coldwater, Ohio, was sold to the purchaser of the
White-New Idea business. That sale was contingent on the issuance of a covenant
not to sue and related no further action letter by the State of Ohio under the
Ohio Voluntary Action Program. The Company completed all necessary investigation
and remediation, and expended approximately $1,300,000 in this effort. Upon
submission of the final report, a covenant not to sue and no further action
letter was issued by the Ohio Environmental Protection Agency. While this
project was underway, the Company entered into a series of agreements for
financial contribution with both the prior owner and the purchaser of the
facility, and recovered approximately 50% of the $1,300,000 spent.
During 1999, 1998 and 1997, the Company recorded charges (credits) of
approximately $1,245,000, $(151,000) and $(1,181,000), respectively, toward
various environmental matters discussed above, $1,000,000 of which was recorded
in the fourth quarter of 1999 based on recent developments with respect to an
environmental claim. At December 31, 1999, the Company has accruals on a
non-discounted basis, including those discussed above, of $2,376,000 for the
estimated cost to resolve its potential liability with the above and other, less
significant, matters. Additional liabilities are possible and the ultimate
outcome of these matters may have an effect on the financial position or results
of operations in a future period. However, the Company believes that the above
accruals are adequate for the resolution of known environmental matters and the
outcome of these matters is not expected to have a material adverse effect on
the Company's financial position or its ongoing results of operations.
OTHER--
In connection with the sale of the business and assets of the Littell
division in 1991, the Company entered into a "License Agreement" pursuant to
which the Company licensed certain technology to the purchaser for which the
purchaser agreed to pay royalties totaling $8,063,000 plus interest, in minimum
quarterly installments of $312,500 commencing in November 1992, with a final
lump sum payment of approximately $7,300,000 due May 22, 1996. The purchaser's
payment obligation was secured by the technology license and was guaranteed by
the purchaser's parent. The Company
46
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
initially recorded this agreement as a long-term note receivable. In 1995,
however, the Company established a reserve of $7,699,000 (reduced to $7,165,000
at December 31, 1996) against the receivable, due to published adverse financial
information about the purchaser and its parent which raised serious concerns
about the collectability of the receivable. During 1997, the Company entered
into a settlement agreement with the purchaser of the business. Under the terms
of the agreement, the purchaser agreed to pay the Company $3,000,000 and all
parties agreed to the dismissal/release of certain actions, claims and security
interests. All amounts due under this agreement were collected in 1998
($610,000) and 1997 ($2,390,000).
In January 1998, an adversary proceeding was filed against the Company in
United States Bankruptcy Court, Southern District of Texas, Houston Division by
Cooper Manufacturing Corp., a debtor in a bankruptcy proceeding. The
transactions and occurrences on which the adversary proceeding was based were
the Company's sale of the assets of a former division and certain financial
transactions related thereto. Causes of action described in the adversary
proceeding included accounting, turnover, fraudulent transfers, "alter ego,"
economic duress, unjust enrichment and restitution. The case was settled during
1999 by payment of $615,000 by the Company to the plaintiffs. One case pending
against the Company in the United States District Court for the Northern
District of Alabama, Southern Division, is a race discrimination class action
lawsuit brought by seven plaintiffs who are current or former employees. The
complaint, which was filed in May 1998 but not served on the Company until
October 1998, alleges discrimination with respect to compensation, promotions,
job assignments, discipline and other terms and conditions of employment and
seeks injunctive relief, back pay, compensatory and punitive damages, attorney
fees and costs. The potential class identified by plaintiffs could include
several hundred current or former employees. No class certification hearing has
been held and no order has been entered. The Company denies the allegations of
the plaintiffs and is vigorously defending this claim. During the fourth quarter
of 1999, based on recent developments in this case, the Company established a
$1,000,000 reserve considering the range of potential loss associated with this
claim. An unfavorable outcome of this claim could have a material adverse effect
on the Company's financial position and results of operations. Changes in the
estimate in the near term are reasonably possible.
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, were virtually identical. They alleged 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 Company filed a Motion to Dismiss on December 13,
1999. The action was dismissed, without prejudice, by order dated March 13,
2000, with leave to amend the complaint. No estimate can currently be made as to
the claim. However, should the plaintiff further amend the complaint and survive
subsequent motions to dismiss, 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.
The Company is involved in a number of other legal proceedings as a
defending party, including product liability claims for which additional
liability is reasonably possible. It is the Company's policy to reserve on a
non-discounted basis for all known and estimated unreported product liability
claims. The products to which the claims primarily relate are products currently
manufactured by the Company's Industrial Products Group and products related to
discontinued operations for which the Company contractually retained certain
product liability claims generally arising prior to the sale of the related
business. To reasonably estimate the liability of such claims (reserves of
$6,204,000 and
47
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
$4,674,000 at December 31, 1999 and 1998, respectively), the Company
historically uses estimates provided by legal counsel based on existing claims
experience in all years, and in 1999 and 1998 also obtained actuarial
information which was based on the Company's historical claim experience to
estimate incurred but not reported claims. Payment of these claims may take
place over the next several years. Additional liabilities are possible and the
ultimate outcome of these matters may have an effect on the financial position
or results of operations in a future period. For one product liability claim
filed in December of 1998 in the Circuit Court of Hinds County, Mississippi,
First Judicial District, the amount of damages claimed against all defendants is
$100,000,000, which exceeds the Company's liability insurance limits of
$50,000,000. Although there is no guarantee that the ultimate outcome of this
claim against the Company will not exceed such limits, the Company currently
believes that the ultimate outcome of this claim will not exceed its insurance
coverage. However, 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. For all other matters, 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.
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.
In response to General Motors' concerns that the Company's cash flow
problems would further delay or preclude the Company from completing four
presses that were in various stages of production, the Company recently entered
into amendments to purchase orders with General Motors. The aggregate sales
price of the presses covered by these purchase orders exceeds $75,000,000. Under
the terms of the amendments, the Company and General Motors agreed to revised
shipping, payment and testing schedules that allow the Company to ship
components of, and receive payments for, the first two of the four presses
earlier than it would have been able to under the terms of the original purchase
orders. Payment terms for the third and fourth presses were largely unchanged
from the original order (i.e., 90% upon completion, testing and shipment),
however, delivery dates (and related payments) have 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 amendments, General Motors 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 covered by this order. Until such time as to the
fulfillment of these conditions, General Motors reserves the right to cancel the
purchase orders associated with the third and fourth presses until the Company
has demonstrated that it has the financial ability to complete these presses on
a timely basis. Such cancellation could have a material adverse effect on the
financial position and results of operations in the near term.
At December 31, 1998, the Company was contingently liable for approximately
$1,579,000 primarily relating to outstanding letters of credit.
The Company has entered into agreements with certain executive officers of
the Company which provide that, if within one year following a defined change in
ownership or control of the Company there shall be an involuntary termination of
such executive's employment, or if there shall be defined patterns of activity
during such period by the Company causing such executive to resign, then,
subject to prevailing tax laws and regulations, the executive shall be entitled
to payments of up to approximately three years' compensation.
48
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
11. OPERATIONS BY INDUSTRY SEGMENT:
The Company's continuing operations involve a single industry segment as
described in Note 1.
Approximately 13%, 4% and 8% of the Company's net sales from continuing
operations in 1999, 1998 and 1997, respectively, were exported principally to
Canada (13%, 19% and 35% of export sales in 1999, 1998 and 1997, respectively)
and Mexico (86%, 76% and 55% of export sales in 1999, 1998 and 1997,
respectively).
Approximately 66%, 52% and 55% of the Company's total net sales in 1999,
1998 and 1997, respectively, were derived from sales by the Industrial Products
Group to the three major U.S. automobile manufacturers.
12. SUMMARY OF OTHER (INCOME) EXPENSE:
Other (income) expense consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ----------- -----------
<S> <C> <C> <C>
Interest income....................................... $ (360,000) $ (86,000) $ (50,000)
Goodwill amortization................................. 179,000 179,000 177,000
Loan cost expenses/amortization....................... 645,000 275,000 --
Environmental related expenses (credits).............. 1,245,000 (151,000) (1,181,000)
Net gain on sales of operating and non-operating
assets.............................................. (75,000) (1,830,000) (1,645,000)
Equity in net loss of nonconsolidated joint venture... 631,000 188,000 54,000
Provision (credit) for collectability (recovery) of
long-term note receivable (Note 10)................. -- (610,000) (2,390,000)
Idle facility income.................................. (504,000) (183,000) (368,000)
Litigation settlements/insurance provisions........... 615,000 -- 2,125,000
Treasury lock settlement.............................. -- 3,005,000 --
Other miscellaneous................................... (540,000) 135,000 260,000
---------- ----------- -----------
$1,836,000 $ 922,000 $(3,018,000)
========== =========== ===========
</TABLE>
13. QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data for 1999 and 1998 restated for
discontinued operations are as follows (in thousands of dollars, except per
share data):
<TABLE>
<CAPTION>
QUARTER ENDING
---------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
1999
Net sales from continuing operations......... $45,338 $37,491 $30,401 $30,545
Gross profit (loss).......................... (9,481) 3,191 4,529 (2,425)
Income (loss) from continuing operations..... (16,006) (4,464) (2,873) (10,997)
Income (loss) per common share from
continuing operations--diluted............. (1.35) (.38) (.24) (.93)
Net income (loss)............................ (12,666) (1,325) 540 (13,314)
Net income (loss) per common
share--diluted............................. (1.07) (.11) .05 (1.12)
1998
Net sales from continuing operations......... $28,563 $48,033 $43,116 $17,308
Gross profit (loss).......................... 8,641 7,236 (6,731) (19,240)
Income (loss) from continuing operations..... 1,572 2,540 (8,812) (25,086)
Income (loss) per common share from
continuing operations--diluted............. .13 .21 (.74) (2.12)
Net income (loss)............................ 5,330 7,101 (7,148) (19,396)
Net income (loss) per common
share--diluted............................. .44 .59 (.60) (1.64)
</TABLE>
49
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
Loss from continuing operations in the fourth quarter of 1999 included
charges of approximately $1,900,000 related primarily to product liability
(including incurred but not reported) claims for which developments during the
quarter required increased loss provisions. Also during the fourth quarter of
1999, the Company recorded a $1,000,000 charge for certain environmental
matters--see Note 10. An additional $1,000,000 reserve was provided for in the
quarter for a race discrimination class action lawsuit as described in Note 10.
Subsequent to the end of 1999 and as discussed in Note 3, the Company's
shareholders approved the sale of a majority interest in the operations that had
constituted the Agricultural Products Group. The Company has included the
operations of the Agricultural Products Group, an allocation of all direct
financing, administrative, other expenses and income taxes and a pro rata
allocation of interest expense under the caption "Discontinued operations--net
of tax" in the accompanying Consolidated Statements of Income (Loss). Previously
issued Consolidated Statements of Income (Loss) have been restated to reflect
the effect of the discontinued operations. The following table reconciles the
quarterly operating results as previously reported to the restated amounts
presented above:
<TABLE>
<CAPTION>
QUARTER ENDING
---------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
1999
Net sales from continuing operations:
As previously reported................... $ 82,240 $ 74,624 $ 69,332 (1)
Net change associated with discontinued
operations............................. (36,902) (37,133) (38,931) (1)
-------- -------- -------- --------
Restated................................. $ 45,338 $ 37,491 $ 30,401 (1)
======== ======== ======== ========
Gross profit (loss):
As previously reported................... $ (9) $ 12,536 $ 14,037 (1)
Net change associated with discontinued
operations............................. (9,472) (9,345) (9,508) (1)
-------- -------- -------- --------
Restated................................. $ (9,481) $ 3,191 $ 4,529 (1)
======== ======== ======== ========
Income (loss) from continuing operations:
As previously reported................... $(12,666) $ (1,325) $ 540 (1)
Net change associated with discontinued
operations............................. (3,340) (3,139) (3,413) (1)
-------- -------- -------- --------
Restated................................. $(16,006) $ (4,464) $ (2,873) (1)
======== ======== ======== ========
Income (loss) per common share from
continuing operations--diluted:
As previously reported................... $ (1.07) $ (.11) $ .05 (1)
Net change associated with discontinued
operations............................. (.28) (.27) (.29) (1)
-------- -------- -------- --------
Restated................................. $ (1.35) $ (.38) $ (.24) (1)
======== ======== ======== ========
</TABLE>
50
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
<TABLE>
<CAPTION>
QUARTER ENDING
---------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
1998
Net sales from continuing operations:
As previously reported................... $ 62,831 $ 88,985 $ 77,184 $ 44,834
Net change associated with discontinued
operations............................. (34,268) (40,952) (34,068) (27,526)
-------- -------- -------- --------
Restated................................. $ 28,563 $ 48,033 $ 43,116 $ 17,308
======== ======== ======== ========
Gross profit (loss):
As previously reported................... $ 19,155 $ 19,215 $ 956 $(15,661)
Net change associated with discontinued
operations............................. (10,514) (11,979) (7,687) (3,579)
-------- -------- -------- --------
Restated................................. $ 8,641 $ 7,236 $ (6,731) $(19,240)
======== ======== ======== ========
Income (loss) from continuing operations:
As previously reported................... $ 5,330 $ 7,101 $ (7,148) $(19,396)
Net change associated with discontinued
operations............................. (3,758) (4,561) (1,664) (5,690)
-------- -------- -------- --------
Restated................................. $ 1,572 $ 2,540 $ (8,812) $(25,086)
======== ======== ======== ========
Income (loss) per common share from
continuing operations--diluted:
As previously reported................... $ .44 $ .59 $ (.60) $ (1.64)
Net change associated with discontinued
operations............................. (.31) (.38) (.14) (.48)
-------- -------- -------- --------
Restated................................. $ .13 $ .21 $ (.74) $ (2.12)
======== ======== ======== ========
</TABLE>
- - ------------------------
(1) Operations for the fourth quarter of 1999 were presented on a
continuing/discontinued basis, resulting in no restatement of this quarter.
14. OUTLOOK:
The principal sources of liquidity for the Company's continuing operations
will be its operating cash flows, if any, and borrowings under the new credit
facility with Foothill. The Company projects that after application of the net
proceeds of the sale of an 80.1% interest in New Bush Hog, it will require
approximately $37,000,000 in cash in 2000 to, among other things, (1) discharge
certain accrued liabilities and claims arising out of events associated with
operations of the Agricultural Products Group before March 7, 2000, (2)
extinguish the remainder of its outstanding indebtedness to banks, (3) reduce
outstanding payables, (4) finance peak working capital requirements of the
Industrial Products Group and (5) finance the acquisition of new equipment.
Verson's peak working capital requirements could vary significantly, either
higher or lower, from the projected level. The working capital needs of Verson
will depend upon the magnitude of new press orders, the timing of the receipt of
those orders, the timing of production under the orders and the extent to which
the Company receives progress payments on those orders. The Company's working
capital projections are also conditioned upon successful negotiation of the
Verson labor agreement which expires in June 2000. The Company anticipates that
its projected cash requirements will be funded in part by the proceeds (net of
escrow requirements) from the sale of its remaining New Bush Hog membership
interest (approximately $24,000,000) and a financing lease (approximately
$5,000,000), with the remainder being financed by borrowings under the Foothill
credit facility.
51
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
The key challenges faced by the Company's Industrial Products Group include:
1. NEW PROFITABLE BUSINESS. The group's operating results in 2000 will be
adversely affected by (a) the current low level of the group's backlog
($51,401,000 at December 31, 1999 compared to $145,268,000 a year
earlier) and (b) the fact that approximately 50% of the current backlog
represents no margin work booked in 1997. Because of the fall off in new
orders in 1999 and the first quarter of 2000, Verson is expected to have
excess capacity during 2000, revenues are expected decline substantially
and the Company anticipates that it will incur an operating loss. The
group's long-term viability depends upon the generation of new orders
with appropriate margins as well as a timely adjustment of the Company's
cost structure consistent with the level of orders received.
2. MANAGEMENT OF MAJOR PROJECTS. The Company has been working to correct
the operating problems of its Industrial Products Group and has taken
several significant steps which it believes will help to correct the
problems. These steps include changes in the group management team,
development of a new planning system that will help the Company plan and
track engineering, purchasing and manufacturing costs, and the
acquisition of equipment which should enable the Company to reduce
outsourcing work. The group in the future must demonstrate its ability
to estimate costs of major projects accurately and to manage those
projects so that they are completed on time and on budget.
3. ADEQUACY OF FINANCIAL RESOURCES. The Company and one of its customers
amended several related press orders to address the customer's concern
that the Company may lack the necessary financial resources to complete
orders already in production. The customer has conditionally agreed to
permit the completion of the orders pursuant to a revised schedule,
subject to the customer's ongoing review of the Company's financial
status. Similarly, due to the Company's financial condition, the Company
was slow during 1999 and the first quarter of 2000 to make payments to
its creditors, including its suppliers. This has raised concern among
suppliers about whether to continue to supply the Company and extend
additional credit. Two additional challenges that the Company faces in
its business are (1) the business must carry relatively large
work-in-process inventories because of the significant periods of time
necessary to plan, design and build large metal forming presses and
(2) the business is subject to the timing, severity and duration of
automotive customer buying cycles. The Company must have the ability to
obtain financing, including customer deposits, in order to address these
challenges.
The Company has obtained the Foothill credit lines of up to $30,000,000
secured by the assets of its Verson division and anticipates that it will enter
into a financing lease during the second quarter of 2000 to finance capital
equipment purchased during the first quarter of 2000 at a cost of approximately
$5,000,000. These financings are subject to preconditions regarding the
Company's eligible borrowing base and to ongoing compliance requirements, which
if not met would permit Foothill and/ or the financing lease lessor to declare
an event of default under the applicable agreements. The Company's ability to
meet these requirements is dependent on future results which cannot be predicted
with certainty.
Although the Foothill credit lines (with the exceptions previously noted) do
not provide for loans against work-in-process and raw material inventories, the
Company believes that it has financing in place for calendar year 2000 that will
be adequate to support the initiatives necessary in 2000 to improve the
operations of Verson and secure new orders. While there can be no assurance that
additional financing will not be necessary at some point in 2000, currently the
credit line appears sufficient to address projected fluctuations in working
capital and cash requirements. If these lines of credit become inadequate or an
event of default is declared, the Company will be required to pursue alternative
financing sources at that time.
52
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
See the Company's Proxy Statement incorporated by reference as part of this
Part III, under the caption "Proposal 1: Election of Directors" for information
with respect to the directors. In addition, see the information under the
caption "Executive Officers of the Company" as part of Part I, Item 1 of this
Report which is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
See the Company's Proxy Statement incorporated by reference as part of
Part III, Item 10 of this report, under the captions "Management Compensation"
for information with respect to executive compensation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners.
See the Company's Proxy Statement incorporated by reference as part of
Part III, Item 10 of this report, under the captions "Outstanding Stock and
Voting Rights", "Beneficial Owners" and "Principal Stockholders and Management
Ownership" for information with respect to the ownership of certain beneficial
owners of Common Stock of the Company.
(b) Security Ownership of Management.
See the Company's Proxy Statement incorporated by reference as part of
Part III, Item 10 of this report, under the caption "Principal Stockholders and
Management Ownership" for information with respect to the beneficial ownership
by management of Common Stock of the Company.
(c) Changes in Control.
There is no arrangement known to the Company, the operation of which may at
a subsequent date result in a change in control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the Company's Proxy Statement incorporated by reference as part of
Part III, Item 10 of this report, under the captions "Proposal 1: Election of
Directors" and "Management Compensation" for information with respect to certain
relationships and related transactions with management.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
Included in Part II of this report:
Report of Independent Accountants
Consolidated statements of income (loss) for the years ended
December 31, 1999, 1998 and 1997
Consolidated balance sheets as of December 31, 1999 and 1998
Consolidated statements of cash flows for the years ended December 31,
1999, 1998 and 1997
Consolidated statements of shareholders' investment for the years ended
December 31, 1999, 1998 and 1997
Notes to consolidated financial statements
53
<PAGE>
(a) 2. FINANCIAL STATEMENT SCHEDULES
Included in Part IV of this report:
Schedule II--Valuation and qualifying accounts for the years ended
December 31, 1999, 1998 and 1997
(a) 3. EXHIBITS
The following exhibits are incorporated by reference as noted below:
<TABLE>
<C> <S>
2(a) The Registrant's 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 is incorporated
by reference to Exhibit 2 of the Company's September 30,
1999 Quarterly Report in Form 10-Q (File No. 1-5530).
3(a) The Registrant's Restated Certificate of Incorporation, as
amended, is incorporated by reference to Exhibit 3 of the
Company's 1988 Annual Report on Form 10-K (File
No. 1-5530).
3(b) The Registrant's Amendments to Restated Certificate of
Incorporation is incorporated by reference to Exhibit 3 of
the Company's 1990 Annual Report on Form 10-K (File
No. 1-5530).
3(c) The Registrant's By-Laws of the Company, as amended, are
incorporated by reference to Exhibit 3 of the Company's
1998 Annual Report on Form 10-K (File No. 1-5530).
4(a) The Registrant's Rights Agreement, dated as of July 28,
1999, between Allied Products Corporation and LaSalle Bank
National Association, which includes as Exhibit A the
Terms of Series D Preferred Stock, as Exhibit B the
Form of Right Certificate and as Exhibit C the Summary of
Rights to Purchase Preferred Stock is incorporated by
reference to Exhibit 4.1 of the Company's Form 8-K dated
July 30, 1999 (File No. 1-5530).
10(a) *The Registrant's 1977 Incentive Stock Plan is incorporated
by reference to Exhibit 10(a) of the Company's 1980 Annual
Report on Form 10-K (File No. 1-5530).
10(b) *The Registrant's SMART Plan is incorporated by reference to
Exhibit 10(d) of the Company's 1984 Annual Report on
Form 10-K (File No. 1-5530).
10(c) *The Registrant's 1990 Long-Term Incentive Stock Plan is
incorporated by reference to Exhibit 10 of the Company's
1991 Annual Report on Form 10-K (File No. 1-5530).
10(d) The Registrant's Agreement for the sale of the assets of the
White-New Idea Farm Equipment Division of Allied Products
Corporation is incorporated by reference to
Exhibit(c)(2)(a)(i) of the Company's report on Form 8-K
dated January 14, 1994 (File No. 1-5530).
10(e) *The Registrant's Allied Products Corporation Executive
Retirement Plan dated April 4, 1994 is incorporated by
reference to Exhibit 10(a) of the Company's 1994 Annual
Report on Form 10-K (File No. 1-5530).
10(f) *The Registrant's Executive Officer's Agreement in Event of
Change in Control or Ownership of Allied Products
Corporation dated April 1, 1994 is incorporated by
reference to Exhibit 10(b) of the Company's 1994 Annual
Report on Form 10-K (File No. 1-5530).
10(g) *The Registrant's Allied Products Corporation Retirement
Plan dated as of December 31, 1993 is incorporated by
reference to Exhibit 10(d) of the Company's 1994 Annual
Report on Form 10-K (File No. 1-5530).
</TABLE>
54
<PAGE>
<TABLE>
<C> <S>
10(h) *The Registrant's Bush Hog Segment of the Allied Products
Corporation Combined Retirement Plan effective
December 31, 1993 is incorporated by reference to
Exhibit 10(e) of the Company's 1994 Annual Report on
Form 10-K (File No. 1-5530).
10(i) *The Registrant's Verson Segment of the Allied Products
Corporation Combined Retirement Plan effective
December 31, 1993 is incorporated by reference to
Exhibit 10(f) of the Company's 1994 Annual Report on
Form 10-K (File No. 1-5530).
10(j) *The Registrant's Littell Segment of the Allied Products
Corporation Combined Retirement Plan effective
December 31, 1993 is incorporated by reference to
Exhibit 10(g) of the Company's 1994 Annual Report on
Form 10-K (File No. 1-5530).
10(k) The Registrant's Consent to Stock Repurchase dated as of
November 27, 1996 is incorporated by reference to
Exhibit 10B of the Company's 1996 Annual Report on
Form 10-K (File No. 1-5530).
10(l) *The Registrant's 1997 Incentive Stock Plan is incorporated
by reference to Exhibit 10 of the Company's June 30, 1997
Quarterly Report on Form 10-Q (File No. 1-5530).
</TABLE>
- - ------------------------
* Management contracts or compensatory plans.
The following exhibits are attached only to the copies of this report filed
with the Securities and Exchange Commission:
<TABLE>
<CAPTION>
EXHIBIT NO. NAME OF EXHIBIT
---------------- ---------------
<C> <S>
2.1 First Amendment to Limited Liability Company Interest
Purchase and Asset Contribution Agreement, dated as of
December , 1999.
2.2 Second Amendment to Limited Liability Company Interest
Purchase and Asset Contribution Agreement, dated as of
February 10, 2000.
2.3 Third Amendment to Limited Liability Company Interest
Purchase and Asset Contribution Agreement, dated as of
March 7, 2000.
10.1 Material Contract-Loan and Security Agreement between Allied
Products Corporation, as Borrower, and LaSalle Bank
National Association, as Lender, dated as of March 7,
2000.
10.2 Material Contract-Letter of Agreement dated March 23, 2000
between Allied Products Corporation, as Seller, and Bush
Hog Investors, as Buyer, regarding the sale of
Registrant's 19.9% interest in Bush Hog, L.L.C.
10.3 Material Contract-Loan and Security Agreement by and between
Allied Products Corporation and Foothill Capital
Corporation dated as of March 29, 2000.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
24 Power of Attorney.
27 Financial Data Schedule.
</TABLE>
Other financial statements, schedules and exhibits not included above have
been omitted as inapplicable or because the required information is included in
the consolidated financial statements or notes thereto.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the fourth quarter
of the year ended December 31, 1999.
55
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- --------- -----------
<S> <C> <C> <C>
Allowance for doubtful accounts--
Current receivables:
Balance at beginning of year................... $ 519,000 $ 531,000 $ 629,000
Add (deduct)--
Provision charged to income.................. 1,553,000 129,000 114,000
Allowance applicable to receivables
acquired................................... -- 47,000 --
Receivables charged off as bad debts, net of
recoveries................................. (599,000) (188,000) (212,000)
---------- --------- -----------
Balance at end of year......................... $1,473,000 $ 519,000 $ 531,000
========== ========= ===========
Long-term receivables:
Balance at beginning of year................... $ -- $ 610,000 $ 7,165,000
Add (deduct)--
Provision charged to income.................. -- -- --
Receivables charged off as bad debts, net of
recoveries................................. -- (610,000) (6,555,000)
---------- --------- -----------
Balance at end of year......................... $ -- $ -- $ 610,000
========== ========= ===========
</TABLE>
- - ------------------------
Amounts in the above schedule relate to both continuing and discontinued
operations.
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
ALLIED PRODUCTS CORPORATION
(Registrant)
April 13, 2000 By: /s/ RICHARD A. DREXLER
----------------------------------------------
Richard A. Drexler, CHAIRMAN,
PRESIDENT AND CHIEF EXECUTIVE AND FINANCIAL
OFFICER
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C> <C>
* /s/ [RICHARD A. DREXLER]
----------------------------------------------
Richard A. Drexler, CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE AND FINANCIAL OFFICER
DIRECTOR
April 13, 2000 * /s/ [ROBERT J. FLECK]
----------------------------------------------
Robert J. Fleck, VICE PRESIDENT--ACCOUNTING,
CHIEF ACCOUNTING AND ADMINISTRATIVE OFFICER
* /s/ [LLOYD DREXLER]
----------------------------------------------
Lloyd Drexler,
DIRECTOR
* /s/ [STANLEY J. GOLDRING]
----------------------------------------------
Stanley J. Goldring,
DIRECTOR
* /s/ [JOHN E. JONES]
----------------------------------------------
John E. Jones,
DIRECTOR
* /s/ [MITCHELL I. QUAIN]
----------------------------------------------
Mitchell I. Quain,
DIRECTOR
* /s/ [S. S. SHERMAN]
----------------------------------------------
S. S. Sherman,
DIRECTOR
* By: /s/ [MARK C. STANDEFER]
------------------------------------------
Mark C. Standefer,
ATTORNEY-IN-FACT
</TABLE>
57
<PAGE>
EXHIBIT 2.1
FIRST AMENDMENT TO LIMITED LIABILITY COMPANY INTEREST PURCHASE AND
CONTRIBUTION AGREEMENT
THIS FIRST AMENDMENT TO LIMITED LIABILITY COMPANY INTEREST PURCHASE
AND CONTRIBUTION AGREEMENT ("Amendment") is made and entered into as of the
___ day of December, 1999, by and among Allied Products Corporation, a
Delaware corporation ("Allied"), Bush Hog Investors, L.L.C., a Delaware
limited liability company ("Crown"), and Bush Hog, L.L.C., a Delaware limited
liability company (the "Company"). Unless otherwise defined herein,
capitalized terms used herein shall have the same meanings assigned to them
in the Limited Liability Company Interest Purchase and Contribution Agreement
dated as of October 21, 1999 (the "Agreement") between Allied, Crown and the
Company.
WITNESSETH:
WHEREAS, Allied, Crown and the Company entered into the Agreement,
which provides for (i) Allied selling, contributing, transferring and
assigning to the Company the Purchased Assets subject solely to the Assumed
Liabilities; (ii) Allied selling to Crown eighty and one-tenth percent
(80.10%) of the limited liability company interests in the Company; and (iii)
Crown and Allied entering into a limited liability company agreement;
WHEREAS, Henry Crown and Company (Not Incorporated),an affiliate of
Crown, ("HCC") is making a $5,000,000 loan ("Loan") to Allied to provide
working capital for the Bush Hog and Great Bend divisions of Allied until the
closing under the Agreement which loan is being made pursuant to a Loan
Agreement dated December 16, 1999 between HCC and Allied and will be
evidenced by a promissory note and secured by a mortgage and security
agreement on certain of Allied's property in Selma, Alabama (the loan
agreement, promissory note, mortgage, security agreement and any other
documents evidencing such loan and the security therefore herein called the
"Loan Documents");
WHEREAS, as a condition of the Loan, Allied has agreed that Crown
may terminate the Agreement if (i) all amounts owed to HCC under the Loan and
Loan Documents, including interest, principal and penalties, have not been
paid to HCC on or before February 15, 2000; (ii) the Closing has not occurred
on or before February 15, 2000 or (ii) if Allied is in default under the Loan
Documents; and ;
WHEREAS, Allied, Crown and the Company desire to delete and replace in
its entirety SCHEDULE 1.5(a)-3 to the Agreement; and
NOW, THEREFORE, in consideration of the covenants and agreements set
forth herein, Allied, Crown and the Company do hereby agree as follows:
1. SECTION 1.5(a). Immediately proceeding the last sentence of this
Section that begins "For purposes of this Section 1.5, . . . .", insert the
following sentence in its entirety:
<PAGE>
"Notwithstanding the foregoing, if prior to the Closing Allied
has not paid to Henry Crown and Company (Not Incorporated)
("HCC") all amounts due HCC under that certain Loan Agreement
dated December 16, 1999, (the "Loan Agreement") by and between
Henry Crown and Company (Not Incorporated), an Illinois
limited partnership ("Henry Crown"), and Allied, and the
promissory note, mortgage, security agreement and other
documents evidenceing the loan under the Loan Agreement
(collectively the "Loan Documents"), then Allied directs Crown
to pay to HCC from the Purchase Price, all such amounts due
HCC and only the remaining portion of the Purchase Price shall
be paid to Allied.
2. SECTION 6.10. The following new Section 6.10 is hereby added in its
entirety:
"6.10 HENRY CROWN LOAN.
Allied shall have paid to HCC all amounts due and owing,
including without limitation, principal, penalties and interest,
pursuant to the Loan Documents."
3. SECTION 10.1(d). The date of February 29, 2000 referred to in this
section is hereby deleted in its entirety and replaced with the date of February
15, 2000.
4. SECTION 10.1(g). The following Section 10.1(g) is added in its
entirety:
"(g) By Crown, if Allied defaults in any manner under the Loan
Documents or if all amounts payable to HCC under the Loan
Documents have not been paid on or before February 15, 2000."
5. SCHEDULE 1.5(a)-3. SCHEDULE 1.5(a)-3 is hereby deleted in its
entirety and replaced with EXHIBIT A attached hereto.
6. RATIFICATION. Except as set forth in this Amendment, all of the
terms, covenants, and conditions of the Agreement as amended and all the
rights and obligations of Allied, Crown and the Company thereunder, shall
remain in full force and effect, and are not otherwise altered, amended,
revised, or changed.
7. COUNTERPARTS. This Amendment may be executed in counterparts,
each of which shall be an original and all of which counterparts taken
together shall constitute one and the same agreement.
[SIGNATURES ON FOLLOWING PAGE]
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the day and year first above written.
ALLIED: CROWN:
ALLIED PRODUCTS CORPORATION, BUSH HOG INVESTORS, L.L.C., a
a Delaware corporation Delaware limited liability company
By: /s/ Mark Standefer By: Henry Crown and Company (Not
------------------- Incorporated), an Illinois limited
Its: Vice President partnership, its manager
By: /s/ William H. Crown
--------------------
a General Partner
COMPANY:
BUSH HOG, L.L.C., a Delaware limited
liability company
By: Allied Products Corporation
Its: Manager
By: /s/ Mark Standefer
------------------
Its: Vice President
3
<PAGE>
EXHIBIT A
4
<PAGE>
EXHIBIT 2.2
SECOND AMENDMENT TO LIMITED LIABILITY COMPANY INTEREST PURCHASE AND
CONTRIBUTION AGREEMENT
THIS SECOND AMENDMENT TO LIMITED LIABILITY COMPANY INTEREST PURCHASE
AND CONTRIBUTION AGREEMENT ("Amendment") is made and entered into as of the
____ day of February, 2000, by and among Allied Products Corporation, a
Delaware corporation ("Allied"), Bush Hog Investors, L.L.C., a Delaware
limited liability company ("Crown"), and Bush Hog, L.L.C., a Delaware limited
liability company (the "Company"). Unless otherwise defined herein,
capitalized terms used herein shall have the same meanings assigned to them
in the Limited Liability Company Interest Purchase and Contribution Agreement
dated as of October 21, 1999 (the "Agreement") between Allied, Crown and the
Company.
WITNESSETH:
WHEREAS, Allied, Crown and the Company entered into the Agreement,
which provides for (i) Allied selling, contributing, transferring and
assigning to the Company the Purchased Assets subject solely to the Assumed
Liabilities; (ii) Allied selling to Crown eighty and one-tenth percent
(80.10%) of the limited liability company interests in the Company; and (iii)
Crown and Allied entering into a limited liability company agreement;
WHEREAS, pursuant to a Loan Agreement dated December 16, 1999 Henry
Crown and Company (Not Incorporated),an affiliate of Crown, ("HCC") made a
$5,000,000 loan ("Loan") to Allied to provide working capital for the Bush
Hog and Great Bend divisions of Allied until the closing under the Agreement.
The Loan is evidenced by a promissory note and secured by a mortgage and
security agreement on certain of Allied's property in Selma, Alabama (the
loan agreement, promissory note, mortgage, security agreement and any other
documents evidencing such loan and the security therefore herein called the
"Loan Documents");
WHEREAS, as a condition of the Loan, Crown, the Company and Allied
amended the Agreement pursuant to a First Amendment To Limited Liability
Company Interest Purchase And Contribution Agreement ("First Amendment")
which amendment granted Crown the option to terminate the Agreement if (i)
all amounts owed to HCC under the Loan and Loan Documents, including
interest, principal and penalties, have not been paid to HCC on or before
February 15, 2000; (ii) the Closing has not occurred on or before February
15, 2000 or (ii) if Allied is in default under the Loan Documents. The First
Amendment also amended and restated in their entirety Schedule 1.5(a)-3 and
Exhibit 5.3 of the Agreement (the Agreement as amended by the First Amendment
herein called the "Amended Agreement"); and
WHEREAS, Allied, Crown and the Company desire to amend the Amended
Agreement to defer certain dates contained in the First Amendment and to
clarify certain provisions of Exhibit 5.3.
<PAGE>
NOW, THEREFORE, in consideration of the covenants and agreements set
forth herein, Allied, Crown and the Company do hereby agree as follows:
1. SECTION 1.5. The reference to "One Hundred Twenty Million
Eighty-Six Thousand Forty One Dollars ($120,086,041)" in Section 1.5(a) and
Section 1.5(c) is hereby deleted and replaced with "One Hundred Twelve
Million Seventy-Six Thousand and Forty One Dollars ($112,076,041).
2. SECTION 10.1(d). The date of February 15, 2000 referred to
Section 10.1(d) of the Amended Agreement is hereby deleted in its entirety
and replaced with the date of March 6, 2000.
3. SECTION 10.1(e). The date of February 29, 2000 referred to
Section 10.1(e) of the Amended Agreement is hereby deleted in its entirety
and replaced with the date of March 31, 2000.
4. SECTION 10.1(g). Section 10.1(g) of the Amended Agreement is
amended in its entirety to read as follows:
(g) By Crown, if Allied defaults in any manner under
the Loan Documents or if all amounts payable to HCC under the Loan
Documents have not been paid on or before March 6, 2000."
5. EXHIBIT 5.3. Section 7.1(c) of Exhibit 5.3, the Limited
Liability Company Agreement, of the Amended Agreement is hereby amended in
its entirety to read as follows:
(c) Crown and the Company shall have thirty (30) days after
receipt of the Allied Sale Notice ("Election Period") either (i) to
notify Allied in writing that they will purchase the Allied Interest on
the terms proposed by Allied as described in SECTION 7.1(b) ("Purchase
Notice") or (ii) if neither the Company or Crown desire to purchase the
Allied Interest on the terms proposed by Allied, to notify Allied in
writing ("Appraisal Notice") of the election to initiate the Appraisal
Process. If either Crown or the Company give Allied an Appraisal
Notice, then Crown and the Company shall have twenty (20) days after
receipt of the written notice ("Appraisal Period") of the Appraised
Value to notify Allied in writing ("Appraised Value Purchase Notice")
that they will purchase the Allied Interest at the Appraised Value. If
neither the Company or Crown sends to Allied a Purchase Notice or
Appraisal Notice within the Election Period or if the Company or Crown
sends an Appraisal Notice within the Election Period but do not send an
Appraised Value Purchase Notice within the Appraisal Period, then
Allied shall have the option, which it may exercise by sending written
notice to the Manager, Crown and the Company, within thirty (30) days
after the Election Period or the Appraisal Period, whichever is
applicable, (the "Sale Transaction Notice"), to require that the
Manager sell all of the assets of the Company. In lieu of selling all
of the assets of the Company, the Manager may, in its discretion,
require that the Members sell all of their Membership Interests or
cause the Company to enter into another transaction which effectively
constitutes a sale of the Company, in which event the provisions of
SECTION 7.3 (d) AND (e) shall apply to such sale (the "Sale
Transaction"). The Manager shall have the sole discretion to negotiate
the
2
<PAGE>
terms and conditions of any Arms Length Sale Transaction. If within
one hundred eighty (180) days after Allied sends the Sales Transaction
Notice to the Manager, the Manager has not made reasonable efforts to
effectuate an Arms Length Sale Transaction, Allied shall have the right
to engage an investment banking firm and/or otherwise pursue an Arms
Length Sale Transaction. The Manager will be deemed to be making
reasonable efforts to effectuate an Arms Length Sale Transaction, if it
has engaged an investment banking firm which is making reasonable
efforts to effectuate an Arms Length Sale Transaction. An Arms Length
Sale Transaction is a Sale Transaction in which all Members are treated
equally with respect to their Membership Interests, in proportion to
their Percentage Interests, and the purchaser is not an Affiliate of
Crown or the Allied Owners. The transactional costs related to a Arms
Length Sale Transaction shall be paid, at the option of the Manager, by
the Company or the Members based on their respective Percentage
Interests at the date of the Allied Sale Notice. If Allied does not
issue the Sale Transaction Notice in accordance with this SECTION
7.1(c), then Allied may not issue an Allied Sale Notice to Crown
pursuant to SECTION 7.1(b) for 1 year after the Election Period.
6. Section 7.1(f) of Exhibit 5.3 of the Amended Agreement is
amended by changing the reference to Section 7.1(b)(i) to Section 7.1(b).
7. Section 7.3 (d) of Exhibit 5.3 of the Amended Agreement is
amended in its entirety to read as follows:
(d) In the event Crown has exercised the Drag-Along Option or Allied
has exercised the Tag-Along Option or in the case of a Sale
Transaction, the Allied Owners shall receive the same total
consideration, on a pro rata basis according to their respective
Percentage Interests, as the Crown Owners receive pursuant to the
Proposed Sale or the Sale Transaction.
8. Section 8.1(c) of Exhibit 5.3 of the Amended Agreement is
amended in its entirety to read as follows:
(a) "Appraisal Process" refers to the situation where the
Company, Allied, Crown or the Declining Member, as the case may be, (i)
within sixty (60) days of the Manager's request for Optional Capital
more than twenty-four (24) months after the date hereof, (ii) within
thirty (30) days of Crown's election to initiate the Appraisal Process
pursuant to SECTION 7.1(b) or (iii) within sixty (60) days of Crown's
election to initiate the Appraisal Process pursuant to SECTION 7.4(b),
either agree or fail to agree on the Fair Market Value of the Company
(the applicable sixty (60) day period or thirty (30) day period herein
called the "Negotiation Period"). In the event of such a failure to
reach agreement within such Appraisal Period, Crown and Allied shall
provide the other with a final good faith proposed Fair Market Value of
the Company (the "Crown Final Proposal" and the "Allied Final
Proposal"), in writing, within ten (10) business days after the
expiration of such Negotiation Period. Crown and Allied shall then
choose an investment banking firm or accounting firm (the "Appraiser")
to determine the Fair Market Value of the Company within thirty (30)
days of the engagement of such firm; provided, however,
3
<PAGE>
that the Fair Market Value of the Company must either: (i) equal the
Crown Final Proposal or the Allied Final Proposal, or (ii) fall
somewhere between the Crown Final Proposal and the Allied Final
Proposal.
(i) The value of the Company determined by the
Appraisal Process (the "Appraised Value") shall be final and
binding upon the parties. Any determination of the Appraised
Value of the Company pursuant to an Appraisal Process shall
also be binding upon the Company and all of the Members with
respect to any future determination of the Fair Market Value
of the Company or Appraised Value (for the twenty-four (24)
month period following the valuation date of the Appraisal
Process), except that the Appraised Value shall be increased
by (i) the cumulative amount of all Optional Contributions
after the date the Appraised Value was determined, and shall
be reduced by (ii) Cumulative Distributions after the date the
Appraised Value was determined, and shall be further increased
or reduced by (iii) the Net Cumulative Earnings or Deficit,
respectively. Provided, however, that Allied, on behalf of the
Allied Owners, or Crown, on behalf of the Crown Owners, may
choose not to be bound by an Appraised Value which is more
than 3 months old and related to a different matter (e.g. a
prior Optional Capital call), and instead elect to have a new
Appraisal Process, as long as the Member electing to begin the
new Appraisal Process, and its Affiliates that are Members,
bears the entire cost of such Appraisal Process and notifies
the other Member and the Manager as follows:
(A) if the Appraised Value is to be used in
connection with the Manager's request for Optional
Capital more than twenty four (24) months after the
date hereof, within 5 days after receipt of the
Manager's request, and
(B) if the Appraised Value is to be used in
connection with Crown's election to initiate the
Appraisal Process pursuant to SECTION 7.1(b) or
SECTION 7.4(b), within 5 days after delivery of
delivery of Crown's notice.
(ii) If Crown and Allied are unable to agree on the
Appraiser within fifteen (15) days after the Negotiation
Period, Crown and Allied each shall choose an investment
banking firm or accounting firm, and direct such firms to
choose, within fifteen (15) days, the Appraiser who shall
perform the Appraisal Process.
(iii) The cost of the Appraiser shall be split evenly
between Crown and Allied.
9. RATIFICATION. Except as set forth in this Amendment, all of the
terms, covenants, and conditions of the Agreement as amended and all the rights
and obligations of Allied, Crown and the Company thereunder, shall remain in
full force and effect, and are not otherwise altered, amended, revised, or
changed.
4
<PAGE>
10. COUNTERPARTS. This Amendment may be executed in counterparts,
each of which shall be an original and all of which counterparts taken
together shall constitute one and the same agreement.
[SIGNATURES ON THE FOLLOWING PAGE]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
ALLIED: CROWN:
ALLIED PRODUCTS CORPORATION, BUSH HOG INVESTORS, L.L.C., a
a Delaware corporation Delaware limited liability company
By: /s/ Richard A. Drexler By: Henry Crown and Company (Not
---------------------- Incorporated), an Illinois limited
Its: President partnership, its manager
By: /s/ William H. Crown
--------------------
a General Partner
COMPANY:
BUSH HOG, L.L.C., a Delaware limited
liability company
By: Allied Products Corporation
Its: Manager
By: /s/ Richard A. Drexler
----------------------
Its: President
6
<PAGE>
EXHIBIT 2.3
THIRD AMENDMENT TO LIMITED LIABILITY COMPANY
INTEREST PURCHASE AND ASSET CONTRIBUTION AGREEMENT
This Amendment (the "Amendment"), dated as of March 7, 2000 is made
by and among 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. The Limited Liability Company Interest Purchase and Asset
Contribution Agreement dated as of October 21, 1999, by and
among Crown, Allied and the Company (the "Agreement") provides
for certain title policies to be provided with specified
endorsements at the Closing (as defined in the Agreement); and
B. The title insurance company, Chicago Title Insurance Company,
is unable or unwilling to provide certain of the endorsements
as required under the Agreement due either to limitations
imposed by state law or factual situations with respect to the
property; and
C. In order to induce Crown to consummate the transactions
contemplated by the Agreement, Allied is prepared to indemnify
the Company from and against any and all loss arising from the
inability to obtain such endorsements on the terms and
conditions hereinafter set forth.
D. The parties also desire to set forth certain agreements
regarding the calculation of the Purchase Price.
The parties agree, for good and adequate consideration, and as an
inducement to Crown to consummate the transactions contemplated under the
Agreement, as follows:
<PAGE>
1. INTENTIONALLY DELETED
2. Section 8.1 is amended to add the following subparagraph (e) after
subparagraph (d):
(e) to the extent the Company is not entitled to
recover under any title insurance policy as to such
matter, any encroachment of any building or fence
over setback lines or property lines as shown on the
survey dated November 18, 1999, prepared by the
Sommerville Group Inc. regarding the Selma, Alabama
property, including without limitation the downtown
and Selfield Road locations.
3. The first sentence of Section 8.4(b) amended and restated as
follows:
(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
Sections 8.1(b) and (d) 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), Section 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.
4. The Estimated Purchase Price is calculated as set forth on attached
Exhibit A.
5. The cutoff for calculation of the Purchase Price and adjustments
thereto shall be as of midnight on March 7, 2000. The Purchase Price is hereby
reduced by $65,000 to represent the net income of the Business for March 7,
2000.
6. The parties acknowledge that the amount attributable to the
adjustment for Closing Date Long Term Liabilities has not been agreed to by the
parties as of the Closing Date.
2
<PAGE>
Consequently, the figure used for Closing purposes is $465,000, which amount
shall be finally determined in accordance with Section 1.5(a)(iv)(A) of the
Agreement.
7. Except as expressly amended herein, the Agreement shall remain in
full force and effect as amended by a First Amendment dated December 16, 1999,
and a Second Amendment dated February 10, 2000..
IN WITNESS WHEREOF, the parties have executed this Amendment as of
March 7, 2000.
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/ David M. Arnburg
--------------------
Authorized Agent of General Partner
ALLIED:
ALLIED PRODUCTS CORPORATION, a Delaware
corporation
By: /s/ Mark C. Standefer
---------------------
Its: Vice President
COMPANY:
BUSH HOG, L.L.C., a Delaware limited liability company
By: Allied Products Corporation
Its; Manager
By: /s/ Mark C. Standefer
---------------------
Its: Vice President
3
<PAGE>
EXHIBIT A
<TABLE>
<S> <C> <C>
A. Estimated Fixed Working Capital Adjustment: $78,273,000
Base Adjusted Working Capital 59,022,000
----------
19,251,000
Multiply by 80.1% X .801
----------
Total Adjustment $15,420,051
B. Base Adjusted Net Tangible Investments: $23,852,000
Estimated Final Adjusted Net Tangible Investment 22,871,000
----------
(981,000)
Multiply by 80.1% X .801
----------
(785,781)
Credit 365 days @ $2,255.90 824,498
Total Adjustment -0-
C. Base Long Term Assumed Liabilities $1,411,000
Estimated Long Term Assumed Liabilities 2,580,851
---------
(1,169,851)
Multiply by 80.1% X .801
----------
($ 937,051)
Original Purchase Price $112,076,141
Adjusted Working Capital 15,420,051
Adjusted Net Tangible Investment -0-
Long Term Assumed Liabilities ( 937,051)
Cutoff Date Adjustment Date ( 65,000)
-------------
$126,494,141
</TABLE>
<PAGE>
EXHIBIT 10.1
================================================================================
LOAN AND SECURITY AGREEMENT
dated as of
March 7, 2000
between
ALLIED PRODUCTS CORPORATION,
as Borrower
and
LASALLE BANK NATIONAL ASSOCIATION,
as Lender
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
1. DEFINITIONS.................................................................1
1.1 General Terms......................................................1
1.2 Accounting Terms; Utilization of GAAP for Purposes of
Calculations Under Agreement.......................................7
1.3 Other Terms Defined in Illinois Uniform Commercial Code............7
1.4 Other Definitional Provisions......................................8
2. CREDIT......................................................................8
2.1 Term Loan Facility.................................................8
2.2 INTENTIONALLY OMITTED..............................................8
2.3 INTENTIONALLY OMITTED..............................................8
2.4 Voluntary Prepayments..............................................8
2.5 Borrower's Loan Account............................................9
2.6 Statements; Telephonic Notice......................................9
2.7 Interest and Fees..................................................9
2.8 Method of Payment.................................................10
2.9 Term of this Agreement............................................10
2.10 Survival..........................................................10
3. CONDITIONS OF ADVANCES.....................................................11
3.1 Conditions to Initial Loans.......................................11
3.2 Conditions to All Loans...........................................11
4. COLLATERAL.................................................................12
4.1 Security Interest.................................................12
4.2 Preservation of Collateral and Perfection of Security Interests
Therein...........................................................12
4.3 Loss of Value of Collateral.......................................12
4.4 Setoff............................................................12
5. REPRESENTATIONS AND WARRANTIES.............................................13
5.1 Existence.........................................................13
5.2 Corporate Authority...............................................13
5.3 Binding Effect....................................................13
5.4 Financial Data....................................................13
5.5 Collateral........................................................14
5.6 Solvency..........................................................14
5.7 Chief Place of Business...........................................15
5.8 Other Names.......................................................15
5.9 Tax Liabilities...................................................15
5.10 Loans.............................................................15
5.11 Margin Stock......................................................15
5.12 Litigation and Proceedings........................................15
5.13 Other Agreements..................................................16
5.14 Employee Controversies............................................16
i
<PAGE>
5.15 Compliance with Laws and Regulations; Environmental Matters.......16
5.16 Patents, Trademarks and Licenses..................................17
5.17 ERISA.............................................................17
5.18 Financial Condition...............................................18
5.19 Survival of Warranties............................................18
5.20 Bank Accounts.....................................................18
5.21 Subsidiaries......................................................18
5.22 Accuracy of Information...........................................18
5.23 Assets and Properties.............................................18
5.24 Insurance.........................................................18
5.25 Contingent Obligations............................................19
5.26 Account Warranties................................................19
5.27 Broker's Fees.....................................................19
6. AFFIRMATIVE COVENANTS......................................................19
6.1 Financial Statements and Other Reports............................19
6.2 Inspection........................................................21
6.3 Maintenance of Licenses, Etc......................................22
6.4 Claims and Taxes..................................................22
6.5 Lender's Closing Costs and Expenses...............................22
6.6 Borrower's Liability Insurance....................................22
6.7 Business Interruption Insurance...................................23
6.8 ERISA Reporting...................................................23
6.9 Notice of Suit or Adverse Change in Business......................24
6.10 Environmental Safety and Health Laws..............................24
6.11 Supplemental Disclosure...........................................24
6.12 Collateral Records................................................24
6.13 Endorsement.......................................................25
6.14 Maintenance of Properties.........................................25
6.15 Collateral Locations..............................................25
6.16 Use of Proceeds and Margin Security...............................25
6.17 Appraisals........................................................25
7. NEGATIVE COVENANTS.........................................................25
7.1 Encumbrances......................................................25
7.2 Restrictions on Distributions.....................................26
8. DEFAULT, RIGHTS AND REMEDIES OF LENDER.....................................26
8.1 Defaults..........................................................26
8.2 Rights and Remedies Generally.....................................27
8.3 Entry Upon Premises and Access to Information.....................27
8.4 Sale or Other Disposition of Collateral by Lender.................27
8.5 Waiver of Demand..................................................28
8.6 Waiver of Notice..................................................28
9. MISCELLANEOUS..............................................................28
9.1 Amendments and Waivers............................................28
ii
<PAGE>
9.2 Costs and Attorneys' Fees.........................................28
9.3 Expenditures by Lender............................................29
9.4 Custody and Preservation of Collateral............................29
9.5 Reliance by Lender................................................29
9.6 Assignment; Parties...............................................29
9.7 CHOICE OF LAW.....................................................29
9.8 CONSENT TO JURISDICTION...........................................29
9.9 SERVICE OF PROCESS................................................30
9.10 WAIVER OF JURY TRIAL AND BOND.....................................30
9.11 ADVICE OF COUNSEL.................................................31
9.12 SEVERABILITY......................................................31
9.13 Application of Payments...........................................31
9.14 Marshaling; Payments Set Aside....................................31
9.15 Section Titles....................................................31
9.16 Continuing Effect.................................................31
9.17 Notices...........................................................32
9.18 Equitable Relief..................................................33
9.19 Indemnification...................................................33
9.20 Counterparts......................................................34
9.21 Entire Agreement..................................................34
9.22 Confidentiality...................................................34
9.23 Governmental Regulation...........................................34
9.24 Amendment of Loan Agreement.......................................34
iii
<PAGE>
EXHIBITS
Exhibit A Form of Term Note
Exhibit B Form of Financial Statement Certificate
Exhibit C Form of Endorsement
Exhibit D Form of Notice of Borrowing
SCHEDULES
Schedule 3.1 Conditions to Initial Loans
Schedule 5.1 Jurisdiction of Incorporation; Qualification
Schedule 5.2 Governmental Consents and Restrictions
Schedule 5.4(A) Financials
Schedule 5.4(B) Projections
Schedule 5.4(C) Pro Forma
Schedule 5.5 Locations of Collateral
Schedule 5.7 Chief Place of Business
Schedule 5.8 Other Names
Schedule 5.9 Tax Audits
Schedule 5.12 Litigation and Proceedings
Schedule 5.14 Employee Controversies
Schedule 5.15(B) Environmental Matters
Schedule 5.16 Patents, trademarks and Licenses
Schedule 5.17 ERISA
Schedule 5.20 Bank Accounts
Schedule 5.21 Capitalization; Subsidiaries
Schedule 5.24 Insurance
Schedule 5.25 Contingent Obligations
Schedule 7.1 Liens
iv
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), dated as of
March 7, 2000, is by and between ALLIED PRODUCTS CORPORATION., a Delaware
corporation, ("Borrower"), and LASALLE BANK NATIONAL ASSOCIATION, a national
banking association ("Lender"). All capitalized terms used herein are defined in
Section 1 of this Agreement.
W I T N E S S E T H:
WHEREAS, Borrower desires to borrow up to Eighteen Million Dollars
($18,000,000) from Lender; and
WHEREAS, Lender is willing to make certain loans and to extend
credit to Borrower of up to such amount upon the terms and conditions set forth
herein, the proceeds of which will be used by Borrower for the working capital
needs of Borrower and for general corporate purposes;
NOW, THEREFORE, in consideration of the terms and conditions
contained herein, and of any loans or extensions of credit heretofore, now or
hereafter made to or for the benefit of Borrower by Lender, the parties hereto
hereby agree as follows:
1. DEFINITIONS.
1.1 General Terms. When used herein, the following terms shall have
the following meanings:
"Account Debtor" shall mean the party who is obligated on or under
an Account.
"Accounts" shall mean all "accounts" (as defined in the Code) owed
to or owned or acquired by Borrower arising or resulting from the sale of
goods or the rendering of services.
"Affiliate" of any Person shall mean any other Person (a) that
directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with such Person; (b) that
directly or beneficially owns or holds five percent (5%) or more of any
class of the voting stock or other equity interests of such Person, or (c)
five percent (5%) or more of the voting stock (or in the case of a Person
which is not a corporation, five percent (5%) or more of the equity
interest) of which is owned directly or beneficially or held by such
Person. Notwithstanding the foregoing, Lender shall not be deemed to be an
Affiliate of the Borrower.
"Authorized Officer" shall mean, at any time, any of the chief
executive officer, chief financial officer, controller, or any vice
president of Borrower, acting singly.
"Benefit Plan" shall mean, with respect to any Person, a defined
benefit plan as
<PAGE>
defined in Section 3(35) of ERISA (other than a Multiemployer Plan) in
respect of which such Person or an ERISA Affiliate of such Person is, or
within the immediately preceding six (6) years was, an "employer" as
defined in Section 3(5) of ERISA.
"Bush Hog" shall mean Bush Hog, L.L.C., a Delaware limited liability
company, of which Borrower owns 19.9% of the membership interests.
"Business Day" means a day (other than a Saturday or Sunday) on
which LaSalle and other banks generally are open in Chicago for the
conduct of substantially all of their commercial lending activities.
"Capitalized Lease" shall mean, at any time, any lease which, in
accordance with GAAP, is required to be capitalized on the consolidated
balance sheet of Borrower and its Subsidiaries at such time, and
"Capitalized Lease Obligations" of Borrower and its Subsidiaries at any
time shall mean the aggregate amount which, in accordance with GAAP, is
required to be reported as a liability on the consolidated balance sheet
of Borrower and its Subsidiaries.
"Closing Date" shall mean the date of this Agreement.
"Closing Fee" shall have the meaning set forth in subsection 2.7(E).
"Code" shall have the meaning set forth in subsection 1.3 hereof.
"Collateral" shall have the meaning set forth in subsection 4.1
hereof.
"Commitment" shall mean the commitment of Lender to make the Loan as
set forth in subsection 2.1 hereof.
"Contingent Obligation" of a Person shall mean any agreement,
undertaking or arrangement by which such Person assumes, guarantees,
endorses, contingently agrees to purchase or provide funds for the payment
of, or otherwise becomes or is contingently liable upon, the obligation or
liability of any other Person, or agrees to maintain the net worth or
working capital or other financial condition of any other Person, or
otherwise assures any creditor of such other Person against loss,
including, without limitation, operating agreement or take_or_pay contract
or application for a letter of credit.
"Default" shall mean the occurrence or existence of any one or more
of the events described in subsection 8.1 hereof.
"DOL" shall have the meaning set forth in subsection 6.8 hereof.
"Dollars", "dollars" and "$" each mean lawful money of the United
States of America.
"Environmental Lien" shall mean a lien in favor of any governmental
entity for (a) any liability under federal or state environmental laws or
regulations or (b) damages
2
<PAGE>
arising from, or costs incurred by such governmental entity in response
to, a release or threatened release of a hazardous or toxic waste,
substance or constituent, or other substance into the environment.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and any successor statute.
"ERISA Affiliate" shall mean, with respect to any Person, any (i)
corporation which is a member of the same controlled group of corporations
(within the meaning of Section 414(b) of the Internal Revenue Code) as
such Person; (ii) partnership, trade or business under common control
(within the meaning of Section 414(c) of the Internal Revenue Code) with
such Person; and (iii) solely for purposes of liability under Section
412(c)(11) of the Internal Revenue Code, for the lien created under
Section 412(n) of the Internal Revenue Code or for a tax imposed for
failure to meet minimum funding standards under Section 4971 of the
Internal Revenue Code, member of the same affiliated service group (within
the meaning of Section 414(m) of the Internal Revenue Code) as such
Person, any corporation described in clause (i) above or any partnership,
trade or business described in clause (ii) above.
"Financials" shall have the meaning set forth in subsection 5.4
hereof.
"Financing Agreements" shall mean, collectively, that certain Put
and Call Agreement of even date herewith, by and among Lender, Borrower
and Bush Hog Investors, L.L.C., and acknowledged and consented to by Bush
Hog, L.L.C. and CC Industries, Inc., that certain Guaranty of even date
herewith, made by CC Industries, Inc. in favor of Lender, and all other
agreements, instruments and documents, including, without limitation, this
Agreement and any security agreements, loan agreements, notes, guarantees,
mortgages, deeds of trust, leasehold mortgages, leasehold deeds of trust,
subordination agreements, pledges, powers of attorney, consents,
assignments, intercreditor agreements, mortgagee waivers, landlord
estoppel statements, reimbursement agreements, contracts, notices, leases,
financing statements and all other written matter whether heretofore, now
or hereafter executed by or on behalf of Borrower or any of Borrower's
Subsidiaries and delivered to Lender, together with all agreements,
documents and instruments referred to therein or contemplated thereby.
"Fiscal Year" shall mean a twelve-month period ending on the last
day of December in each year.
"GAAP" means generally accepted accounting principles in the United
States of America as set forth in statements from Auditing Standards No.
69 entitled "The Meaning of 'Present Fairly in Conformance with Generally
Accepted Accounting Principles in the Independent Auditors Reports'"
issued by the Auditing Standards Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board that are applicable to the
circumstances as of the date of determination.
"Indebtedness" shall mean, with respect to any Person, as of the
date of determination thereof: (i) all of such Person's indebtedness for
borrowed money; (ii) all
3
<PAGE>
indebtedness of such Person or any other Person secured by any Lien with
respect to any property or asset owned or held by such Person, regardless
of whether the indebtedness secured thereby shall have been assumed by
such Person; (iii) all indebtedness of other Persons which such Person has
directly or indirectly guaranteed (whether by discount or otherwise),
endorsed (otherwise than for collection or deposit in the ordinary course
of business), discounted with recourse to such Person or with respect to
which such Person is otherwise directly or indirectly liable, including,
without limitation, indebtedness directly or indirectly guaranteed by such
Person through any agreement (contingent or otherwise) to (A) purchase,
repurchase or otherwise acquire such indebtedness or any security
therefor, (B) provide funds for the payment or discharge of such
indebtedness or any other liability of the obligor of such indebtedness
(whether in the form of loans, advances, stock purchases, capital
contributions or otherwise), (C) maintain the solvency of any balance
sheet or other financial condition of the obligor of such indebtedness, or
(D) make payment for any products, materials or supplies or for any
transportation or services regardless of the nondelivery or nonfurnishing
thereof if in any such case the purpose or intent of such agreement is to
provide assurance that such indebtedness will be paid or discharged or
that any agreements relating thereto will be complied with or that the
holders of such indebtedness will be protected against loss in respect
thereof; (iv) all of such Person's Capitalized Lease Obligations; and (v)
all actual or contingent reimbursement obligations with respect to letters
of credit issued for such Person's account.
"Internal Revenue Code" shall mean the Internal Revenue Code of
1986, as amended from time to time, and any successor statute.
"IRS" shall have the meaning set forth in subsection 6.8 hereof.
"Lender" or "Lenders" shall mean LaSalle together with its
successors and assigns pursuant to Section 10 hereof.
"Liabilities" shall mean all of Borrower's liabilities, obligations
and indebtedness to Lender of any and every kind and nature, whether
heretofore, now or hereafter owing, arising, due or payable and howsoever
evidenced, created, incurred, acquired or owing, whether primary,
secondary, direct, contingent, fixed or otherwise (including obligations
of performance) and whether arising or existing under written agreement,
oral agreement or operation of law, relating to any or all of Borrower's
indebtedness and obligations to Lender under this Agreement and the other
Financing Agreements.
"Lien" shall mean any lien (statutory or otherwise), mortgage,
pledge, hypothecation, assignment, deposit arrangement, option, warrant,
purchase agreement, shareholders' agreement, restriction, redemption
agreement or other charge, encumbrance, restriction or preference,
priority or other security agreement or preferential arrangement of any
kind or nature whatsoever.
"Loan Account" shall have the meaning set forth in subsection 2.5
hereof.
"Loan" shall mean the Term Loan.
4
<PAGE>
"Management Letter" shall have the meaning set forth in subsection
6.1(E) hereof.
"Material Adverse Change" shall mean a material adverse change,
which has not previously been disclosed to Lender, in the business,
properties, condition (financial or otherwise), performance, prospects or
results of operations of Borrower and its Subsidiaries
"Material Adverse Effect" shall mean a material adverse effect, the
probability of occurrence of which has not previously been disclosed to
Lender, on (a) the business, property, condition (financial or other),
results of operations or prospects of Borrower and its Subsidiaries taken
as a whole, (b) the ability of Borrower or any Subsidiary of Borrower to
perform its obligations under the Financing Agreements to which it is a
party, or (c) the validity or enforceability of any of the Financing
Agreements or the rights or remedies of Lender thereunder.
"Maturity Date" shall mean September 7, 2002.
"Multiemployer Plan" shall mean, with respect to any Person, an
employee benefit plan defined in Section 4001(a) (3) of ERISA which is, or
within the immediately preceding six (6) years was, contributed to by such
Person or an ERISA Affiliate of such Person.
"Notice of Borrowing" shall mean a notice given by the Borrower to
Lender pursuant to subsection 3.2(A), in substantially the form of Exhibit
D hereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any
Person succeeding to the functions thereof.
"Permitted Liens" shall mean the Liens permitted under subsection
7.1 hereof.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization,
association, limited liability company, corporation, institution, entity,
party or government (whether national, federal, state, provincial, county,
city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Plan" shall mean, with respect to any Person, any employee benefit
plan defined in Section 3(3) of ERISA in respect of which such Person or
any ERISA Affiliate of such Person is, or at any time within the
immediately preceding six (6) years was, an "employer" as defined in
Section 3(5) of ERISA.
"Prime Rate" shall mean a variable rate of interest per annum equal
to the highest of the "prime rate", "corporate base rate", "reference
rate" or similar benchmark rate announced or published from time to time
by LaSalle at its principal place of business in Chicago, Illinois, which
rate is not necessarily the lowest rate of interest charged by LaSalle
with respect to commercial loans. Any change in the Prime Rate shall be
effective
5
<PAGE>
as of the effective date stated in the announcement by LaSalle of such
change.
"Pro Forma" shall mean the unaudited consolidated and consolidating
balance sheet of Borrower and its Subsidiaries as of the Closing Date
after giving effect to the transactions contemplated by this Agreement and
the other Financing Agreements.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor
thereto or other regulation or official interpretation of said Board of
Governors relating to reserve requirements applicable to member banks of
the Federal Reserve System.
"Regulation T" shall mean Regulation T of the Board of Governors of
the Federal Reserve System from time to time in effect and shall include
any successor or other regulation or official interpretation of said Board
of Governors relating to the extension of credit by and to brokers and
dealers of securities for the purpose of purchasing or carrying margin
stock.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or
other regulation or official interpretation of said Board of Governors
relating to the extension of credit by banks for the purpose of purchasing
or carrying margin stock applicable to member banks of the Federal Reserve
System.
"Regulation X" means Regulation X of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or
other regulation or official interpretation of said Board of Governors
relating to the extension of credit by foreign lenders for the purpose of
purchasing or carrying margin stock.
"Subsidiary" shall mean, with respect to any Person, any corporation
of which more than fifty percent (50%) of the outstanding capital stock
having ordinary voting power to elect a majority of the board of directors
of such corporation (irrespective of whether at the time stock of any
other class or classes of such corporation shall have or might have voting
power by reason of the happening of any contingency) is at the time,
directly or indirectly, owned by such Person. Unless otherwise expressly
provided, all references herein to a "Subsidiary" shall mean a Subsidiary
of Borrower.
"Term" shall have the meaning set forth in subsection 2.9 hereof.
"Term Loan" shall have the meaning set forth in subsection 2.1
hereof.
"Term Loan Commitment" shall mean the commitment of Lender to make
the Term Loan.
"Term Note" shall have the meaning set forth in subsection 2.1
hereof.
"Termination Event" shall mean (i) a reportable event described in
Section 4043 of ERISA or the regulations promulgated thereunder occurring
with respect to any Benefit
6
<PAGE>
Plan of Borrower or any ERISA Affiliate of Borrower for which the 30-day
notice requirement has not been waived by the PBGC, or (ii) the withdrawal
of Borrower or any ERISA Affiliate of Borrower from a Benefit Plan during
a plan year in which it was a "substantial employer" as defined in Section
4001(a)(2) of ERISA or the cessation of operations which results in the
termination of employment of 20% of Benefit Plan participants who are
employees of Borrower or any ERISA Affiliate of Borrower, or (iii) the
occurrence of an obligation of Borrower or any ERISA Affiliate of Borrower
arising under Section 4041 of ERISA to provide affected parties with a
written notice of an intent to terminate a Benefit Plan in a distress
termination described in Section 4041(c) of ERISA, or (iv) PBGC's
institution of proceedings to terminate a Benefit Plan of Borrower or any
ERISA Affiliate of Borrower, or (v) any event or condition which might
constitute grounds under Section 4041A or 4042 of ERISA for the
termination of, or the appointment of a trustee to administer any Benefit
Plan or Multiemployer Plan of Borrower or any ERISA Affiliate of Borrower,
or (vi) the partial or complete withdrawal (as defined in Section 4203 and
4205 of ERISA) of Borrower or any ERISA Affiliate of Borrower from a
Multiemployer Plan, or (vii) the existence in a Multiemployer Plan of a
potential withdrawal liability of Borrower or any ERISA Affiliate of
Borrower, or (viii) the occurrence of any nonexempt "prohibited
transaction" with respect to any plan under Section 406 of ERISA or
Section 4975 of the Internal Revenue Code or (ix) as of the last day of
any plan year, the present value of the benefits of any Benefit Plan of
Borrower or any ERISA Affiliate of Borrower, as determined by the plan's
independent actuaries, exceeds the aggregate value as of such date, as
determined by such actuaries, of all assets of such plan by an amount
sufficient that, in the event a distress termination within the meaning of
Section 4041(c) of ERISA were to occur as of such date, Borrower would be
subject to liability in excess of $100,000.
"UFCA" shall have the meaning set forth in subsection 5.6 hereof.
"UFTA" shall have the meaning set forth in subsection 5.6 hereof.
"Unmatured" shall mean any event which, through the passage of time
or the giving of notice or both, would mature into a Default.
"Working Capital Credit Facility" shall mean that certain working
capital credit facility provided, or to be provided, to Borrower by
_______________________, in an amount not to exceed $50,000, 000, the
terms, conditions and documentation of which, shall not conflict with or
violate the terms and conditions of this Agreement or any other Financing
Agreement.
1.2 Accounting Terms; Utilization of GAAP for Purposes of
Calculations Under Agreement. For purposes of this Agreement, all accounting
terms not otherwise defined herein shall have the meanings assigned to such
terms in conformity with GAAP. Financial statements and other financial
information furnished to Lender pursuant to this Agreement shall be prepared in
accordance with GAAP as in effect at the time of such preparation. No
"Accounting Changes" (as defined below) shall effect the determination or
interpretation of any financial covenants, standards or terms in this Agreement;
provided, that Borrower shall prepare footnotes to each compliance certificate
and the financial statements
7
<PAGE>
required to be delivered hereunder that show the differences between the
financial statements delivered (which reflect such Accounting Changes) and the
basis for calculating financial covenant compliance (without reflecting such
Accounting Changes). "Accounting Changes" means: (a) changes in the accounting
principles applied in the preparation of the Financials required by GAAP and
implemented by Borrower; (b) changes in the accounting principles applied in the
preparation of the Financials recommended by Borrower's independent public
accountants and implemented by Borrower; and (c) changes in the carrying values
of Borrower's or any of its Subsidiaries assets, liabilities or equity accounts
reflected on the Financials resulting from any adjustments that, in each case
were applicable to, but not included in, the Pro Forma.
1.3 Other Terms Defined in Illinois Uniform Commercial Code. All
other terms contained in this Agreement (and which are not otherwise
specifically defined herein) shall have the meanings provided in Article 9 of
the Uniform Commercial Code, as in effect in the State of Illinois or, with
respect to Collateral not located in the State of Illinois, as in effect in the
jurisdiction where such Collateral is located, as appropriate (the "Code"), in
either case to the extent the same are used or defined therein.
1.4 Other Definitional Provisions. Whenever the context so requires,
the neuter gender includes the masculine and feminine, the singular number
includes the plural, and vice versa. References to "Sections", "subsections",
"Exhibits" and "Schedules" shall be to Sections, subsections, Exhibits and
Schedules, respectively, of this Agreement unless otherwise specifically
provided. Any of the terms defined in Section 1 may, unless the context
otherwise requires, be used in the singular or the plural depending on the
reference. In this Agreement, "hereof," "herein," "hereto," "hereunder" and the
like mean and refer to this Agreement as a whole and not merely to the specific
section, paragraph or clause in which the respective word appears; words
importing any gender include the other gender; references to "writing" include
printing, typing, lithography and other means of reproducing words in a tangible
visible form; the words "including," "includes" and "include" shall be deemed to
be followed by the words "without limitation"; references to agreements,
documents, instruments and other contractual arrangements shall be deemed to
include subsequent amendments, restatements, assignments, and other
modifications thereto, but only to the extent such amendments, restatements,
assignments and other modifications are not prohibited by the terms of this
Agreement or any other Financing Agreements; references to Persons include their
respective permitted successors and assigns or, in the case of governmental
Persons, Persons succeeding to the relevant functions of such Persons; and all
references to statutes and related regulations shall include any amendments of
same and any successor statutes and regulations.
2. CREDIT.
2.1 Term Loan Facility. Subject to the provisions of Section 3
below, Lender agrees, immediately following the execution of this Agreement, to
lend to Borrower a term loan in the aggregate principal amount of up to Eighteen
Million and No/100 Dollars ($18,000,000), or such lesser amount as Borrower may
request (the "Term Loan"), provided that Borrower shall be entitled to request
advances on the Term Loan (i) only in increments of $3,000,000, and (ii) only
until June 7, 2000. After June 7, 2000, Borrower shall not be entitled to
request any more advances on the Term Loan. No amount of the Term Loan which is
repaid or
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prepaid by Borrower may be reborrowed hereunder. The Term Loan shall be
evidenced, in part, by a term note (the "Term Note") in the form attached hereto
as Exhibit A with the blanks appropriately filled. The provisions of the Term
Note notwithstanding, the Liabilities evidenced by the Term Note shall become
immediately due and payable as provided in subsection 8.1 hereof, and, without
notice or demand, upon the termination of this Agreement pursuant to subsection
2.9 hereof.
2.2 INTENTIONALLY OMITTED.
2.3 INTENTIONALLY OMITTED.
2.4 Voluntary Prepayments. Borrower may prepay the Liabilities in
full or in part during the "Term" (as defined in subsection 2.9 hereof), upon
five (5) Business Days' prior irrevocable written notice to Lender.
2.5 Borrower's Loan Account. Lender shall maintain a loan account
(the "Loan Account") on its internal data control systems in which shall be
recorded (i) all loans and advances made by Lender to Borrower pursuant to this
Agreement, (ii) all payments made by Borrower on all such loans and advances and
(iii) all other appropriate debits and credits as provided in this Agreement,
including, without limitation, all fees, charges, expenses and interest. All
entries in Borrower's Loan Account shall be made in accordance with Lender's
customary accounting practices as in effect from time to time. Borrower promises
to pay the amount reflected as owing by it under its Loan Account (subject to
the last sentence of subsection 2.6 hereof), and all of its other obligations
hereunder and under any of the other Financing Agreements as such amounts become
due or are declared due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) pursuant to the terms of this Agreement and
the other Financing Agreements.
2.6 Statements; Telephonic Notice. (A) All advances and other
financial accommodations to Borrower, and all other debits and credits provided
for in this Agreement, may be evidenced by entries made by Lender in its
internal data control systems showing the date, amount and reason for each such
debit or credit. Until such time as Lender shall have rendered to Borrower
written statements of account as provided herein, the balance in Borrower's Loan
Account, as set forth on Lender's most recent printout, shall be rebuttably
presumptive evidence of the amounts due and owing to Lender by Borrower.
(B) Borrower hereby authorizes Lender to extend advances under the
Loan and to transfer funds based on telephonic notices Lender in good faith
believes to have been made by any Person authorized to act on behalf of
Borrower. Borrower agrees to deliver promptly to Lender a written confirmation,
if such confirmation is requested by Lender, of each telephonic notice. If the
written confirmation differs in any material respect from the action taken by
Lender, the records of Lender shall govern absent manifest error.
2.7 Interest and Fees.
(A) Subject to subsection 2.7(C), each Term Loan advance shall bear
interest on the outstanding principal amount thereof from the date when made at
a rate per annum
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equal to the Prime Rate - 1.00%.
(B) Interest on each Loan shall be paid in arrears on the first
Business Day of each month beginning April 1, 2000 and continuing thereafter,
including, without limitation, on the Maturity Date and on the date of any
prepayment of the Loan in full pursuant to Section 2.3. During the existence of
any Unmatured Default interest shall be payable on demand of the Lender.
Interest shall be computed on the basis of a 360-day year for the actual number
of days elapsed. The date of funding the Loan shall be included in the
calculation of interest. The date of payment of the Loan shall be excluded from
the calculation of interest. If the Loan is repaid on the same day it is made,
one (1) day's interest shall be charged.
(C) While any Unmatured Default exists and is continuing and/or
after maturity of the Loan (whether by acceleration or otherwise), Borrower
shall pay interest (after as well as before entry of judgment thereon to the
extent permitted by law) on the principal amount of all Liabilities due and
unpaid, at a rate per annum which is determined by adding three percent (3%) per
annum to the rate then in effect for such Loan.
(D) This Agreement and the Term Note are hereby limited by this
subsection 2.7(D). In no contingency, whether by reason of acceleration of the
maturity of the amounts due hereunder or otherwise, shall interest and fees
contracted for, charged, received, paid or agreed to be paid to Lender exceed
the maximum amount permissible under applicable law. If, from any circumstance
whatsoever, interest and fees would otherwise be payable to Lender in excess of
the maximum amount permissible under applicable law, the interest and fees shall
be reduced to the maximum amount permitted under applicable law. If from any
circumstance, Lender shall have received anything of value deemed interest by
applicable law in excess of the maximum lawful amount, an amount equal to any
excess of interest shall be applied to the reduction of the principal amount of
the Liabilities and not to the payment of fees or interest, or if such excessive
interest exceeds the unpaid balance of the principal amount of Liabilities, such
excess shall be refunded to Borrower.
(E) Concurrently with the execution of this Agreement, Borrower
shall pay Lender a closing fee of $180,000 (the "Closing Fee").
2.8 Method of Payment. All payments of the Liabilities hereunder
shall be made, without setoff, deduction or counterclaim, in immediately
available funds to Lender at Lender's address specified pursuant to subsection
9.17 hereof, or at any other address of Lender specified in writing by Lender to
Borrower, by noon (Chicago time) on the date when due. Lender is hereby
authorized to charge Borrower's Loan Account by debiting the Loan for each
payment of principal, interest, fees, and other Liabilities as it becomes due
hereunder. Whenever any payment to be made hereunder shall be stated to be due
on a day which is not a Business Day, the due date thereof shall be extended to
the next succeeding Business Day.
2.9 Term of this Agreement. This Agreement shall be effective until,
and including, the Maturity Date and shall terminate at 11:59 P.M. Chicago time
on the Maturity Date; provided, however, that Lender shall retain the right to
terminate this Agreement at any time upon the occurrence and during the
continuance of a Default. Notwithstanding the foregoing, Borrower may terminate
this Agreement (and such termination shall constitute a
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prepayment hereunder) at any time other than as provided above upon satisfaction
of the conditions set forth in subsections 2.4(A) and 2.7 hereof and the payment
by Borrower to Lender of the then outstanding principal and accrued interest and
payment and performance of all other Liabilities (including without limitation
any fees due under subsection 2.7 hereof and any other fees owed to Lender).
Upon the effective date of termination of this Agreement, all of the Liabilities
shall become immediately due and payable without notice or demand.
Notwithstanding any termination, whether prior to, on or after the Maturity
Date, until all of the Liabilities (other than indemnification Liabilities
pursuant to subsection 9.19 hereof to the extent no claims giving rise thereto
have been asserted) shall have been fully paid and satisfied and all financing
arrangements between Borrower and Lender shall have been terminated, all of
Lender's rights and remedies under this Agreement and the other Financing
Agreements shall survive, Lender shall retain its security interests in and to
all existing and future Collateral, and Borrower shall continue to remit
collections of Accounts and proceeds as provided herein.
2.10 Survival. The agreements and obligations of the Borrower in
this Section 2 shall survive the payment of all Liabilities.
3. CONDITIONS OF ADVANCES.
3.1 Conditions to Initial Loans. The obligations of Lender to make
the initial Loans on the Closing Date are, in addition to the conditions
precedent specified in Section 3.2 hereof, subject to the delivery of all
documents, and prior or concurrent satisfaction of all conditions, listed on
Schedule 3.1, all in form and substance reasonably satisfactory to Lender, and
are subject to the following:
(A) Repayment of Indebtedness. Borrower shall fully and indefeasibly
repay all other outstanding indebtedness of Borrower to Lender on or prior to
the Closing Date.
(B) Payment of Closing Fee. Lender shall have received payment in
full of the Closing Fee.
(C) Sale of Assets. Borrower shall have sold to Bush Hog,
substantially all of the operating assets of Borrower's "Bush Hog division" and
"Great Bend Manufacturing division".
3.2 Conditions to All Loans. Lender shall not be required to make
any Term Loan advance on any date unless on the applicable borrowing date:
(A) Borrower's Written Request. Lender shall have received a Notice
of Borrowing from an Authorized Officer of Borrower, no later than 11:00 A.M.,
Chicago time, on the Business Day an advance is to be made, for an advance in a
specific amount. In addition, prior to making any advance, Lender shall have
received copies of all other documents required to be delivered to Lender under
subsection 6.1 hereof.
(B) Financial Condition. No Material Adverse Effect, as determined
by Lender in its reasonable discretion, shall have occurred (a) at any time or
times subsequent to the most recent annual financial statements provided
pursuant to subsection 6.1(B) hereof, and (b)
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prior to the receipt of the first of such statements, at any time subsequent to
December 31, 1998.
(C) No Default. There shall not have occurred any Default or
Unmatured Default which is then continuing, nor shall any such Default or
Unmatured Default occur after giving effect to the advance.
(D) Representations and Warranties True and Correct. The
representations and warranties of Borrower contained in this Agreement shall be
true and correct in all material respects on and as of the date of any advance
as though made on and as of such date.
(E) Security Interest. Lender shall have a first priority perfected
security interest in, and Lien on, the Collateral, subject to Permitted Liens.
(F) Working Capital Credit Facility. Borrower shall have provided to
Lender certified copies of the closing documents for the Working Capital Credit
Facility, once such closing documents have been fully-executed and delivered by
the parties thereto.
(G) Other Requirements. Lender shall have received, in form and
substance satisfactory to Lender, all certificates, orders, authorities,
consents, legal opinions, consultant's reports, affidavits, applications,
schedules, instruments, security agreements, financing statements, mortgages and
other documents which are provided for hereunder or under the other Financing
Agreements, or which Lender may at any time reasonably request and all legal
matters incident to the making of such advances shall be satisfactory to Lender
and its counsel.
4. COLLATERAL.
4.1 Security Interest. To secure payment and performance of the
Liabilities, Borrower hereby grants to Lender a continuing security interest in
and to all right, title and interest of Borrower in and to membership interests
in Bush Hog, as determined under the laws of the State of Delaware and the
Articles of Organization and Limited Liability Company Agreement of Bush Hog,
including, without limitation, Borrower's interest in the capital, income,
profits , and all other property hereafter delivered to Borrower in substitution
for, as proceeds of, or in addition to any of the foregoing, all certificates,
instruments and documents representing or evidencing such property, and all
cash, securities, interest, dividends, rights and other property at any time and
from time to time received, receivable or otherwise distributed in respect of or
in exchange for any or all thereof, all of the foregoing whether now owned or
hereafter acquired by Borrower and wheresoever located, being herein referred to
as the "Collateral".
4.2 Preservation of Collateral and Perfection of Security Interests
Therein. Borrower shall (i) execute and deliver to Lender, concurrently with the
execution of this Agreement, and at any time or times hereafter at the request
of Lender, all financing statements, instruments or other documents (and pay the
cost of filing or recording the same in all public offices reasonably deemed
necessary by Lender), as Lender may request, in a form reasonably satisfactory
to Lender, and (ii) to the extent any of the Collateral consists of certificated
membership interests or other securities, deliver all such certificates with
appropriate powers or documents of transfer executed in blank, to perfect and
keep perfected the security
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interest and liens in the Collateral granted by Borrower to Lender, or to
otherwise protect and preserve the Collateral and Lender's security interest and
liens therein or to enforce Lender's security interests and liens in the
Collateral. Should Borrower fail to do so, Lender is authorized to sign any such
financing statements as Borrower's agent. Borrower further agrees that a carbon,
photographic, photostatic or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement.
4.3 Loss of Value of Collateral. Borrower shall immediately notify
Lender of any material loss or depreciation, in the value of the Collateral,
taken as a whole.
4.4 Setoff. Borrower agrees that Lender have all rights of setoff
and banker's lien provided by applicable law and, in addition thereto, Borrower
agrees that (in addition to Lender's rights with respect to proceeds of
Collateral) at any time any Default exists and is continuing, Lender may apply
to the payment of the Liabilities, any and all balances, credits, deposits,
accounts or moneys of Borrower then or thereafter with Lender. Without
limitation of the foregoing and in addition to Lender's rights with respect to
the proceeds of the Collateral, Borrower agrees that upon and after the
occurrence of a Default, Lender and each of its branches and offices are hereby
authorized, at any time and from time to time, without notice, (i) to setoff
against, and to appropriate and apply to the payment of, the Liabilities
(whether matured or unmatured, fixed or contingent or liquidated or
unliquidated) any and all amounts owing by Lender or any such office or branch
to Borrower (whether matured or unmatured, and, in the case of deposits, whether
general or special, time or demand and however evidenced) and (ii) pending any
such action, to the extent necessary, to hold such amounts as collateral to
secure such Liabilities and to return as unpaid for insufficient funds any and
all checks and other items drawn against any deposits so held as Lender may
elect in its sole discretion.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants that as of the date of the
execution of this Agreement, and continuing so long as any Liabilities remain
outstanding, and (even if there shall be no Liabilities outstanding) so long as
this Agreement remains in effect:
5.1 Existence. (A) Borrower and each of Borrower's Subsidiaries is a
corporation duly organized and validly existing and in good standing under the
laws of the state of its incorporation and is duly qualified as a foreign
corporation and in good standing in the states set forth on Schedule 5.1 hereto
which are all of the states where the nature and extent of the business
transacted by it or the ownership of its assets makes such qualification
necessary, except for those jurisdictions in which the failure so to qualify
would not, in the aggregate, have a Material Adverse Effect.
5.2 Corporate Authority. The execution and delivery by Borrower or
any of Borrower's Subsidiaries of the Financing Agreements to which it is a
party, and the performance of each such Person's obligations thereunder: (i) are
within such Person's corporate powers; (ii) are duly authorized by all necessary
partnership or corporate action; (iii) are not in contravention of the terms of
such Person's Certificate or Articles of Incorporation or By-Laws, or of any
indenture, or other agreement or undertaking to which such Person is a party or
by which such Person or any of its property is bound or any judgment, decree or
order applicable to
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such Person; (iv) do not, as of the execution hereof, require any governmental
consent, registration or approval except for approvals or consents which will be
obtained on or before the Closing Date and are described on Schedule 5.2 hereto;
(v) except as described on Schedule 5.2 hereto, do not contravene any
contractual or governmental restriction binding upon such Person; and (vi) will
not, except as contemplated herein, result in the imposition of any lien,
charge, security interest or encumbrance upon any property of such Person under
any existing indenture, mortgage, deed of trust, loan or credit agreement or
other material agreement or instrument to which such Person is a party or by
which it or any of its property may be bound or affected.
5.3 Binding Effect. The Financing Agreements to which Borrower or
any of Borrower's Subsidiaries are parties have been duly executed and delivered
by such Persons and constitute the legal, valid and binding obligations of such
Persons enforceable against such Persons in accordance with their terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws of general application
affecting enforcement of creditors' rights generally.
5.4 Financial Data. (A) Borrower has furnished to Lender the audited
financial statements of Borrower for the 1998 fiscal year and the unaudited
financial statements of Borrower for the 1999 fiscal year (collectively, the
"Financials") which are attached as Schedule 5.4(A). The Financials are in
accordance with the books and records of Borrower and fairly present the
financial condition of Borrower at the dates thereof and the results of
operations for the periods indicated and the Financials have been prepared in
accordance with GAAP (except, with respect to the unaudited financial statements
for Borrower's 1999 fiscal year, for the absence of footnotes and subject to
normal year-end adjustments). The historical financial statements to be
furnished to Lender in accordance with subsection 6.1 hereof will be in
accordance with the books and records of Borrower and will fairly present the
financial condition of Borrower at the dates thereof and the results of
operations for the periods indicated (subject, in the case of unaudited
financial statements, to normal year-end adjustments) and such financial
statements will be prepared in conformity with GAAP throughout the periods
involved. Since the date of the Financials, there have been no changes in the
condition, financial or otherwise, of Borrower as shown on the Financials,
except (a) as contemplated herein, and (b) for changes in the ordinary course of
business (none of which individually or in the aggregate has had or could
reasonably be expected to have a Material Adverse Effect).
(B) Borrower has also furnished to Lender its projections for the
period through December 31, 2000 (the "Projections") which are attached hereto
as Schedule 5.4(B). The Projections have been prepared by Borrower in good faith
and based on estimates and assumptions believed by Borrower and Borrower's
Subsidiaries and their management to be reasonable as of the date such
Projections were prepared, and it is Borrower's good faith belief that, subject
to such assumptions and estimates, such Projections are achievable by Borrower
and its Subsidiaries. All information, reports and other papers and data
furnished to Lender are or will be, at the time the same are so furnished,
accurate and correct in all material respects and complete insofar as
completeness may be necessary to give a true and accurate knowledge of the
subject matter thereof.
(C) The Pro Forma attached as Schedule 5.4(C) hereto was prepared by
Borrower based on the unaudited balance sheets of Borrower dated February [28],
2000 and was prepared
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in accordance with GAAP.
5.5 Collateral. Except as permitted pursuant to subsection 7.1
hereof, all of the Collateral is owned by Borrower, has been duly authorized,
validly issued, fully paid for, is nonassessable and is free and clear of all
Liens, other than the lien of Bush Hog Investors, L.L.C., which is subordinated
to Lender's Lien. The books and records relating to the Collateral are located
at the locations set forth on Schedule 5.5 attached hereto.
5.6 Solvency. After giving effect to the funding of the initial
Loans hereunder, neither Borrower nor any of its Subsidiaries (i) is or will
thereby be rendered "insolvent" as that term is defined in Section 101(32) of
the Federal Bankruptcy Code (the "Bankruptcy Code") (11 U.S.C. ss. 101(32)),
Section 2 of the Uniform Fraudulent Transfer Act ("UFTA") or Section 2 of the
Uniform Fraudulent Conveyance Act ("UFCA"), (ii) has or will have "unreasonably
small capital," as that term is used in Section 548(a)(2)(B)(ii) of the
Bankruptcy Code or Section 5 of the UFCA, (iii) is or will be engaged or about
to engage in a business or a transaction for which its remaining property is
"unreasonably small" in relation to the business or transaction as that term is
used in Section 4 of the UFTA, (iv) is or will thereby be rendered unable to pay
its debts as they mature or become due, within the meaning of Section
548(a)(2)(B) (iii) of the Bankruptcy Code, Section 4 of the UFTA and Section 6
of the UFCA, and (v) owns or will as a result thereof own assets having a value,
either at "fair valuation" or at "present fair salable value", less than the
amount required to pay such Person's "debts" as such terms are used in Section 2
of the UFTA and Section 2 of the UFCA.
5.7 Chief Place of Business. As of the execution hereof, the
principal place of business and the chief executive office of Borrower and each
Subsidiary of Borrower is located at the location set forth in Schedule 5.7
hereto. If any change in any such location occurs, Borrower promptly shall
notify Lender thereof. As of the execution hereof, the books and records of
Borrower of each such Person, all records of account and all chattel paper (to
the extent the same have not been delivered to Lender) of each such Person are
located at the principal place of business and chief executive office of such
Person, and if any change in such location occurs, Borrower promptly shall
notify Lender thereof.
5.8 Other Names. Except as disclosed on Schedule 5.8 hereto, neither
Borrower nor any of its Subsidiaries is using any corporate or fictitious name
other than the corporate name shown on such Person's Articles of Incorporation.
5.9 Tax Liabilities. Borrower and each of Borrower's Subsidiaries
have filed all federal, state and local tax reports and returns required by any
law or regulation to be filed by it except for extensions duly obtained, and
have either duly paid all taxes, duties and charges indicated due on the basis
of such returns and reports, or have made adequate provision for the payment
thereof, and the assessment of any material amount of additional taxes in excess
of those paid and reported is not reasonably expected. Except as disclosed on
Schedule 5.9 hereto, no federal income tax returns of Borrower or any of
Borrower's Subsidiaries have been audited by the Internal Revenue Service. The
reserves for taxes reflected on the balance sheets included in the Financials
are, and the reserves for taxes reflected on the balance sheets of Borrower
submitted to Lender in accordance with the terms of subsection 6.1 hereof will
be, adequate in amount for the payment of all liabilities for all federal, state
and local taxes (whether
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or not disputed) of Borrower and its Subsidiaries accrued through the date of
such balance sheets. Except as disclosed on Schedule 5.9 hereto, there are no
material unresolved questions or claims concerning any tax liability of Borrower
or any of Borrower's Subsidiaries.
5.10 Loans. Except as disclosed in the Pro Forma, and for trade
payables and normal accruals arising in the ordinary course of Borrower's and
its Subsidiaries' business since September 30, 1999, none of Borrower or any of
Borrower's subsidiaries currently has or is obligated in respect of any loans,
other indebtedness for borrowed money or any guaranties, except for the Working
Capital Credit Facility and except in favor of Lender.
5.11 Margin Stock. Neither Borrower nor any of its Subsidiaries owns
any margin security and none of the loans advanced or other credit provided to
Borrower hereunder will be used for the purpose of purchasing or carrying any
margin security or for the purpose of reducing or retiring any indebtedness
which was originally incurred to purchase any margin security or for any other
purpose not permitted by Regulation U, Regulation T or Regulation X or any other
regulation of the Board of Governors of the Federal Reserve System.
5.12 Litigation and Proceedings. Except as set forth on Schedule
5.12 attached hereto, there are no judgments outstanding against Borrower or any
of its Subsidiaries nor is there now pending or, to the best of Borrower's
knowledge after diligent inquiry, threatened, any litigation, investigations,
contested claim, or governmental proceeding by or against Borrower or any of its
Subsidiaries except judgments and pending or threatened litigation,
investigations, contested claims and governmental proceedings which are not, in
the aggregate, material to Borrower's or any of its Subsidiaries' business,
operations, condition (financial or otherwise) or prospects. Except as otherwise
described in Schedule 5.12, none of the matters listed in Schedule 5.12 could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.
5.13 Other Agreements. Neither Borrower nor any of its Subsidiaries
is in default in any material respect under any material contract, lease, or
commitment to which it is a party or by which it is bound. Borrower knows of no
material dispute regarding any contract, lease, or commitment which is material
to the continued financial success and well-being of Borrower or any of its
Subsidiaries.
5.14 Employee Controversies. Except as disclosed on Schedule 5.14
hereto, there are no controversies pending or, to the best of Borrower's
knowledge after diligent inquiry, threatened or anticipated, between Borrower or
any of its Subsidiaries, on the one hand and any of their respective employees,
or any collective bargaining units representing any of its employees on the
other hand, other than employee grievances arising in the ordinary course of
business which are not, in the aggregate, material to the continued financial
success and well-being of Borrower or any Subsidiary of Borrower or the business
of Borrower. Neither Borrower nor any of its Subsidiaries has any accrued and
unpaid liability to any of its employees arising under the Federal Fair Labor
Standards Act, as amended.
5.15 Compliance with Laws and Regulations; Environmental Matters.
(A) General Compliance. The execution and delivery by Borrower and
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any Subsidiaries of Borrower of the Financing Agreements to which they are
parties and the performance of any such Person's obligations thereunder are not
in contravention of any law or laws. Borrower and its Subsidiaries are in
compliance with all laws, orders, regulations and ordinances of all federal,
foreign, state and local governmental authorities relating to their business,
operations and assets, except for laws, orders, regulations and ordinances the
violation of which would not, individually or in the aggregate, have a Material
Adverse Effect.
(B) Environmental, Health and Safety Compliance. Except as described
on Schedule 5.15(B) attached hereto: (i) the operations of Borrower and its
Subsidiaries comply in all material respects with all applicable federal, state
or local environmental, health and safety statutes and regulations; (ii) none of
the operations of Borrower or any of its Subsidiaries is subject to any judicial
or administrative proceeding alleging the violation in any material respect of
any federal, state or local environmental, health or safety statute or
regulation or is the subject of any federal or state investigation evaluating
whether any remedial action is needed to respond to a release of any hazardous
or toxic waste, substance or constituent, or other substance into the
environment or to remedy any occupational safety or health condition; (iii) none
of Borrower nor any of its Subsidiaries has filed any notice under any federal
or state law or regulation indicating past or present treatment, storage or
disposal of a hazardous waste or reporting a spill or release of a hazardous or
toxic waste, substance or constituent, or other substance into the environment;
and (iv) neither Borrower nor any of its Subsidiaries has any contingent
liability of which Borrower has knowledge or reasonably should have knowledge in
connection with any release of any hazardous or toxic waste, substance or
constituent, or any other substance into the environment. Except as otherwise
described on Schedule 5.15(B), the items disclosed on Schedule 5.15(B) would not
reasonably be expected to have a Material Adverse Effect.
5.16 Patents, Trademarks and Licenses. Borrower and its Subsidiaries
possess adequate assets, licenses, permits, patents, patent applications,
copyrights, service marks, trademarks, trademark applications, trade styles and
trade names, governmental approvals or other authorizations and other rights
that are necessary for each such Person to conduct its business as heretofore
conducted by Borrower and its Subsidiaries or as contemplated to be conducted by
Borrower and its Subsidiaries and all such licenses, permits, patents, patent
applications, copyrights, service marks, trademarks, trademark applications,
trade styles, trade names, governmental approvals or authorizations and other
rights are listed on Schedule 5.16 attached hereto.
5.17 ERISA. Neither Borrower nor any ERISA Affiliate of Borrower
maintains or contributes to any Plan other than a Plan listed on Schedule 5.17
attached hereto. Except as otherwise disclosed on Schedule 5.17 attached hereto,
neither Borrower nor any ERISA Affiliate of Borrower maintains or contributes to
any employee welfare benefit plan within the meaning of Subsection 3(1) of ERISA
which provides lifetime medical benefits to retirees. Neither Borrower nor any
ERISA Affiliate of Borrower has breached any of the responsibilities,
obligations or duties imposed on it by ERISA or regulations promulgated
thereunder with respect to any Plan such that Borrower would be subject to
liability for losses, penalties or excise taxes in an aggregate amount in excess
of $100,000. No accumulated funding deficiency (as defined in Section 302(a)(2)
of ERISA and Section 412(a) of the Internal Revenue Code) exists in respect to
any Benefit Plan. Neither Borrower nor any ERISA Affiliate of Borrower nor any
fiduciary of any Plan which is not a Multiemployer Plan (i) has engaged in a
nonexempt "prohibited
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transaction" described in Section 406 of ERISA or Section 4975 of the Internal
Revenue Code, or (ii) has taken any action which would constitute or result in a
Termination Event with respect to any Plan, in each case which could result in
liability to Borrower or an ERISA Affiliate of Borrower in excess of $100,000.
Schedule B to the most recent annual report filed with the Internal Revenue
Service with respect to each Benefit Plan has been furnished to Lender and is
complete and accurate; since the date of each such Schedule B, there has been no
material adverse change in the funding status or financial condition of the
Benefit Plan relating to such Schedule B. Neither Borrower nor any ERISA
Affiliate of Borrower has incurred any liability to the PBGC which remains
outstanding other than for insurance premiums under Sections 4006 and 4007 of
ERISA. Neither Borrower nor any ERISA Affiliate of Borrower has (i) failed to
make a required contribution or payment to a Multiemployer Plan, or (ii) made or
expects to make a complete or partial withdrawal under Sections 4203 or 4205 of
ERISA from a Multiemployer Plan for which Borrower or any ERISA Affiliate of
Borrower has any liability. Neither Borrower nor any ERISA Affiliate of Borrower
has failed to make a required installment under Subsection (m) of Section 412 of
the Internal Revenue Code or any other payment required under Section 412 of the
Internal Revenue Code on or before the due date for such installment or other
payment. Neither Borrower nor any ERISA Affiliate of Borrower is required to
provide security to a Plan under Section 401(a) (29) of the Internal Revenue
Code due to a Plan amendment that results in an increase in current liability
for the plan year. The present value of the benefits of each Benefit Plan of
Borrower and each ERISA Affiliate of Borrower as of the last day of the year for
such plan, as determined by such Benefit Plan's independent actuaries, does not
exceed the aggregate value, as determined by such actuaries, of all assets under
such Benefit Plan by an aggregate amount in excess of $100,000 for all such
Plans. Borrower is not required to contribute to any Multiemployer Plan except
the Multiemployer Plans specifically identified on Schedule 5.17. Borrower has
given to Lender all of the following: a listing of all of the Multiemployer
Plans with the aggregate amount of the most recent annual contributions required
to be made by Borrower and all ERISA Affiliates of Borrower to each such
Multiemployer Plan; copies of any information which has been provided to
Borrower or any ERISA Affiliate of Borrower regarding withdrawal liability under
any Multiemployer Plan and all collective bargaining agreements pursuant to
which such contributions are required to be made; and copies of each employee
welfare benefit plan within the meaning of Subsection 3(1) of ERISA which
provides lifetime medical benefits to employees, the most recent summary plan
description for such plan and the aggregate amount of the most recent annual
payments made to terminated employees under each such plan. Each of the
foregoing statements will still be true and correct on the Closing Date and the
date of each advance hereunder.
5.18 Financial Condition. Since September 30, 1999, there has been
no Material Adverse Change.
5.19 Survival of Warranties. All representations and warranties
contained in this Agreement or any of the other Financing Agreements shall
survive the execution and delivery of this Agreement.
5.20 Bank Accounts. Schedule 5.20 sets forth the account numbers and
locations of all bank accounts of Borrower and its Subsidiaries which will be in
effect as of the Closing Date.
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5.21 Subsidiaries. Schedule 5.21 to this Agreement (i) contains a
description of the corporate structure of Borrower and Borrower's Subsidiaries;
and (ii) accurately sets forth the authorized, issued and outstanding shares of
each class of capital stock and other outstanding equity interests of each such
Person and the owners of such shares and other equity interests.
5.22 Accuracy of Information. The written information, exhibits and
reports furnished by or on behalf of Borrower or any of its Subsidiaries to
Lender in connection with the Financing Agreements, and all certificates and
documents delivered to Lender pursuant to the terms thereof do not contain as of
the date furnished any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading.
5.23 Assets and Properties. Borrower and each of its Subsidiaries
has good and marketable title to all of its assets and properties (tangible and
intangible, real or personal) owned by it or a valid leasehold interest in all
of its leased assets and all such assets and property are free and clear of all
Liens, except Liens securing the Liabilities and Liens permitted under Section
7.1. Substantially all of the assets and properties owned by, leased to or used
by Borrower and/or each such Subsidiary of Borrower are in good operating
condition and repair, ordinary wear and tear excepted. Except for Liens granted
to Lender, neither this Agreement nor any other Financing Agreement, nor any
transaction contemplated under any such agreement, will affect any right, title
or interest of the Borrower or such Subsidiary in and to any of such assets in a
manner that would have or is reasonably likely to have a Material Adverse
Effect.
5.24 Insurance. Schedule 5.24 to this Agreement accurately sets
forth as of the Closing Date all insurance policies and programs which will be
in effect with respect to the respective properties and assets and business of
Borrower and its Subsidiaries, specifying for each such policy and program, (i)
the amount thereof, (ii) the risks insured against thereby, (iii) the name of
the insurer and each insured party thereunder, (iv) the expiration date thereof,
(v) the annual premium with respect thereto and (vi) a description of any
reserves relating to any self-insurance program that is in effect. Such
insurance policies and programs reflect coverage that is reasonably consistent
with prudent industry practice.
5.25 Contingent Obligations. Except as set forth on Schedule 5.25 to
this Agreement, neither the Borrower nor any of its Subsidiaries has, as of the
date of this Agreement, or will on the Closing Date become obligated in respect
of, any Contingent Obligation not reflected in the financial statements
delivered to Lender on or prior to the Closing Date or otherwise disclosed to
Lender in the other Schedules to this Agreement.
5.26 Account Warranties. As to each Account of Borrower (a) at the
time of its creation, such Account is and will be a valid, bona fide account,
representing an undisputed indebtedness incurred by the named Account Debtor for
goods actually sold and delivered or services actually performed; (b) to the
best of Borrower's knowledge there are not setoffs, offsets or counterclaims,
genuine or otherwise, against such Account; (c) such Account does not represent
a sale to an Affiliate or a consignment, sale or return or a bill and hold
transaction; (d) no agreement exists permitting any deduction or discount (other
than the discount stated on the invoice); (e) Borrower is the lawful owner of
such Account and has the right to
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assign the same to Lender; (f) such Account is free of all security interests,
liens and encumbrances; (g) such Account is due and payable in accordance with
its terms; and (h) Borrower holds indefeasible title to such Account.
5.27 Broker's Fees. No broker's, finder's, due diligence,
structuring, commitment, closing or debt or equity placement fees, commissions
or similar compensation will be payable by Borrower with respect to any of the
transactions contemplated hereby except as disclosed in Schedule 3.1, all of
which will be paid by Borrower on the Closing Date.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that so long as any Commitments remain
in effect and until payment in full of all Liabilities (other than
indemnification Liabilities pursuant to subsection 9.19 hereof to the extent no
claims giving rise thereto have then been asserted) and termination of this
Agreement:
6.1 Financial Statements and Other Reports. Borrower and its
Subsidiaries shall keep proper books of record and account in which full and
true entries will be made of all dealings or transactions of or in relation to
the business and affairs of Borrower and its Subsidiaries, in accordance with
GAAP, and Borrower shall cause to be furnished to Lender:
(A) Monthly. As soon as practicable, and in any event within thirty
(30) days after the end of each fiscal month (including each fiscal month
occurring during the 90-day delivery period applicable to the delivery of annual
financial statements of Borrower and its Subsidiaries furnished to Lender
pursuant to subsection 6.1(B) hereof):
(i) unaudited consolidated and consolidating statements of income,
retained earnings and cash flow of Borrower and its Subsidiaries for such
fiscal month and for the period from the beginning of the then current
Fiscal Year to the end of such fiscal month and the consolidated and
consolidating balance sheets of Borrower and its Subsidiaries as of the
end of such fiscal month, setting forth in each case, in comparative form,
figures (1) in the case of statements, for the corresponding periods in
the preceding Fiscal Year and (2) in the case of balance sheets, as of a
date one year earlier, all in reasonable detail and certified by the chief
financial officer of Borrower, as having been prepared in accordance with
GAAP (except for the absence of footnotes) and fairly presenting (subject
to normal year-end audit adjustments) the financial condition and results
of operations of Borrower and each of its Subsidiaries at the dates and
for the periods indicated therein, such certification to be in the form of
Exhibit B hereto; and
(ii) statements in which the actual cash flow and income for such
fiscal month and for the period from the start of the then current Fiscal
Year to the end of such fiscal month, and the actual balance sheets at the
end of such fiscal month (in each case as required to be delivered
pursuant to subsection 6.1(A)(i) hereof) are compared with the
corresponding projected statements of income and cash flow and balance
sheets for such periods and time furnished to Lender pursuant to
subsection 6.1(C) below, in each case in the same format as the audited
statements of income and cash flow and the audited
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balance sheet; and
(iii) a management report commenting on the financial performance of
the Borrower for such fiscal month and for the period from the start of
the then current Fiscal Year to the end of such fiscal month and on any
deviations in results from those for the same periods in the prior Fiscal
Year and from the budget for the current Fiscal Year period.
(B) Annual. As soon as practicable and in any event within ninety
(90) days after the end of each Fiscal Year of Borrower, consolidated and
consolidating statements of income, retained earnings and cash flow of Borrower
and its Subsidiaries for such Fiscal Year, and the consolidated and
consolidating balance sheets of Borrower and its Subsidiaries as of the end of
such Fiscal Year, setting forth in each case, in comparative form, corresponding
figures for the period covered by the preceding annual audit (in the case of
statements) and as of the end of the preceding Fiscal Year (in the case of
balance sheets), all in reasonable detail and satisfactory in scope to Lender
and audited by independent certified public accountants selected by Borrower and
reasonably satisfactory to Lender, whose opinion shall be prepared in accordance
with Statement of Auditing Standards No. 58 (the "Statement") entitled "Reports
on Audited Financial Statements" and shall be "Unqualified" (as such term is
defined in such Statement), and Borrower shall use its best efforts to cause
such opinion to be the subject of a reliance letter from such accountants
permitting Lender to rely on the contents thereof;
(C) Projections. As soon as practicable and in any event within
thirty (30) days before the start of each Fiscal Year of Borrower, annual
projections of Borrower and its Subsidiaries for the succeeding Fiscal Year in
detail (on a fiscal month basis), including statements of anticipated income and
cash flow and balance sheets of Borrower and its Subsidiaries for the succeeding
Fiscal Year (on a fiscal month basis) in detail;
(D) All financial statements delivered to Lender pursuant to the
requirements of subsections 6.1(A)-(C) (except where otherwise expressly
indicated) shall be prepared in accordance with GAAP, consistently applied
(subject in the case of interim financial statements to the lack of footnotes
and normal year-end adjustments). Together with each delivery of financial
statements required by subsection 6.1(B) hereof, Borrower shall deliver to
Lender a certificate of the independent certified public accountants who
performed the audit in connection with such statements stating that in making
the audit necessary to the issuance of a report on such financial statements,
they have obtained no knowledge of any Default or Unmatured Default, or, if such
accountants have obtained knowledge of a Default or Unmatured Default,
specifying the nature and period of existence thereof. Such accountants shall
not be liable by reason of any failure to obtain knowledge of any Default or
Unmatured Default which would not be disclosed in the ordinary course of an
audit;
(E) Letters from Accountants and Consultants. As soon as practicable
and in any event within ten (10) days of delivery to Borrower, a copy of (i)
each "Management Letter" prepared by Borrower's independent certified public
accountants in connection with the financial statements referred to in
subsection 6.1(B) hereof and (ii) to the extent that such letters may from time
to time be issued by Borrower's independent certified public accountants or
other management consultants, any letter issued by Borrower's independent
certified public accountants
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or other management consultants with respect to recommendations relating to
Borrower's financial or accounting systems or controls;
(F) Default Notices. As soon as practicable (but in any event not
more than five (5) days after any Authorized Officer of Borrower obtains
knowledge of the occurrence of an event or the existence of a circumstance
giving rise to an Unmatured Default or a Default), notice of any and all
Unmatured Defaults or Defaults hereunder;
(G) Indebtedness Notices. Borrower shall promptly deliver copies of
all notices given or received by Borrower or any of its Subsidiaries with
respect to noncompliance with any term or condition related to any Indebtedness
in excess of $1,000,000 either individually or in the aggregate, and shall
promptly notify Lender of any potential or actual event of default with respect
to any such Indebtedness; and
(H) Other Information. With reasonable promptness, such other
business or financial data as Lender may reasonably request.
Lender acknowledges that as of the date hereof, Borrower has one Subsidiary
located in Germany, and that Borrower does not create consolidated financial
statements for it and such Borrower.
6.2 Inspection. Lender, or any Person designated by Lender in
writing, shall have the right, from time to time hereafter following reasonable
prior notice to Borrower (provided that no prior notice shall be required during
the pendency of a Default), to call at Borrower's or any of its Subsidiaries'
place or places of business (or any other place where the Collateral or other
assets of such Persons or any information relating thereto are kept or located)
during reasonable business hours, and, without hindrance or delay, (i) to
inspect, audit, check and make copies of and extracts from Borrower's or any of
its Subsidiaries' books and records relating to, and to make any verification
concerning, the Collateral as Lender may consider reasonable under the
circumstances, and (ii) to discuss the affairs, finances and business of
Borrower or any of its Subsidiaries with any officers, employees or directors of
Borrower or any of its Subsidiaries; provided, however, that such inspections
shall be limited to one (1) time during each calendar year (except that such
inspections shall not be so limited during the pendency of a Default). Borrower
shall pay on demand all photocopying expenses incurred by Lender under this
subsection 6.2.
6.3 Maintenance of Licenses, Etc. Borrower shall, and shall cause
each of its Subsidiaries to, maintain its corporate existence and maintain in
full force and effect all material licenses, bonds, franchises, leases, patents,
permits, contracts and other rights necessary to the profitable conduct of its
business conducted by it. Borrower shall, and shall cause each of its
Subsidiaries to, comply in all material respects with all material laws, orders,
regulations and ordinances of any federal, foreign, state or local governmental
authority. Borrower shall, and shall cause each of its Subsidiaries to, pay
promptly all liabilities to all of its employees arising under the minimum wage
and maximum hour provisions of the Fair Labor Standards Act, as the same may be
amended from time to time.
6.4 Claims and Taxes. Borrower shall, and shall cause each of its
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Subsidiaries to, pay or cause to be paid all license fees, bonding premiums and
related taxes and charges, and shall, and shall cause each of its Subsidiaries
to, pay or cause to be paid all of such Persons' real and personal property
taxes, assessments and charges and all of such Persons' franchise, income,
unemployment, use, excise, old age benefit, withholding, sales and other taxes
and other governmental charges assessed against such Persons, or payable by such
Persons, at such times and in such manner as to prevent any penalty from
accruing or any lien or charge from attaching to its property, provided that
Borrower and its Subsidiaries shall have the right to contest in good faith, by
an appropriate proceeding promptly initiated and diligently conducted, the
validity, amount or imposition of any such tax, assessment or charge, and during
the pendency of such good faith contest to delay or refuse payment thereof, if
(i) Borrower and its Subsidiaries establish adequate reserves to cover such
contested taxes, assessments or charges and (ii) such contest does not have a
Material Adverse Effect or otherwise result in an Unmatured Default or a
Default.
6.5 Lender's Closing Costs and Expenses. Borrower shall reimburse
Lender in accordance with subsection 9.2 hereof for all reasonable expenses and
fees paid or incurred in connection with the underwriting, documentation,
negotiation and closing of the Loans and other extensions of credit described
herein, including, without limitation, lien search, filing and recording fees
and taxes and the reasonable fees and expenses of Lender's attorneys and
paralegals (whether such attorneys and paralegals are employees of Lender or are
separately engaged by Lender), whether such expenses and fees are incurred prior
to or after the Closing Date. All reasonable costs and expenses incurred by
Lender with respect to the negotiation, documentation and closing of the Loans
and other extensions of credit described herein and the enforcement, collection
and protection of Lender's interest in the Collateral shall be additional
Liabilities of Borrower to Lender, payable in accordance with subsection 9.2,
repaid as provided in subsection 2.7 hereof, and secured by the Collateral.
6.6 Borrower's Liability Insurance. In addition to insurance
required by subsection 6.7 hereof, Borrower shall, and shall cause its
Subsidiaries to, maintain, at their expense, such public liability, third party
property damage and other insurance, in such amounts and with such deductibles
as is ordinarily carried by other businesses engaged in the same or similar
business and as is reasonably acceptable to Lender.
6.7 Business Interruption Insurance. Borrower shall, and shall cause
its Subsidiaries to, at their expense, keep and maintain their respective assets
insured against loss or damage by fire, theft, burglary, pilferage, loss in
transit, explosion, spoilage and all other hazards and risks ordinarily insured
against by other owners or users of such properties in similar businesses, and
shall maintain business interruption insurance in each case in an amount at
least equal to the lesser of (i) the outstanding principal balance of the
Liabilities and (ii) the replacement value of all such property. All such
policies of insurance shall be in form and substance reasonably satisfactory to
Lender. Borrower shall deliver to Lender a certificate of insurance for each of
its policies of insurance and evidence of payment of all premiums therefor. Such
policies of insurance shall contain an endorsement, substantially in the form
attached hereto as Exhibit C. If Borrower at any time or times hereafter shall
fail to obtain or maintain any of the policies of insurance required above or to
pay any premium in whole or in part relating thereto, then Lender, without
waiving or releasing any obligation or Default by Borrower hereunder, may at any
time or times thereafter (but shall be under no obligation to do so) obtain and
maintain such policies of
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insurance and pay such premiums and take any other action with respect thereto
which Lender deems advisable.
6.8 ERISA Reporting.Borrower shall deliver to Lender, at Borrower's
expense, the following information, if applicable, as and when provided below:
(i) as soon as possible, and in any event within ten (10) days after
Borrower or an ERISA Affiliate of Borrower knows or has reason to know
that a Termination Event has occurred, a written statement of an
Authorized Officer of Borrower describing such Termination Event and the
action, if any, which Borrower or such ERISA Affiliate of Borrower has
taken, is taking or proposes to take with respect thereto, and when known,
any action taken or threatened by the Internal Revenue Service ("IRS"),
the Department of Labor ("DOL") or PBGC with respect thereto;
(ii) as soon as possible, and in any event within thirty (30) days,
after Borrower or an ERISA Affiliate of Borrower knows or has reason to
know that a prohibited transaction (defined in Section 406 of ERISA and
Section 4975 of the Internal Revenue Code) has occurred, a statement of an
Authorized Officer of Borrower describing such transaction;
(iii) promptly after the filing thereof with the IRS, a copy of each
funding waiver request filed with respect to any Benefit Plan and all
communications received by Borrower or any ERISA Affiliate of Borrower
with respect to such request;
(iv) promptly upon, and in any event within four (4) Business Days
after, receipt by Borrower or an ERISA Affiliate of Borrower of the PBGC's
intention to terminate a Benefit Plan or to have a trustee appointed to
administer a Benefit Plan, copies of each such notice;
(v) promptly upon, and in any event within four (4) Business Days
after, receipt by Borrower or an ERISA Affiliate of Borrower of a notice
from a Multiemployer Plan regarding the imposition of withdrawal
liability, copies of such notice; and
(vi) promptly upon, and in any event within ten (10) Business Days
after, either Borrower or an ERISA Affiliate of Borrower fails to make a
required installment under Subsection (m) of Section 412 of the Code or
any other payment required under Section 412 on or before the due date for
such installment or payment, a notification of such failure.
6.9 Notice of Suit or Adverse Change in Business. Borrower shall, as
soon as possible, and in any event within five (5) Business Days after any
Authorized Officer of Borrower learns of the following, give written notice to
Lender of (i) any material proceeding(s) (including, without limitation,
litigation, investigations, arbitration or governmental proceedings) being
instituted or threatened to be instituted by or against Borrower or any of its
Subsidiaries in any federal, state, local or foreign court or before any
commission or other regulatory body (federal, state, local or foreign), (ii)
notice that Borrower's or any of its Subsidiaries' operations
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are not in full compliance with all requirements of applicable federal, state or
local environmental, health and safety statutes and regulations, except for
notices as to matters which, either individually or in the aggregate, could not
have a Material Adverse Effect, (iii) notice that Borrower or any of its
Subsidiaries is subject to a federal or state investigation evaluating whether
any remedial action is needed to respond to the release of any hazardous or
toxic waste, substance or constituent, or other substance into the environment,
(iv) notice that any properties or assets of Borrower or any of its Subsidiaries
are subject to an Environmental Lien, and (v) any Material Adverse Change.
6.10 Environmental Safety and Health Laws. If Borrower or any of its
Subsidiaries shall (a) receive any notice that any violation of any federal,
state or local environmental law or regulation may have been committed or is
about to be committed by Borrower or any of its Subsidiaries, (b) receive any
notice that any administrative or judicial complaint or order has been filed or
is about to be filed against Borrower or any of its Subsidiaries for a violation
of any federal, state or local environmental law or regulation or requiring
Borrower or any of its Subsidiaries to take any action in connection with the
release of toxic or hazardous substances into the environment, or (c) receive
any notice from a federal, state, or local governmental agency or private party
alleging that Borrower or any of its Subsidiaries may be liable or potentially
responsible for costs associated with a response to or cleanup of a release of a
toxic or hazardous substance into the environment or any damages caused thereby,
Borrower shall provide Lender with a copy of such notice or, in the event of any
such verbal notice, a written description of such communication within fifteen
(15) days of Borrower's receipt thereof.
6.11 Supplemental Disclosure. At any time that Borrower shall
determine or at the request of Lender (in the event that such information is not
otherwise delivered by Borrower to Lender, but not more frequently than every
fiscal quarter), Borrower shall supplement each Schedule herein with respect to
any matter hereafter arising which, if existing or occurring at the date of this
Agreement, would have been required to be set forth or described in such
schedule or as an exception to such representation or which is necessary to
correct any information in such schedule or representation which has been
rendered inaccurate in any material respect thereby; provided, however, that
such supplement shall not be or be deemed a waiver of any Default or Unmatured
Default disclosed therein or of any misrepresentation made prior to such time.
6.12 Collateral Records. Borrower shall keep proper books and
records relating to the Collateral and shall, upon request of Lender, mark such
material books and records to indicate Lender's security interests in the
Collateral, for the benefit of Lender.
6.13 Endorsement. Borrower hereby constitutes and appoints Lender
and all Persons designated by Lender for that purpose as Borrower's true and
lawful attorney-in-fact, with power to endorse Borrower's name to any and all
proceeds of Collateral that come into Lender's possession or under Lender's
control. Both the appointment of Lender as Borrower's attorney and Lender's
rights and powers are coupled with an interest and are irrevocable until payment
in full and complete performance of all of the Liabilities.
6.14 Maintenance of Properties. Borrower will, and will cause each
of
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its Subsidiaries to, maintain or cause to be maintained in good repair, working
order and condition (ordinary wear and tear excepted) all material properties
necessary to the conduct of the business of any such Person and will make or
cause to be made all appropriate repairs, renewals and/or replacements thereof.
6.15 Collateral Locations. Borrower will keep the Collateral at the
locations specified on Schedule 5.5. With respect to any new location (which in
any event shall be within the continental United States), Borrower will execute
such documents and take such actions as Lender deems necessary to perfect and
protect the security interests of Lender in the Collateral prior to the transfer
or removal of any Collateral to such new location.
6.16 Use of Proceeds and Margin Security. Borrower shall use the
proceeds of all Loans for proper business purposes (as described in the recitals
to this Agreement) consistent with all applicable laws, statutes, rules and
regulations. No portion of the proceeds of any Loan shall be used by Borrower or
any of its Subsidiaries for the purpose of purchasing or carrying margin stock
within the meaning of Regulation U, or in any manner that might cause the
borrowing, the application of such proceeds, or the transactions contemplated
hereby or by the other Financing Agreements to violate Regulation T or
Regulation X or any other regulation of the Board of Governors of the Federal
Reserve System or to violate the Securities Exchange Act of 1934 or the rules
and regulations thereunder.
6.17 Appraisals. Borrower shall, at the request of Lender, at any
time after the occurrence of a Default, provide Lender, at Borrower's expense,
with valuations or appraisals or updates thereof of any or all of the Collateral
from an appraiser satisfactory to Lender.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that so long as any of the Commitments
remain in effect and until payment in full of all Liabilities (other than
indemnification Liabilities pursuant to subsection 9.19 hereof to the extent no
claims giving rise thereto have then been asserted) and termination of this
Agreement:
7.1 Encumbrances. Neither Borrower nor any of its Subsidiaries will
create, incur, assume or suffer to exist any Liens on the Collateral, other than
(collectively, "Permitted Liens"): (i) Liens securing the payment of taxes,
either not yet due or the validity of which is being contested in good faith by
appropriate proceedings, and as to which Borrower shall, if appropriate under
GAAP, have set aside on its books and records adequate reserves, (ii) deposits
under workmen's compensation, unemployment insurance, social security and other
similar laws, or to secure the performance of bids, tenders or contracts (other
than for the repayment of borrowed money) or to secure indemnity, performance or
other similar bonds for the performance of bids, tenders or contracts (other
than for the repayment of borrowed money) or to secure statutory obligations or
surety or appeal bonds, or to secure indemnity, performance or other similar
bonds in the ordinary course of business, (iii) Liens in favor of Lender, (iv)
Liens which arise by operation of law, other than Environmental Liens, (v) Liens
on the Collateral securing Borrower's indebtedness under the Working Capital
Credit Facility, so long as such
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Liens are perfected second in time and are subordinate to Lender's Liens on the
Collateral; and (vi) other Liens (excluding Liens securing Indebtedness), which
do not, in Lender's sole good faith determination, materially lessen the value
of the Collateral or the value of Lender's Liens therein, or prohibit Lender's
ability to foreclose on the Collateral. All such Liens existing on the Closing
Date are identified on Schedule 7.1. Neither Borrower nor any of its
Subsidiaries shall permit the filing of any financing statement covering the
Collateral, except for financing statements filed with respect to Liens
expressly permitted by this Agreement.
7.2 Restrictions on Distributions. Borrower will not, and will not
permit any of its Subsidiaries to, create or otherwise become effective any
consensual encumbrance or restriction of any kind on the ability of any such
Subsidiary to make distributions or make any other distribution on its stock,
pay any Indebtedness or other obligation owed to Borrower, make loans or
advances or other investments in Borrower, or sell, transfer or otherwise convey
any of its property to Borrower, except as set forth in this Agreement.
8. DEFAULT, RIGHTS AND REMEDIES OF LENDER.
8.1 Defaults. If any of the following events ("Defaults") shall
occur:
(A) Borrower (i) fails to pay when due or declared due (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise) any
of the Liabilities consisting of principal or interest with respect to the Loans
or (ii) fails to pay within three (3) Business Days of the date when due or
declared due (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise) any of the other Liabilities;
(B) (i) a proceeding under any bankruptcy, reorganization,
arrangement of debt, insolvency, readjustment of debt or receivership law or
statute is filed (a) against Borrower or any of Borrower's Subsidiaries and such
proceeding remains undismissed for a period in excess of sixty (60) days, or an
order for relief is entered, or (b) by Borrower or any of Borrower's
Subsidiaries or (ii) Borrower or any of Borrower's Subsidiaries shall make an
assignment for the benefit of creditors; or Borrower or any of Borrower's
Subsidiaries shall take any corporate action to authorize any of the foregoing
in this clause (G);
(C) Borrower or any of Borrower's Subsidiaries shall become
insolvent or shall fail generally to pay its debts as they become due;
(D) A default, as defined under the documents evidencing the Working
Capital Credit Facility, shall occur thereunder, which default shall give the
lender thereunder the right to accelerate the indebtedness evidenced thereby.
then Lender may, upon notice to Borrower (i) terminate Lender's obligation to
make advances to Borrower pursuant to subsection 2.1 hereof, and/or (ii) declare
all or any portion of the Liabilities to be immediately due and payable,
whereupon all or such portion of the Liabilities shall become immediately due
and payable and Lender shall not be obligated to make any further advances to
Borrower, except that in the event a Default described in subsection 8.1(B)
hereof shall exist or occur, all of the Liabilities shall automatically, without
notice of any kind, be immediately due and
27
<PAGE>
payable and Lender shall not be obligated to make any further advances to
Borrower.
8.2 Rights and Remedies Generally. In the event of a Default, Lender
shall have, in addition to any other rights and remedies contained in this
Agreement or in any of the other Financing Agreements, all of the rights and
remedies of a secured party under the Code or other applicable laws, all of
which rights and remedies shall be cumulative, and non-exclusive, to the extent
permitted by law. In addition to all such rights and remedies, the sale, lease
or other disposition of the Collateral, or any part thereof, by Lender after
Default may be for cash, credit or any combination thereof, and Lender may
purchase all or any part of the Collateral at public or, if permitted by law,
private sale, and in lieu of actual payment of such purchase price, may setoff
the amount of such purchase price against the Liabilities then owing. Any sales
of the Collateral may be adjourned from time to time with or without notice.
Lender may, in its sole discretion, cause the Collateral to remain on Borrower's
premises, at Borrower's expense, pending sale or other disposition of the
Collateral. Lender shall have the right to conduct such sales on Borrower's
premises, at Borrower's expense, or elsewhere, on such occasion or occasions as
Lender may see fit.
8.3 Entry Upon Premises and Access to Information. In the event of a
Default, Lender shall have the right to enter upon the premises of Borrower or
any of its Subsidiaries where the Collateral is, or books and records relating
to the Collateral are, located (or is/are believed to be located) without any
obligation to pay rent to Borrower or any of its Subsidiaries, or any other
place or places where the Collateral or books and records are believed to be
located and kept, and remove the Collateral therefrom to the premises of Lender
or any agent of Lender, for such time as Lender may desire, in order effectively
to collect or liquidate the Collateral, and/or Lender may require Borrower to
assemble the Collateral and make it available to Lender at a place or places to
be designated by Lender.
8.4 Sale or Other Disposition of Collateral by Lender. Any notice
required to be given by Lender of a sale, lease or other disposition or other
intended action by Lender with respect to any of the Collateral which is
delivered to Borrower in accordance with subsection 9.17 hereof, at least ten
(10) Business Days prior to such proposed action, shall constitute fair and
reasonable notice to Borrower of any such action. The net proceeds realized by
Lender upon any such sale or other disposition, after deduction for the expense
of retaking, holding, preparing for sale, selling or the like and the reasonable
attorneys' fees and legal expenses incurred by Lender in connection therewith,
shall be applied as provided herein toward satisfaction of the Liabilities,
including, without limitation, the Liabilities described in subsections 6.5 and
9.2 hereof. Lender shall account to Borrower for any surplus realized upon such
sale or other disposition, and Borrower shall remain liable for any deficiency.
The commencement of any action, legal or equitable, or the rendering of any
judgment or decree for any deficiency shall not affect Lender's security
interest in the Collateral until the Liabilities are fully paid. Borrower agrees
that Lender has no obligation to preserve rights to the Collateral against any
other parties.
8.5 Waiver of Demand. Demand, presentment, protest and notice of
nonpayment are hereby waived by Borrower. Borrower also waives the benefit of
all valuation, appraisal and exemption laws.
8.6 Waiver of Notice. UPON THE OCCURRENCE AND DURING
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<PAGE>
THE CONTINUANCE OF A DEFAULT, BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND
HEARING OF ANY KIND PRIOR TO THE EXERCISE BY LENDER OF ITS RIGHTS TO REPOSSESS
THE COLLATERAL WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON THE
COLLATERAL WITHOUT PRIOR NOTICE OR HEARING. BORROWER ACKNOWLEDGES THAT IT HAS
BEEN ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS TRANSACTION AND THIS
AGREEMENT.
9. MISCELLANEOUS.
9.1 Amendments and Waivers.
(A) Except as otherwise provided herein, no amendment, modification,
termination or waiver of any provision of this Agreement, the Term Note or any
other Financing Agreement, or consent to any departure by Borrower therefrom,
shall in any event be effective unless the same shall be in writing and signed
by Lender.
(B) Each amendment, modification, termination or waiver shall be
effective only in the specific instance and for the specific purpose for which
it was given. No amendment, modification, termination or waiver shall be
required for Lender to take additional Collateral pursuant to any Financing
Agreement.
9.2 Costs and Attorneys' Fees. If at any time or times Lender
employs counsel in connection with protecting or perfecting Lender's security
interest in the Collateral or if at any time Lender employs counsel in
connection with any matters contemplated by or arising out of this Agreement or
any of the other Financing Agreements, whether (a) to prepare, negotiate or
execute (i) this Agreement, the other Financing Agreements or any amendment to
or modification or extension of this Agreement, any other Financing Agreements
or any instrument, document or agreement executed by any Person in connection
with the transactions contemplated by this Agreement, (ii) any new or
supplemental Financing Agreements, or any instrument, document or agreement to
be executed by any Person in connection with the transactions contemplated by
this Agreement, or (iii) any instrument, document or agreement in connection
with any sale or attempted sale of any interest herein to any participant or
Lender, (b) to commence, defend, or intervene in any litigation or to file a
petition, complaint, answer, motion or other pleadings, (c) to take any other
action in or with respect to any suit or proceeding (bankruptcy or otherwise),
(d) to consult with officers of Lender to advise Lender, (e) to protect,
collect, sell, take possession of, release or liquidate any of the Collateral,
or (f) to attempt to enforce or to enforce any security interest in any of the
Collateral, or to enforce any rights of Lender, including, without limitation,
Lender's rights to collect any of the Liabilities, then in any of such events,
all of the attorneys' fees arising from such services, and any expenses, costs
and charges relating thereto, including, without limitation, all reasonable fees
of all paralegals and other staff employed by such attorneys, together with
interest following demand for payment thereof at the rate from time to time
prescribed in subsection 2.7(A) hereof, shall be part of the Liabilities and
secured by the Collateral. All of the foregoing costs and expenses shall be
payable on demand.
9.3 Expenditures by Lender. In the event Borrower shall fail to pay
29
<PAGE>
taxes, insurance, assessments, costs or expenses which Borrower is, under any of
the terms hereof, required to pay, or fails to keep the Collateral free from
other security interests, liens or encumbrances, except as permitted herein,
Lender may, in its sole discretion exercised in good faith, make expenditures
for any or all of such purposes, and the amount so expended, together with
interest thereon at the rate prescribed in subsection 2.7(A) hereof, shall be
part of the Liabilities, payable on demand and secured by the Collateral.
9.4 Custody and Preservation of Collateral. Lender shall be deemed
to have exercised reasonable care in the custody and preservation of any of the
Collateral in its possession if it takes such action for that purpose as
Borrower shall request in writing, but failure by Lender to comply with any such
request shall not of itself be deemed a failure to exercise reasonable care, and
no failure by Lender to preserve or protect any right with respect to such
Collateral against prior parties, or to do any act with respect to the
preservation of such Collateral not so requested by Borrower shall of itself be
deemed a failure to exercise reasonable care in the custody or preservation of
such Collateral.
9.5 Reliance by Lender. All covenants, agreements, representations
and warranties made herein by Borrower shall, notwithstanding any investigation
by Lender, be deemed to be material to and to have been relied upon by Lender.
9.6 Assignment; Parties. Whenever in this Agreement there is
reference made to any of the parties hereto, such reference shall be deemed to
include, wherever applicable, a reference to the successors and assigns of
Borrower and the successors and assigns of Lender, and the provisions of this
Agreement shall be binding upon and shall inure to the benefit of said
successors and assigns. Notwithstanding anything herein to the contrary,
Borrower may not assign or otherwise transfer its rights or obligations under
this Agreement without the prior written consent of Lender.
9.7 CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS AND NOT THE CONFLICT
OF LAW PROVISIONS OF THE STATE OF ILLINOIS. ANY DISPUTE BETWEEN THE PARTIES
HERETO ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, AND
WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN
ACCORDANCE WITH THE INTERNAL LAWS AND NOT THE CONFLICTS OF LAW PROVISIONS OF THE
STATE OF ILLINOIS.
9.8 CONSENT TO JURISDICTION.
(A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION 9.8(B)
HEREOF LENDER AND BORROWER AGREE THAT ALL DISPUTES BETWEEN THEM ARISING OUT OF,
CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN
THEM IN CONNECTION WITH THIS AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT,
EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE OR FEDERAL COURTS LOCATED
IN COOK COUNTY, ILLINOIS, BUT LENDER AND
30
<PAGE>
BORROWER ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY
A COURT LOCATED OUTSIDE OF COOK COUNTY, ILLINOIS. BORROWER WAIVES IN ALL
DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING
THE DISPUTE.
(B) OTHER JURISDICTIONS. BORROWER AGREES THAT LENDER SHALL HAVE THE
RIGHT TO PROCEED AGAINST BORROWER OR THE COLLATERAL IN A COURT IN ANY LOCATION
TO ENABLE LENDER TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
LIABILITIES, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF
LENDER. BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE
COURT IN WHICH LENDER HAS COMMENCED A PROCEEDING DESCRIBED IN THIS SUBSECTION
9.8(B).
9.9 SERVICE OF PROCESS. BORROWER IRREVOCABLY CONSENTS TO THE SERVICE
OF PROCESS OUT OF THE COURTS REFERRED TO IN SUBSECTION 9.8 HEREOF IN ANY ACTION
OR PROCEEDING BY MAILING COPIES OF SUCH SERVICE BY REGISTERED MAIL, POSTAGE
PREPAID TO BORROWER AT ITS ADDRESS SET FORTH IN SUBSECTION 9.17 HEREOF. BORROWER
HEREBY CONSENTS TO SERVICE OF PROCESS AS AFORESAID. NOTHING IN THIS AGREEMENT
SHALL AFFECT THE RIGHT OF AGENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW.
9.10 WAIVER OF JURY TRIAL AND BOND.
(A) WAIVER OF JURY TRIAL. BORROWER AND LENDER WAIVE ANY RIGHT TO
HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT,
TORT, OR OTHERWISE, BETWEEN LENDER AND BORROWER ARISING OUT OF, CONNECTED WITH,
RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION THEREWITH OR THE TRANSACTIONS RELATED
THERETO. BORROWER AND LENDER HEREBY AGREE AND CONSENT THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY
AND THAT ANY PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT
WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(B) WAIVER OF BOND. BORROWER WAIVES THE POSTING OF ANY BOND
OTHERWISE REQUIRED OF LENDER IN CONNECTION WITH ANY JUDICIAL PROCESS OR
PROCEEDING TO OBTAIN POSSESSION OF, REPLEVY, ATTACH OR LEVY UPON COLLATERAL OR
ANY OTHER SECURITY FOR THE LIABILITIES, TO ENFORCE ANY JUDGMENT OR OTHER COURT
ORDER ENTERED IN FAVOR OF LENDER, OR TO ENFORCE BY SPECIFIC PERFORMANCE,
TEMPORARY RESTRAINING ORDER, PRELIMINARY OR PERMANENT INJUNCTION, THIS
AGREEMENT, OR ANY OTHER AGREEMENT OR DOCUMENT BETWEEN
31
<PAGE>
LENDER AND BORROWER.
9.11 ADVICE OF COUNSEL. BORROWER ACKNOWLEDGES AND REPRESENTS TO
LENDER THAT IT HAS DISCUSSED THIS AGREEMENT WITH ITS LAWYERS.
9.12 SEVERABILITY. WHEREVER POSSIBLE, EACH PROVISION OF THIS
AGREEMENT SHALL BE INTERPRETED IN SUCH MANNER AS TO BE EFFECTIVE AND VALID UNDER
APPLICABLE LAW, BUT IF ANY PROVISION OF THIS AGREEMENT SHALL BE PROHIBITED BY OR
INVALID UNDER APPLICABLE LAW, SUCH PROVISION SHALL BE INEFFECTIVE ONLY TO THE
EXTENT OF SUCH PROHIBITION OR INVALIDITY, WITHOUT INVALIDATING THE REMAINDER OF
SUCH PROVISION OR THE REMAINING PROVISIONS OF THIS AGREEMENT.
9.13 Application of Payments. Notwithstanding any contrary provision
contained in this Agreement or in any of the other Financing Agreements,
Borrower irrevocably waives upon the occurrence and during the continuance of a
Default the right to direct the application of any and all payments at any time
or times hereafter received by Lender from Borrower or with respect to any of
the Collateral to the Liabilities then due and owing and Borrower does hereby
irrevocably agree that Lender shall have the exclusive right to apply such
payments against the Liabilities then due and owing in such manner as Lender may
deem advisable. Borrower does hereby irrevocably agree that Lender shall have
the continuing exclusive right to apply and reapply any and all payments
received at any time or times after the occurrence and during the continuance of
a Default, whether with respect to the Collateral or otherwise, against the
Liabilities in such manner as Lender may deem advisable, notwithstanding any
entry by Lender upon any of its books and records.
9.14 Marshaling; Payments Set Aside. Lender shall not be under any
obligation to marshall any assets in favor of Borrower or any other party or
against or in payment of any or all of the Liabilities. To the extent that
Borrower makes a payment or payments to Lender or Lender enforces its security
interests or exercises its rights of setoff, and such payment or payments or the
proceeds of such enforcement or setoff or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then, to
the extent of such recovery, the obligation or part thereof originally intended
to be satisfied shall be revived and continued in full force and effect as if
such payment had not been made or such enforcement or setoff had not occurred.
9.15 Section Titles. The section titles contained in this Agreement
shall be without substantive meaning or content of any kind whatsoever and are
not a part of the agreement between the parties.
9.16 Continuing Effect. This Agreement, Lender's security interests
in the Collateral, and all of the other Financing Agreements shall continue in
full force and effect so long as any Liabilities shall be owed to Lender, and
(even if there shall be no Liabilities outstanding) so long as this Agreement
has not been terminated as provided in subsection 2.9
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<PAGE>
hereof.
9.17 Notices. Except as otherwise expressly provided herein, any
notice required or desired to be served, given or delivered hereunder shall be
in writing, and shall be deemed to have been validly served, given or delivered
(i) three (3) days after deposit in the United States mails, with proper first
class postage prepaid (and by certified or registered mail, return receipt
requested), (ii) when sent after receipt of confirmation or answerback if sent
by telecopy, or other similar facsimile transmission, (iii) one (1) Business Day
after deposited with a reputable overnight courier with all charges prepaid, or
(iv) when delivered, if hand-delivered by messenger, all of which shall be
properly addressed to the party to be notified and sent to the address or number
indicated as follows:
(i) If to Lender at:
LaSalle Bank National Association
135 South LaSalle Street
Chicago, Illinois 60603
Attn: Ms. Mary Lou Bartlett
Telecopy: (312) 904-0432
Confirmation: (312) 904-0433
With a copy to:
Schwartz, Cooper, Greenberger & Krauss
180 North LaSalle Street
Suite 2700
Chicago, Illinois 60601
Attn: Andrew H. Connor, Esq.
Telecopy: (312)782-8416
Confirmation:(312)845-5118
(ii) If to Borrower at:
Allied Products Corporation
1355 East 93rd Street
Chicago, Illinois 60619
Attn: Mr. Richard Drexler
Telecopy: (___) ___-____
Confirmation: (__) ___-____
With a copy to:
Mark C. Standefer, Esq.
Allied Products Corporation
10 South Riverside Plaza
Chicago, Illinois 60606
Telecopy: (___) ___-____
33
<PAGE>
Confirmation: (312)441-5214
And to:
David A. Rubenstein, Esq.
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, Illinois 60610-4795
Telecopy: (312)644-3381
Confirmation: (312)245-8499
or to such other address or number as each party designates to the other in the
manner herein prescribed.
9.18 Equitable Relief. Borrower recognizes that, in the event
Borrower fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, any remedy at law may prove to be inadequate
relief to Lender; therefore, Borrower agrees that Lender, if Lender so requests,
shall be entitled to temporary and permanent injunctive relief in any such case
and the granting of any such relief shall not preclude Lender from pursuing any
other relief or remedies for such breach.
9.19 Indemnification.(A) Borrower agrees to defend, protect,
indemnify and hold harmless Lender, and its officers, directors, employees,
Affiliates, attorneys, consultants and agents (collectively, the "Indemnitees")
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, expenses and disbursements
of any kind or nature whatsoever (including, without limitation, the reasonable
fees and disbursements of counsel for and consultants of such Indemnitees in
connection with any investigative, administrative or judicial proceeding,
whether or not such Indemnitees shall be designated a party thereto), which may
be imposed on, incurred by, or asserted against such Indemnitees (whether
direct, indirect, or consequential) arising out of or by reason of any
litigation, investigation, claims or proceedings (whether based on any federal
or state laws or other statutory regulations, including, without limitation,
securities, environmental and commercial laws and regulations, under common law
or at equitable cause or on contract or otherwise) commenced or threatened,
which are in any manner relating to or arising out of this Agreement or the
other Financing Agreements, or any act, event or transaction related or
attendant thereto, the agreements of Lender contained herein, the making of any
Loans or advances, the management of such Loans or advances or the Collateral
(including any liability under federal, state or local environmental laws or
regulations) or the use or intended use of the proceeds of such Loans or
advances (collectively, the "Indemnified Matters"); provided that Borrower shall
have no obligation to any Indemnitee hereunder with respect to Indemnified
Matters caused by or resulting from the wilful misconduct or gross negligence of
such Indemnitee. To the extent that the undertaking to indemnify, pay and hold
harmless set forth in this subsection 9.19 may be unenforceable because it is
violative of any law or public policy, Borrower shall contribute the maximum
portion which it is permitted to pay and satisfy under applicable law, to the
payment and satisfaction of all Indemnified Matters incurred by the Indemnitees.
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(B) Borrower further agrees to assert no claim against any of the
Indemnitees on any theory of liability for consequential, special, indirect,
exemplary or punitive damages. No settlement shall be entered into by Borrower
or any of its Subsidiaries with respect to any claim, litigation, arbitration or
other proceeding relating to or arising out of the transaction evidenced by this
Agreement or the other Financing Agreements (whether or not Lender or any
Indemnitee is a party thereto) unless such settlement releases all Indemnitees
from any and all liability with respect thereto.
9.20 Counterparts. This Agreement may be executed and accepted in
any number of counterparts, each of which shall be an original with the same
effect as if the signatures were on the same instrument. The delivery of an
executed counterpart of a signature page to this Agreement by telecopier shall
be effective as delivery of a manually executed counterpart of this Agreement.
9.21 Entire Agreement. This Agreement, including the Financing
Agreements and all exhibits and other documents attached hereto or incorporated
by reference herein, constitutes the entire agreement of the parties with
respect to the subject matter hereof and supersedes all other understandings,
oral or written, with respect to the subject matter hereof.
9.22 Confidentiality. Lender shall hold all nonpublic information
obtained pursuant to the requirements hereof in accordance with such Person's
customary procedures for handling confidential information of this nature and in
accordance with safe and sound business practices and in any event may make
disclosure reasonably required by a bona fide offeree or assignee (or
participant), or as required or requested by any governmental authority or
representative thereof, or pursuant to legal process, or in connection with the
exercise of rights and remedies, or enforcement of obligations, under this
Agreement and the other Financing Agreements or to its accountants, lawyers and
other advisors, and shall require any such offeree or assignee (or participant)
to agree (and require any of its offerees, assignees or participants to agree)
to comply with this subsection 9.22. In no event shall Lender be obligated or
required to return any materials furnished by Borrower, provided, however, each
proposed offeree, assignee and participant shall be required to agree that if it
does not become an assignee (or participant) it shall return all materials
furnished to it by Borrower in connection herewith. The provisions of this
subsection 9.22 shall survive the termination of this Agreement.
9.23 Governmental Regulation. Anything contained in this Agreement
to the contrary notwithstanding, no Lender shall be obligated to extend credit
to Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
9.24 Amendment of Loan Agreement. Lender hereby agrees with Bush Hog
Investors, L.L.C. and CC Industries, Inc. that, without the prior written
consent of Bush Hog Investors, L.L.C. and CC Industries, Inc., Lender will not
amend, modify or otherwise change in any way this Agreement or the Term Note (i)
to increase the principal amount of the Term Loan, (ii) to increase the rate of
interest applicable thereunder (except as provided therein with respect to a
default rate of interest), (iii) to shorten the maturity of the Term Loan or any
installment thereof, (iv) to change the amortization of the Term Loan, or (v) to
make the provisions thereof more restrictive as to Borrower, or (vi) in any
other manner which is materially
35
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adverse to Borrower, Bush Hog Investors, L.L.C. or CC Industries, Inc.
[Balance of page intentionally left blank; signature page follows.]
36
<PAGE>
IN WITNESS WHEREOF, this Loan and Security Agreement has been duly
executed as of the day and year first above written.
ALLIED PRODUCTS CORPORATION
By: /s/ Richard A. Drexler
-------------------------------------
Name: Richard A. Drexler
Title: Chairman, President and Chief
Executive Officer
LASALLE BANK NATIONAL ASSOCIATION
By: /s/ Mary Lou Bartlett
-------------------------------------
Name: Mary Lou Bartlett
Title: Vice President
37
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SCHEDULE 3.1
Conditions to Initial Loans
38
<PAGE>
SCHEDULE 5.1
Jurisdiction of Incorporation; Qualification
<PAGE>
SCHEDULE 5.2
Governmental Consents and Restrictions
<PAGE>
SCHEDULE 5.4(A)
Financials
<PAGE>
SCHEDULE 5.4(B)
Projections
<PAGE>
SCHEDULE 5.4(C)
Pro Forma
<PAGE>
SCHEDULE 5.5
Locations of Collateral
<PAGE>
SCHEDULE 5.7
Chief Place of Business
<PAGE>
SCHEDULE 5.8
Other Names
<PAGE>
SCHEDULE 5.9
Tax Audits
<PAGE>
SCHEDULE 5.12
Litigation and Proceedings
<PAGE>
SCHEDULE 5.14
Employee Controversies
<PAGE>
SCHEDULE 5.15(B)
Environmental Matters
<PAGE>
SCHEDULE 5.16
Patents, Trademarks and Licenses
<PAGE>
SCHEDULE 5.17
ERISA
<PAGE>
SCHEDULE 5.20
Bank Accounts
<PAGE>
SCHEDULE 5.21
Capitalization; Subsidiaries
<PAGE>
SCHEDULE 5.24
Insurance
<PAGE>
SCHEDULE 5.25
Contingent Obligations
<PAGE>
SCHEDULE 7.1
Liens
<PAGE>
EXHIBIT 10.2
ALLIED PRODUCTS CORPORATION
10 South Riverside Plaza - Chicago, Illinois 60606 - Direct (312) 441-5221 -
Fax (312) 464-1511
RICHARD A. DREXLER
Chairman, President
and Chief Executive Officer
March 23, 2000
Mr. William Crown
CC Industries, Inc.
222 North LaSalle Street, Suite 1000
Chicago, IL 60601
Dear Bill:
This will confirm our telephone conversation of yesterday. We have
jointly agreed that Allied will sell, and Bush Hog Investors and/or its
affiliates will purchase, Allied's 19.9% membership interest in Bush Hog, L.L.C.
effective on or before June 30, 2000 (the actual date herein in "Closing Date")
for a purchase price equal to $31,426,134 adjusted as follows: (i) plus (or
minus) 19.9% of the net amount received by (or paid) by Allied pursuant to
Section 1.5(a)(iv)(D) of the Limited Liability Interest Purchase and
Contribution Agreement dated October 21, 1999 between Allied Products
Corporation, Bush Hog, L.L.C. and Bush Hog Investors, L.L.C., as amended,
("Purchase Agreement"), (ii) plus 19.9% of the cash of Bush Hog, L.L.C. on the
Closing Date, (iii) minus 19.9% of the bank debt of Bush Hog, L.L.C. as of the
Closing Date, (iv) plus (or minus) the increase (or decrease) in the Closing
Date Adjusted Working Capital, as defined below, over the Final Adjusted Working
Capital under the Purchase Agreement, (v) plus 19.9% of any increase in the
Closing Date Adjusted Net Tangible Investment, as defined below, over the Final
Adjusted Net Tangible Investment under the Purchase Agreement, and (vi) minus
19.9% of any increase in the Closing Date Long Term Liabilities, as defined
below, over the Final Long Term Liabilities, as defined in the Purchase
Agreement and (vii) minus any distributions of Distributable Cash to Allied
after March 8, 2000 pursuant to the Operating Agreement, as defined below. The
purchase and sale will be consummated as provided in Section 7 of the Limited
Liability Company Agreement of Bush Hog, L.L.C. by and between Allied, Bush Hog
Investors and Bush Hog, L.L.C. ("Operating Agreement".
The Closing Date Adjustment Working Capital, Closing Date Net Tangible
Investment and Closing Date Long Term Liabilities shall be determined in the
same manner as the Final Adjusted Working Capital, Final Adjusted Net Tangible
Investment and Final Long Term Cash __________ under the Purchase Agreement.
<PAGE>
Mr. William Crown
March 23, 2000
Page 2
Please acknowledge our agreement by signing on the space indicated below.
Sincerely yours,
Allied Products Corporation
/S/ Richard A. Drexler
-----------------------------------------
By: Richard A. Drexler, President & CEO
We agree to purchase or to cause an affiliate to
purchase Allied's membership interest in
Bush Hog, L.L.C. pursuant to the terms outlined
in this letter.
Bush Hog Investors, L.L.C.
By: Henry Crown & Company (Not Inc.)
By: /S/ Richard C. Goodman
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Partner
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EXHIBIT 10.3
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LOAN AND SECURITY AGREEMENT
by and between
ALLIED PRODUCTS CORPORATION
and
FOOTHILL CAPITAL CORPORATION
Dated as of March 29, 2000
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TABLE OF CONTENTS
1. DEFINITIONS AND CONSTRUCTION...............................................1
1.1 Definitions.........................................................1
1.3 Code...............................................................19
1.4 Construction.......................................................19
1.5 Schedules and Exhibits.............................................20
2. LOAN AND TERMS OF PAYMENT.................................................20
2.1 Revolving Advances.................................................20
2.2 Letters of Credit..................................................21
2.3 Intentionally Omitted..............................................24
2.4 Intentionally Omitted..............................................24
2.5 Overadvances.......................................................24
2.6 Interest and Letter of Credit Fees: Rates, Payments, and
Calculations......................................................24
2.7 Collection of Accounts.............................................26
2.8 Crediting Payments; Application of Collections.....................26
2.9 Designated Account.................................................27
2.10 Maintenance of Loan Account; Statements of Obligations.............27
2.11 Fees...............................................................27
3. CONDITIONS; TERM OF AGREEMENT.............................................28
3.1 Conditions Precedent to the Initial Advance, Letter of Credit,
and the Term Loan Subline.........................................28
3.2 Conditions Precedent to all Advances, all Letters of Credit,
and the Term Loan Subline.........................................31
3.3 Condition Subsequent...............................................32
3.4 Term...............................................................32
3.5 Effect of Termination..............................................32
3.6 Early Termination by Borrower......................................33
3.7 Termination Upon Event of Default..................................33
4. CREATION OF SECURITY INTEREST.............................................34
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4.1 Grant of Security Interest.........................................34
4.2 Negotiable Collateral..............................................34
4.3 Collection of Accounts, General Intangibles, and Negotiable
Collateral........................................................34
4.4 Delivery of Additional Documentation Required......................34
4.5 Power of Attorney..................................................34
4.6 Right to Inspect...................................................35
5. REPRESENTATIONS AND WARRANTIES............................................35
5.1 No Encumbrances....................................................36
5.2 Eligible Accounts..................................................36
5.3 Intentionally Omitted..............................................36
5.4 Equipment..........................................................36
5.5 Location of Inventory and Equipment................................36
5.6 Inventory Records..................................................36
5.7 Location of Chief Executive Office; FEIN...........................36
5.8 Due Organization and Qualification; Subsidiaries...................37
5.9 Due Authorization; No Conflict.....................................37
5.10 Litigation.........................................................38
5.11 No Material Adverse Change.........................................38
5.12 Solvency...........................................................39
5.13 Employee Benefits..................................................39
5.14 Environmental Condition............................................39
5.15 Intellectual Property..............................................39
5.16 Machinery and Equipment............................................39
6. AFFIRMATIVE COVENANTS.....................................................40
6.1 Accounting System..................................................40
6.2 Collateral Reporting...............................................40
6.3 Financial Statements, Reports, Certificates........................41
6.4 Tax Returns........................................................42
6.5 Guarantor Reports..................................................42
6.6 Returns............................................................42
6.7 Title to Equipment.................................................42
6.8 Maintenance of Equipment...........................................43
6.9 Taxes..............................................................43
6.10 Insurance..........................................................43
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6.11 No Setoffs or Counterclaims........................................45
6.12 Location of Inventory and Equipment................................45
6.13 Compliance with Laws...............................................45
6.14 Employee Benefits..................................................45
6.15 Leases.............................................................46
6.16 Contracts Related to Eligible Special Project Accounts and
Eligible Special GM Project Account...............................46
6.17 Price Adjustments in Bush Hog Sale.................................46
6.18 Labor Developments.................................................47
7. NEGATIVE COVENANTS........................................................47
7.1 Indebtedness.......................................................47
7.2 Liens..............................................................47
7.3 Restrictions on Fundamental Changes................................48
7.4 Disposal of Assets.................................................48
7.5 Change Name........................................................48
7.6 Guarantee..........................................................48
7.7 Nature of Business.................................................48
7.8 Prepayments and Amendments.........................................48
7.9 Change of Control..................................................49
7.10 Consignments.......................................................49
7.11 Distributions......................................................49
7.12 Accounting Methods.................................................49
7.13 Investments........................................................49
7.14 Transactions with Affiliates.......................................49
7.15 Suspension.........................................................49
7.16 Compensation.......................................................50
7.17 Use of Proceeds....................................................50
7.18 Change in Location of Chief Executive Office; Inventory and
Equipment with Bailees............................................50
7.19 No Prohibited Transactions Under ERISA.............................50
7.20 Financial Covenants................................................51
7.21 Capital Expenditures...............................................52
7.22 Availability for Payment to Existing Lender........................52
8. EVENTS OF DEFAULT.........................................................52
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9. FOOTHILL'S RIGHTS AND REMEDIES............................................54
9.1 Rights and Remedies................................................54
9.2 Remedies Cumulative................................................57
10. TAXES AND EXPENSES........................................................57
11. WAIVERS; INDEMNIFICATION..................................................58
11.1 Demand; Protest; etc...............................................58
11.2 Foothill's Liability for Collateral................................58
11.3 Indemnification....................................................58
12. NOTICES...................................................................58
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER................................60
14. DESTRUCTION OF BORROWER'S DOCUMENTS.......................................61
15. GENERAL PROVISIONS........................................................61
15.1 Effectiveness......................................................61
15.2 Successors and Assigns.............................................61
15.3 Section Headings...................................................61
15.4 Interpretation.....................................................61
15.5 Severability of Provisions.........................................61
15.6 Amendments in Writing..............................................62
15.7 Counterparts; Telefacsimile Execution..............................62
15.8 Revival and Reinstatement of Obligations...........................62
15.9 Integration........................................................62
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SCHEDULES AND EXHIBITS
Schedule P-1 Permitted Liens
Schedule R-1 Real Property Collateral
Schedule 5.8 Subsidiaries
Schedule 5.10 Litigation
Schedule 5.13 ERISA Benefit Plans
Schedule 5.14 Environmental Matters
Schedule 5.15 Intellectual Property
Schedule 5.16 Machinery and Equipment
Schedule 6.12 Location of Inventory and Equipment
Exhibit A Borrower Projections
Exhibit C-1 Form of Compliance Certificate
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LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into as of
March 29, 2000, between FOOTHILL CAPITAL CORPORATION, a California corporation
("Foothill"), with a place of business located at 11111 Santa Monica Boulevard,
Suite 1500, Los Angeles, California 90025-3333 and ALLIED PRODUCTS CORPORATION,
a Delaware corporation ("Borrower"), with its chief executive office located at
10 South Riverside Plaza, Chicago, Illinois 60606.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the following terms
shall have the following definitions:
"Account Debtor" means any Person who is or who may become
obligated under, with respect to, or on account of, an Account.
"Accounts" means the Eligible Special Projects Account, the
Eligible Special GM Projects Accounts, Eligible Parts and Service Accounts,
contract rights, and all other forms of obligations owing to Borrower arising
out of the sale or lease of goods or the rendition of services by Borrower,
irrespective of whether earned by performance, and any and all credit insurance,
guaranties, or security therefor.
"Account Receivable Fee" has the meaning set forth in Section
2.11(f).
"Advances" has the meaning set forth in Section 2.1(a).
"Affiliate" means, as applied to any Person, any other Person
who directly or indirectly controls, is controlled by, is under common control
with or is a director or officer of such Person. For purposes of this
definition, "control" means the possession, directly or indirectly, of the power
to vote five percent (5%) or more of the securities having ordinary voting power
for the election of directors or the direct or indirect power to direct the
management and policies of a Person.
"Agreement" has the meaning set forth in the preamble hereto.
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"Authorized Person" means any officer or other employee of
Borrower.
"Average Unused Portion of Maximum Amount" means, as of any
date of determination, (a) the Maximum Amount, less (b) the sum of (i) the
average Daily Balance of Advances that were outstanding during the immediately
preceding month, plus (ii) the average Daily Balance of the undrawn Letters of
Credit that were outstanding during the immediately preceding month, plus (iii)
the outstanding average Daily Balance of the Term Loan Subline outstanding
during the immediately preceding month.
"Bank of America" means Bank of America, N.A.
"Bank of America Letter" means that letter from Bank of
America addressed to Foothill indicating that all indebtedness due Bank of
America from Borrower has been paid in full and that Bank of America has no
further security interest in any assets of Borrower, whether Real Property
Collateral or Personal Property Collateral, and said letter shall be in form and
content acceptable to Foothill.
"Bankruptcy Code" means the United States Bankruptcy Code (11
U.S.C.ss. 101 et seq.), as amended, and any successor statute.
"Benefit Plan" means a "defined benefit plan" (as defined in
Section 3(35) of ERISA) for which Borrower, any Subsidiary of Borrower, or any
ERISA Affiliate has been an "employer" (as defined in Section 3(5) of ERISA)
within the past six years.
"Borrower" has the meaning set forth in the preamble to this
Agreement.
"Borrower's Books" means all of Borrower's books and records
including: ledgers; records indicating, summarizing, or evidencing Borrower's
properties or assets (including the Collateral) or liabilities; all information
relating to Borrower's business operations or financial condition; and all
computer programs, disk or tape files, printouts, runs, or other computer
prepared information.
"Borrowing Base" has the meaning set forth in Section 2.1(a).
"Bush Hog" means Bush Hog, L.L.C., a Delaware limited
liability company.
"Bush Hog Investors" means Bush Hog Investors L.L.C.
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"Bush Hog Letter" means that letter from Bush Hog Investors
addressed to Foothill indicating that the only interest which Bush Hog Investors
has in any assets of Borrower, whether Real Property Collateral or Personal
Property Collateral, is an assignment from Borrower to Bush Hog Investors of one
hundred percent (100%) of Borrower's membership interest in Bush Hog and one
hundred percent (100%) of Borrower's right to distributions from Bush Hog as
more particularly described in that certain Membership Interest Pledge and
Indemnity Security Agreement dated March 7, 2000 between Bush Hog Investors and
Borrower and said letter shall be in form and content acceptable to Foothill.
"Business Day" means any day that is not a Saturday, Sunday,
or other day on which national banks are authorized or required to close.
"Change of Control" shall be deemed to have occurred at such
time as a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2)
of the Securities Exchange Act of 1934) becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, of more than twenty five percent (25%) of the total voting power of
all classes of stock then outstanding of Borrower entitled to vote in the
election of directors.
"Closing Date" means the date of the first to occur of the
making of the initial Advance, or the issuance of the initial Letter of Credit.
"Code" means the Illinois Uniform Commercial Code.
"Collateral" means each of the following:
(a) the Accounts,
(b) Borrower's Books,
(c) the Equipment,
(d) the General Intangibles,
(e) the Inventory,
(f) the Investment Property,
(g) the Negotiable Collateral,
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(h) the Real Property Collateral,
(i) any money, or other assets of Borrower that now or
hereafter come into the possession, custody, or control of Foothill, and
(j) the proceeds and products, whether tangible or intangible,
of any of the foregoing, including proceeds of insurance covering any or all of
the Collateral, and any and all Accounts, Borrower's Books, Equipment, General
Intangibles, Inventory, Negotiable Collateral, Real Property, money, deposit
accounts, or other tangible or intangible property resulting from the sale,
exchange, collection, or other disposition of any of the foregoing, or any
portion thereof or interest therein, and the proceeds thereof.
"Collateral Access Agreement" means a landlord waiver,
mortgagee waiver, bailee letter, or acknowledgment agreement of any
warehouseman, processor, lessor, consignee, or other Person in possession of,
having a Lien upon, or having rights or interests in the Equipment or Inventory,
in each case, in form and substance satisfactory to Foothill.
"Collateral Assignment Agreement" means that certain
collateral assignment of the Borrower's membership interest in Bush Hog,
including an assignment of all of Borrower's rights to proceeds due Borrower
upon any transfer or sale of any of Borrower's interest in Bush Hog in accord
with Article 7 of Bush Hog's Operating Agreement which assignment shall be
subject to prior liens in favor of the Existing Lender and Bush Hog Investors,
L.L.C.
"Collections" means all cash, checks, notes, instruments, and
other items of payment (including, insurance proceeds, proceeds of cash sales,
rental proceeds, and tax refunds).
"Compliance Certificate" means a certificate substantially in
the form of Exhibit C-1 and delivered by the chief accounting officer of
Borrower to Foothill.
"Daily Balance" means the amount of an Obligation owed at the
end of a given day.
"deems itself insecure" means that the Person deems itself
insecure in accordance with the provisions of Section 1-208 of the Code.
"Default" means an event, condition, or default that, with the
giving of notice, the passage of time, or both, would be an Event of Default.
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"Designated Account" means account number 86665 00150 of
Borrower maintained with Borrower's Designated Account Bank, or such other
deposit account of Borrower (located within the United States) which has been
designated, in writing and from time to time, by Borrower to Foothill.
"Designated Account Bank" means Bank of America, whose office
is located at 231 South LaSalle Street, Chicago, Illinois 60697, and whose ABA
number is 071000039.
"Dilution" means, in each case based upon the experience of
the immediately prior ninety (90) days, the result of dividing the Dollar amount
of (a) bad debt write-downs, discounts, advertising allowances, returns,
promotions, credits, or other dilution with respect to the Accounts, by (b)
Borrower's Collections (excluding extraordinary items) plus the Dollar amount of
clause (a).
"Dilution Reserve" means, as of any date of determination, an
amount sufficient to reduce Foothill's advance rate against Eligible Accounts by
one percentage point for each percentage point by which Dilution is in excess of
five percent (5%).
"Disbursement Letter" means an instructional letter executed
and delivered by Borrower to Foothill regarding the extensions of credit to be
made on the Closing Date, the form and substance of which shall be satisfactory
to Foothill.
"Dollars or $" means United States dollars.
"Early Termination Premium" has the meaning set forth in
Section 3.6.
"EBITDA" means, for any period, the net income (or net loss)
of Borrower on a consolidated basis with any Subsidiaries for such period as
determined in accordance with GAAP, (a) plus, to the extent reflected in the
changes in the statement of net income for such period, the sum of, without
duplication, the following (i) interest expense, (ii) depreciation and
amortization expense, and (ii) taxes, and (b) minus, to the extent reflected in
the changes in the statement of net income for such period, extraordinary gains.
"Eligible Accounts" means those Accounts created by Borrower
in the ordinary course of business, net of customer deposits and unapplied cash
payments to the Borrower that arise out of Borrower's sale of goods or rendition
of services, that comply with each and all of the representations and warranties
respecting Accounts made by Borrower to Foothill in the Loan Documents, and that
are not excluded as ineligible by virtue of one or more
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of the criteria set forth below; provided, however, that such criteria may be
fixed and revised from time to time by Foothill in its reasonable discretion to
address the results of any audit performed from time to time after the Closing
Date by or on behalf of Foothill. Eligible Accounts shall not include the
following:
(a) Accounts that the Account Debtor has failed to pay within
sixty (60) days of invoice date or Accounts with selling terms of more than
thirty (30) days;
(b) Accounts owed by an Account Debtor or its Affiliates where
fifty percent (50%) or more of all Accounts owed by that Account Debtor (or its
Affiliates) are deemed ineligible under clause (a) above;
(c) Accounts with respect to which the Account Debtor is an
employee, Affiliate, or agent of Borrower;
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the Account Debtor may be
conditional;
(e) Accounts that are not payable in Dollars or with respect
to which the Account Debtor: (i) does not maintain its chief executive office in
the United States, or (ii) is not organized under the laws of the United States
or any State thereof, or (iii) is the government of any foreign country or
sovereign state, or of any state, province, municipality, or other political
subdivision thereof, or of any department, agency, public corporation, or other
instrumentality thereof, unless (y) the Account is supported by an irrevocable
letter of credit satisfactory to Foothill (as to form, substance, and issuer or
domestic confirming bank) that has been delivered to Foothill and is directly
drawable by Foothill, or (z) the Account is covered by credit insurance in form
and amount, and by an insurer, satisfactory to Foothill;
(f) Accounts with respect to which the Account Debtor is
either (i) the United States or any department, agency, or instrumentality of
the United States (exclusive, however, of Accounts with respect to which
Borrower has complied, to the satisfaction of Foothill, with the Assignment of
Claims Act, 31 U.S.C. ss. 3727), or (ii) any State of the United States
(exclusive, however, of Accounts owed by any State that does not have a
statutory counterpart to the Assignment of Claims Act);
(g) Accounts with respect to which the Account Debtor is a
creditor of Borrower, has or has asserted a right of setoff, has disputed its
liability, or has made any claim with respect to the Account;
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(h) Accounts with respect to an Account Debtor whose total
obligations owing to Borrower exceed ten percent (10%) of all Eligible Accounts,
to the extent of the obligations owing by such Account Debtor in excess of such
percentage;
(i) Accounts with respect to which the Account Debtor is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business;
(j) Accounts the collection of which Foothill, in its
reasonable credit judgment, believes to be doubtful by reason of the Account
Debtor's financial condition;
(k) Accounts with respect to which the goods giving rise to
such Account have not been shipped and billed to the Account Debtor, the
services giving rise to such Account have not been performed and accepted by the
Account Debtor, or the Account otherwise does not represent a final sale;
(l) Accounts with respect to which the Account Debtor is
located in the states of New Jersey, Minnesota, Indiana, or West Virginia (or
any other state that requires a creditor to file a Business Activity Report or
similar document in order to bring suit or otherwise enforce its remedies
against such Account Debtor in the courts or through any judicial process of
such state), unless Borrower has qualified to do business in New Jersey,
Minnesota, Indiana, West Virginia, or such other states, or has filed a Notice
of Business Activities Report with the applicable division of taxation, the
department of revenue, or with such other state offices, as appropriate, for the
then-current year, or is exempt from such filing requirement; and
(m) Accounts that represent progress payments or other advance
billings that are due prior to the completion of performance by Borrower of the
subject contract for goods or services.
"Eligible Parts and Service Accounts" means Accounts which:
(a) meet each of the requirements set forth in the definition
of Eligible Accounts;
(b) arise out of service and delivery of spare parts to
Account Debtors; and
(c) are reflected in a reporting system reasonably acceptable
to Foothill sufficient to allow Foothill to conduct an audit of said accounts in
order to determine eligibility for Advances.
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"Eligible Special GM Project Accounts" shall be limited to the
Accounts arising out of the design and manufacture of the following items for GM
as specified on the Purchase Order for each item:
Description of Item and Serial Number Purchase Order No. and Date
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A3 Transfer Press System 29329 WHS 14587 April 4, 1997
A3 Transfer Press System 29328 WHS 14588 April 4, 1997
In order to be an Eligible Special GM Project Account said
account shall meet each of the requirements set forth in the definition of
Eligible Accounts except for (a), (h) and (k), and Borrower shall:
(a) not have received any notification from GM of non
compliance with the Purchase Order upon which Advances are being sought by
Borrower which has not been cured which cure is evidenced by a written
acknowledgment from GM;
(b) be in compliance with that certain Amendment to Purchase
Orders between Borrower and GM dated October 4, 1999 as amended by a Second and
Third Amendment with respect to Press No. 3 and Press No. 4 as outlined therein;
(c) not seek any Advance which would result in funds being
advanced in excess of the amounts set forth on the financial projections set
forth on Exhibit A; and
(d) have furnished evidence to Foothill of the renewal of its
existing labor contract, or have provided evidence satisfactory to Foothill, in
its sole discretion, that labor issues will not impede Borrower from compliance
with the terms of the Purchase Order for which Advances are being sought; and
(e) demonstrate to Foothill to its reasonable satisfaction
that Borrower has sufficient liquidity, including Advances, to complete the work
required under each of the Purchase Orders set forth above.
"Eligible Special GM Project Billed Accounts" means an Account
which:
(a) meets each of the requirements set forth in the definition
of Eligible Special GM Project Accounts; and
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(b) Borrower has invoiced GM in which event the Account shall
be an Eligible Special GM Project Account for sixty (60) days from the invoice
date provided that the selling terms for the Account are not in excess of thirty
(30) days.
"Eligible Special GM Project Unbilled Accounts" means an
Account which:
(a) meets each of the requirements set forth in the definition
of Eligible Special GM Project Accounts; and
(b) evidences a machine or a press being manufactured for GM
which is within sixty (60) days of shipment pursuant to the required terms of
the Purchase Order, and has not been invoiced to GM and shall be deemed an
Eligible Special GM Project Unbilled Account for seventy-five (75) days from
first becoming an Eligible Special GM Project Unbilled Account.
"Eligible Special Project Accounts" means an Account which:
(a) meets such of the requirements set forth in the definition
of Eligible Accounts except for (a) and (k);
(b) is subject to a written Purchase Order or Contract from an
Account Debtor;
(c) arises from the design and manufacture of a machine or
press pursuant to a Purchase Order or Contract which is at least eighty percent
(80%) complete and has been manufactured in accord with the terms of the
Purchase Order or Contract;
(d) Borrower has not received any notification from an Account
Debtor of non compliance with the Purchase Order or Contract upon which Advances
are being sought by the Borrower;
(e) Borrower has demonstrated to Foothill to its reasonable
satisfaction that Borrower has sufficient liquidity, including Advances, to
complete the work required under each of the Purchase Orders or Contract for
which Advances are being sought by the Borrower; and
(f) eligibility for Special Project Accounts Advances shall be
determined by Foothill on a case by case basis.
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"Eligible Special Project Billed Accounts" means an Account
which:
(a) meets each of the requirements set forth in the definition
of Eligible Special Project Accounts; and
(b) Borrower has invoiced the Account Debtor in which event
the Account shall be an Eligible Special Project Account for sixty (60) days
from the invoice date provided that the selling terms of the Account are not in
excess of thirty (30) days.
"Eligible Special Project Unbilled Accounts" means an Account
which:
(a) meets each of the requirements set forth in the definition
of Eligible Special Project Accounts; and
(b) evidences a machine or press being manufactured which is
within sixty (60) days of shipment pursuant to the required terms of the
Purchase Order or Contract between the Borrower and the Account Debtor and shall
be deemed an Eligible Special Project Unbilled Account only for seventy-five
(75) days from first becoming an Eligible Special Project Unbilled Account.
"Environmental Reserve" means the sum of Eight Hundred Ninety
Thousand Dollars ($890,000) which will be reserved against the Term Loan Subline
by Foothill until it has received all environmental information requested by it
with respect to the Hobart, Indiana portion of the Real Property Collateral.
Foothill must be satisfied in its sole discretion with respect to the
environmental status of the Hobart, Indiana real estate before releasing the
Environmental Reserve.
"Equipment" means all of Borrower's present and hereafter
acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including motor vehicles and trailers), tools, parts, goods
(other than consumer goods, farm products, or Inventory), wherever located,
including, (a) any assets acquired by Borrower with the proceeds of a Capital
Expenditure Loan, (b) any interest of Borrower in any of the foregoing, and (c)
all attachments, accessories, accessions, replacements, substitutions,
additions, and improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of
1974, 29 U.S.C.ss.ss.1000 et seq., amendments thereto, successor statutes, and
regulations or guidance promulgated thereunder.
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"ERISA Affiliate" means (a) any corporation subject to ERISA
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any organization subject to ERISA that is a
member of an affiliated service group of which Borrower is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section
412 of the IRC, any party subject to ERISA that is a party to an arrangement
with Borrower and whose employees are aggregated with the employees of Borrower
under IRC Section 414(o).
"ERISA Event" means (a) a Reportable Event with respect to any
Benefit Plan or Multiemployer Plan, (b) the withdrawal of Borrower, any of its
Subsidiaries or ERISA Affiliates from a Benefit Plan during a plan year in which
it was a "substantial employer" (as defined in Section 4001(a)(2) of ERISA), (c)
the providing of notice of intent to terminate a Benefit Plan in a distress
termination (as described in Section 4041(c) of ERISA), (d) the institution by
the PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan, (e)
any event or condition (i) that provides a basis under Section 4042(a)(1), (2),
or (3) of ERISA for the termination of, or the appointment of a trustee to
administer, any Benefit Plan or Multiemployer Plan, or (ii) that may result in
termination of a Multiemployer Plan pursuant to Section 4041A of ERISA, (f) the
partial or complete withdrawal within the meaning of Sections 4203 and 4205 of
ERISA, of Borrower, any of its Subsidiaries or ERISA Affiliates from a
Multiemployer Plan, or (g) providing any security to any Plan under Section
401(a)(29) of the IRC by Borrower or its Subsidiaries or any of their ERISA
Affiliates.
"Event of Default" has the meaning set forth in Section 8.
"Existing Lender" means LaSalle Bank, N.A.
"FEIN" means Federal Employer Identification Number.
"Fiscal Projections" has the meaning set forth in Section
3.3(b).
"Foothill" has the meaning set forth in the preamble to this
Agreement.
"Foothill Account" has the meaning set forth in Section 2.7.
"Foothill Expenses" means all: costs or expenses (including
taxes, and insurance premiums) required to be paid by Borrower under any of the
Loan Documents that are paid or incurred by Foothill; fees or charges paid or
incurred by Foothill in connection with
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Foothill's transactions with Borrower, including, fees or charges for
photocopying, notarization, couriers and messengers, telecommunication, public
record searches (including tax lien, litigation, and UCC searches and including
searches with the patent and trademark office, the copyright office, or the
department of motor vehicles), filing, recording, publication, appraisal
(including periodic Personal Property Collateral or Real Property Collateral
appraisals), real estate surveys, real estate title policies and endorsements,
and environmental audits; costs and expenses incurred by Foothill in the
disbursement of funds to Borrower (by wire transfer or otherwise); charges paid
or incurred by Foothill resulting from the dishonor of checks; costs and
expenses paid or incurred by Foothill to correct any default or enforce any
provision of the Loan Documents, or in gaining possession of, maintaining,
handling, preserving, storing, shipping, selling, preparing for sale, or
advertising to sell the Personal Property Collateral or the Real Property
Collateral, or any portion thereof, irrespective of whether a sale is
consummated; costs and expenses paid or incurred by Foothill in examining
Borrower's Books; costs and expenses of third party claims or any other suit
paid or incurred by Foothill in enforcing or defending the Loan Documents or in
connection with the transactions contemplated by the Loan Documents or
Foothill's relationship with Borrower or any guarantor; and Foothill's
reasonable attorneys fees and expenses incurred in advising, structuring,
drafting, reviewing, administering, amending, terminating, enforcing (including
attorneys fees and expenses incurred in connection with a "workout," a
"restructuring," or an Insolvency Proceeding concerning Borrower or any
guarantor of the Obligations), defending, or concerning the Loan Documents,
irrespective of whether suit is brought.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States, consistently applied.
"General Intangibles" means all of Borrower's present and
future general intangibles and other personal property (including contract
rights, rights arising under common law, statutes, or regulations, choses or
things in action, goodwill, patents, trade names, trademarks, servicemarks,
copyrights, blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, rights to payment and other rights
under any royalty or licensing agreements, infringement claims, computer
programs, information contained on computer disks or tapes, literature, reports,
catalogs, deposit accounts, insurance premium rebates, tax refunds, and tax
refund claims), other than goods, Accounts, and Negotiable Collateral.
"GM" means General Motors Corporation.
"Governing Documents" means the certificate or articles of
incorporation, by-laws, or other organizational or governing documents of any
Person.
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"Hazardous Materials" means (a) substances that are defined or
listed in, or otherwise classified or regulated pursuant to, any environmentally
related federal, state or local government applicable laws or regulations as
"hazardous substances," "hazardous materials," "hazardous wastes," "toxic
substances," "pollutant or contaminant," or any other formulation intended to
define, list, or classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity,
or "EP toxicity", including but not limited to the Comprehensive Environmental
Response Compensation and Liability Act, 42 U.S.C. ss.9601(14) as amended by the
Superfund Amendments, and Reauthorization Act and including the judicial
interpretations thereof, (b) oil, petroleum, or petroleum derived substances,
natural gas, natural gas liquids, synthetic gas, drilling fluids, produced
waters, and other wastes associated with the exploration, development, or
production of crude oil, natural gas, or geothermal resources, (c) any flammable
substances or explosives or any radioactive materials, and (d) asbestos in any
form or electrical equipment that contains any oil or dielectric fluid
containing levels of polychlorinated biphenyls in excess of 50 parts per
million.
"Indebtedness" means: (a) all obligations of Borrower for
borrowed money, (b) all obligations of Borrower evidenced by bonds, debentures,
notes, or other similar instruments and all reimbursement or other obligations
of Borrower in respect of letters of credit, bankers acceptances, interest rate
swaps, or other financial products, (c) all obligations of Borrower under
capital leases, (d) all obligations or liabilities of others secured by a Lien
on any property or asset of Borrower, irrespective of whether such obligation or
liability is assumed, and (e) any obligation of Borrower guaranteeing or
intended to guarantee (whether guaranteed, endorsed, co-made, discounted, or
sold with recourse to Borrower) any indebtedness, lease, dividend, letter of
credit, or other obligation of any other Person.
"Insolvency Proceeding" means any proceeding commenced by or
against any Person under any provision of the Bankruptcy Code or under any other
bankruptcy or insolvency law, assignments for the benefit of creditors, formal
or informal moratoria, compositions, extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar relief.
"Intangible Assets" means, with respect to any Person, that
portion of the book value of all of such Person's assets that would be treated
as intangibles under GAAP.
"Inventory" means all present and future inventory in which
Borrower has any interest, including goods held for sale or lease or to be
furnished under a contract of service and all of Borrower's present and future
raw materials, work in process, finished goods, and packing and shipping
materials, wherever located.
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"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Investment Property" has the meaning as set forth in the
Code.
"L/C" has the meaning set forth in Section 2.2(a).
"L/C Guaranty" has the meaning set forth in Section 2.2(a).
"LaSalle Letter" means that letter from Existing Lender
addressed to Foothill indicating that the only interest which Existing Lender
has in any assets of Borrower, whether Real Property Collateral or Personal
Property Collateral, is an assignment of all right, title and interest of
Borrower's membership interest in Bush Hog, including, without limitation,
Borrower's interest in the capital, income, profits, and all other property
hereafter delivered to Borrower in substitution for, as proceeds of, or in
addition to any of the foregoing, all certificates, instruments and documents
representing or evidencing such property, and all cash, securities, interest,
dividends, rights and other property at any time and from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
thereof, all of the foregoing whether now owned or hereafter acquired by
Borrower and wheresoever located and said letter shall be in form and content
acceptable to Foothill.
"Letter of Credit" means an L/C or an L/C Guaranty, as the
context requires.
"Lien" means any interest in property securing an obligation
owed to, or a claim by, any Person other than the owner of the property, whether
such interest shall be based on the common law, statute, or contract, whether
such interest shall be recorded or perfected, and whether such interest shall be
contingent upon the occurrence of some future event or events or the existence
of some future circumstance or circumstances, including the lien or security
interest arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, security agreement, adverse
claim or charge, conditional sale or trust receipt, or from a lease,
consignment, or bailment for security purposes and also including reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases, and other title exceptions and encumbrances affecting Real
Property.
"Loan" means any portion of the Maximum Amount advanced
pursuant to the Loan Documents.
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"Loan Account" has the meaning set forth in Section 2.10.
"Loan Documents" means this Agreement, the Disbursement
Letter, the Letters of Credit, the Lockbox Agreements, the Mortgages, the
Collateral Assignment, the Pledge Agreements, any note or notes executed by
Borrower and payable to Foothill, and any other agreement entered into, now or
in the future, in connection with this Agreement.
"Lockbox Account" shall mean a depositary account established
pursuant to one of the Lockbox Agreements.
"Lockbox Agreements" means those certain Lockbox Operating
Procedural Agreements and those certain Depository Account Agreements, in form
and substance satisfactory to Foothill, each of which is among Borrower,
Foothill, and one of the Lockbox Banks.
"Lockbox Banks" means LaSalle Bank, N.A. or such other banks
as may be agreed to by Borrower and Foothill from time to time.
"Lockboxes" has the meaning set forth in Section 2.7.
"Material Adverse Change" means (a) a material adverse change
in the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of Borrower, (b) the material
impairment of Borrower's ability to perform its obligations under the Loan
Documents to which it is a party or of Foothill to enforce the Obligations or
realize upon the Collateral because of Borrower's action or inaction, (c) a
material adverse effect on the value of the Collateral or the amount that
Foothill would be likely to receive (after giving consideration to delays in
payment and costs of enforcement) in the liquidation of such Collateral, or (d)
a material impairment of the priority of Foothill's Liens with respect to the
Collateral.
"Maximum Amount" means the sum of Thirty Million Dollars
($30,000,000).
"Mortgages" means one or more mortgages, deeds of trust, or
deeds to secure debt, executed by Borrower in favor of Foothill, the form and
substance of which shall be satisfactory to Foothill, that encumber the Real
Property Collateral and the related improvements thereto.
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"Multiemployer Plan" means a "multiemployer plan" (as defined
in Section 4001(a)(3) of ERISA) to which Borrower, any of its Subsidiaries, or
any ERISA Affiliate has contributed, or was obligated to contribute, within the
past six years.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit, notes, drafts, instruments, investment property,
security entitlements, securities (including the shares of stock of Subsidiaries
of Borrower), documents, personal property leases (wherein Borrower is the
lessor), chattel paper, and Borrower's Books relating to any of the foregoing.
"Obligations" means all loans, Advances, debts, principal,
interest (including any interest that, but for the provisions of the Bankruptcy
Code, would have accrued), contingent reimbursement obligations under any
outstanding Letters of Credit, premiums (including Early Termination Premiums),
liabilities (including all amounts charged to Borrower's Loan Account pursuant
hereto), obligations, fees, charges, costs, or Foothill Expenses (including any
fees or expenses that, but for the provisions of the Bankruptcy Code, would have
accrued), lease payments, guaranties, covenants, and duties owing by Borrower to
Foothill of any kind and description (whether pursuant to or evidenced by the
Loan Documents or pursuant to any other agreement between Foothill and Borrower,
and irrespective of whether for the payment of money), whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including any debt, liability, or obligation owing from
Borrower to others that Foothill may have obtained by assignment or otherwise,
and further including all interest not paid when due and all Foothill Expenses
that Borrower is required to pay or reimburse by the Loan Documents, by law, or
otherwise.
"Overadvance" has the meaning set forth in Section 2.5.
"Participant" means any Person to which Foothill has sold a
participation interest in its rights under the Loan Documents.
"PBGC" means the Pension Benefit Guaranty Corporation as
defined in Title IV of ERISA, or any successor thereto.
"Permitted Liens" means (a) Liens held by Foothill, (b) Liens
for unpaid taxes that either (i) are not yet due and payable or (ii) are the
subject of Permitted Protests, (c) Liens set forth on Schedule P-1, (d) the
interests of lessors under operating leases and purchase money Liens of lessors
under capital leases to the extent that the acquisition or lease of the
underlying asset is permitted under Section 7.21 and so long as the Lien only
attaches to the asset purchased or acquired and only secures the purchase price
of the asset, (e) Liens arising
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by operation of law in favor of warehousemen, landlords, carriers, mechanics,
materialmen, laborers, or suppliers, incurred in the ordinary course of business
of Borrower and not in connection with the borrowing of money, and which Liens
either (i) are for sums not yet due and payable, or (ii) are the subject of
Permitted Protests, (f) Liens arising from deposits made in connection with
obtaining worker's compensation or other unemployment insurance, (g) Liens or
deposits to secure performance of bids, tenders, or leases (to the extent
permitted under this Agreement), incurred in the ordinary course of business of
Borrower and not in connection with the borrowing of money, (h) Liens arising by
reason of security for surety or appeal bonds in the ordinary course of business
of Borrower, (i) Liens of or resulting from any judgment or award that would not
have a Material Adverse Effect and as to which the time for the appeal or
petition for rehearing of which has not yet expired, or in respect of which
Borrower is in good faith prosecuting an appeal or proceeding for a review, and
in respect of which a stay of execution pending such appeal or proceeding for
review has been secured, (j) Liens with respect to the Real Property Collateral
that are exceptions to the commitments for title insurance issued in connection
with the Mortgages, as accepted by Foothill, and (k) with respect to any Real
Property that is not part of the Real Property Collateral, easements, rights of
way, zoning and similar covenants and restrictions, and similar encumbrances
that customarily exist on properties of Persons engaged in similar activities
and similarly situated and that in any event do not materially interfere with or
impair the use or operation of the Collateral by Borrower or the value of
Foothill's Lien thereon or therein, or materially interfere with the ordinary
conduct of the business of Borrower.
"Permitted Protest" means the right of Borrower to protest any
Lien other than any such Lien that secures the Obligations, tax (other than
payroll taxes or taxes that are the subject of a United States federal tax
lien), or rental payment, provided that (a) a reserve with respect to such
obligation is established on the books of Borrower in an amount that is
reasonably satisfactory to Foothill, (b) any such protest is instituted and
diligently prosecuted by Borrower in good faith, and (c) Foothill is satisfied
that, while any such protest is pending, there will be no impairment of the
enforceability, validity, or priority of any of the Liens of Foothill in and to
the Collateral.
"Person" means and includes natural persons, corporations,
limited liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Personal Property Collateral" means all Collateral other than
the Real Property Collateral.
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"Plan" means any employee benefit plan, program, or
arrangement maintained or contributed to by Borrower or with respect to which it
may incur liability.
"Pledge Agreements" means those certain Pledge Agreements
executed by the Borrower in favor of Foothill and pledging to Foothill all of
the Borrower's joint venture interest in Verson Pressentechnik GmbH and all of
its rights as a member of High Production Technology, L.L.C., a Delaware limited
liability company which it created with Automatic Feed Co.
"Real Property" means any estates or interests in real
property now owned or hereafter acquired by Borrower.
"Real Property Collateral" means the parcel or parcels of real
property and the related improvements thereto identified on Schedule R-1, and
any Real Property hereafter acquired by Borrower.
"Reference Rate" means the rate of interest announced within
Wells Fargo Bank, N.A. at its principal office in San Francisco, California from
time to time as its "prime rate", with the understanding that the "prime rate"
is one of Wells Fargo's base rates (not necessarily the lowest of such rates)
and serves as the basis upon which effective rates of interest are calculated
for those loans making reference thereto and is evidenced by the recording
thereof after its announcement in such internal publication or publications as
Wells Fargo may designate.
"Renewal Date" has the meaning set forth in Section 3.4.
"Reportable Event" means any of the events described in
Section 4043(c) of ERISA or the regulations thereunder other than a Reportable
Event as to which the provision of thirty (30) days notice to the PBGC is waived
under applicable regulations.
"Retiree Health Plan" means an "employee welfare benefit plan"
within the meaning of Section 3(1) of ERISA that provides benefits to
individuals after termination of their employment, other than as required by
Section 601 of ERISA.
"Revolving Note" has the meaning as set forth in Section 2.1.
"SEC Reports" means (i) Borrower's 10-K Report as filed with
the Securities and Exchange Commission (the "SEC") for each of its fiscal years
after December
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31, 1999, and (ii) all of the Borrower's forms 10-Q and 8-K filed with the SEC
since January 1, 2000.
"Solvent" means, with respect to any Person on a particular
date, that on such date (a) at fair valuations, all of the properties and assets
of such Person are greater than the sum of the debts, including contingent
liabilities, of such Person, (b) the present fair salable value of the
properties and assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person is able to realize upon its
properties and assets and after funding of the Loan pay its debts and other
liabilities, contingent obligations and other commitments as they mature in the
normal course of business, (d) such Person does not intend to, and does not
believe that it will, incur debts beyond such Person's ability to pay as such
debts mature, and (e) such Person is not engaged in business or a transaction,
and is not about to engage in business or a transaction, for which such Person's
properties and assets would constitute unreasonably small capital after giving
due consideration to the prevailing practices in the industry in which such
Person is engaged. In computing the amount of contingent liabilities at any
time, it is intended that such liabilities will be computed at the amount that,
in light of all the facts and circumstances existing at such time, represents
the amount that reasonably can be expected to become an actual or matured
liability.
"Subsidiary" of a Person means a corporation, partnership,
limited liability company, or other entity in which that Person directly or
indirectly owns or controls the shares of stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors (or
appoint other comparable managers) of such corporation, partnership, limited
liability company, or other entity.
"Term Loan Subline" means a subline in the amount of Ten
Million Six Hundred Thousand Dollars ($10,600,000), minus the amount of the
Environmental Reserve. The Term Loan Subline shall be reduced by One Hundred
Seventy Six Thousand Six Hundred Sixty Seven Dollars ($176,667) per month
commencing on September 1, 2000.
"Voidable Transfer" has the meaning set forth in Section 15.8.
1.2 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Borrower" is used in respect of a financial covenant or a related
definition, it shall be understood to mean Borrower on a consolidated basis
unless the context clearly requires otherwise.
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1.3 Code. Any terms used in this Agreement that are defined in the
Code shall be construed and defined as set forth in the Code unless otherwise
defined herein.
1.4 Construction. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the term "including" is not limiting, and the
term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. An Event of Default
shall "continue" or be "continuing" until such Event of Default has been waived
in writing by Foothill. Section, subsection, clause, schedule, and exhibit
references are to this Agreement unless otherwise specified. Any reference in
this Agreement or in the Loan Documents to this Agreement or any of the Loan
Documents shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, and supplements, thereto
and thereof, as applicable.
1.5 Schedules and Exhibits. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 Revolving Advances.
(a) Subject to the terms and conditions of this Agreement,
Foothill agrees to make advances ("Advances") to Borrower in an amount
outstanding not to exceed at any one time the lesser of (i) the Maximum Amount,
less the outstanding balance of all undrawn or unreimbursed Letters of Credit,
or (ii) the Borrowing Base, less the outstanding balance of all undrawn or
unreimbursed Letters of Credit. For purposes of this Agreement, "Borrowing
Base", as of any date of determination, shall mean the result of:
(w) eighty five percent (85%) of Eligible Parts and Service
Accounts, less the amount, if any, of the Dilution Reserve, plus
(x) sixty five percent (65%) of Eligible Special Project
Unbilled Accounts, plus sixty five percent (65%) of Eligible Special
GM Project Unbilled Accounts, plus eighty five percent (85%) of
Eligible Special Project Billed Accounts, plus eighty five percent
(85%) of Eligible Special GM Project Billed Accounts, less the
amount, if any, of the Dilution Reserve, plus
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(y) the maximum amount of the Term Loan Subline, minus
(z) the aggregate amount of reserves, if any, established by
Foothill under Section 2.1(b).
(b) Anything to the contrary in this Section 2.1(a)
notwithstanding, Foothill shall have the right to establish reserves in such
amounts, and with respect to such matters as Foothill in its reasonable
discretion shall deem necessary or appropriate, against the Borrowing Base,
including reserves with respect to (i) dismantling shipping and installation of
any machines or presses, (ii) sums that Borrower is required to pay (such as
taxes, assessments, insurance premiums, or, in the case of leased assets, rents
or other amounts payable under such leases if the failure to pay same would
result in the lessor obtaining a prior lien ahead of Foothill with respect to
any Collateral) and has failed to pay under any Section of this Agreement or any
other Loan Document, and (iii) amounts owing by Borrower to any Person to the
extent secured by a Lien on, or trust over, any of the Collateral, which Lien or
trust, in the sole discretion of Foothill would be likely to have a priority
superior to the Liens (such as landlord liens, ad valorem taxes, or sales taxes
where given priority under applicable law) in and to such item of the
Collateral.
(c) Foothill shall have no obligation to make Advances
hereunder to the extent they would cause the outstanding Obligations to exceed
the Maximum Amount.
(d) Amounts borrowed pursuant to this Section 2.1 may be
repaid and, subject to the terms and conditions of this Agreement, reborrowed at
any time during the term of this Agreement.
(e) Other than Eligible Special GM Project Accounts or
Eligible Parts and Service Accounts or the Term Loan Subline, Borrower may not
obtain any Advances until Borrower has complied with the requirements of Section
3.3(b) by delivering the Fiscal Projections.
(f) Except for Advances under the Term Loan Subline, Borrower
may not obtain any Advances pursuant to this Section 2.1 until Borrower has sold
its nineteen and nine tenths percent (19.9%) membership interest in Bush Hog to
Bush Hog Investors or its Affiliates and paid in full all indebtedness due to
Existing Lender and provided further that there is no Event of Default.
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2.2 Letters of Credit.
(a) Subject to the terms and conditions of this Agreement,
Foothill agrees to issue letters of credit for the account of Borrower (each, an
"L/C") or to issue guarantees of payment (each such guaranty, an "L/C Guaranty")
with respect to letters of credit issued by an issuing bank for the account of
Borrower. Foothill shall have no obligation to issue a Letter of Credit if any
of the following would result:
(i) the sum of one hundred percent (100%) of the aggregate
amount of all undrawn and unreimbursed Letters of Credit, would
exceed the Borrowing Base less the amount of outstanding Advances
less the aggregate amount of reserves established under Section
2.1(b); or
(ii) the aggregate amount of all undrawn or unreimbursed
Letters of Credit would exceed the lower of: (x) the Maximum Amount
less the amount of outstanding Advances less the aggregate amount of
reserves established under Section 2.1(b); or (y) Two Million
Dollars ($2,000,000); or
(iii) the outstanding Obligations would exceed the Maximum
Amount.
(b) Borrower expressly understands and agrees that Foothill
shall have no obligation to arrange for the issuance by issuing banks of the
letters of credit that are to be the subject of L/C Guarantees. Borrower and
Foothill acknowledge and agree that certain of the letters of credit that are to
be the subject of L/C Guarantees may be outstanding on the Closing Date. Each
Letter of Credit shall have an expiry date no later than sixty (60) days prior
to the date on which this Agreement is scheduled to terminate under Section 3.4
(without regard to any potential renewal term) and all such Letters of Credit
shall be in form and substance acceptable to Foothill in its sole discretion. If
Foothill is obligated to advance funds under a Letter of Credit, Borrower
immediately shall reimburse such amount to Foothill and, in the absence of such
reimbursement, the amount so advanced immediately and automatically shall be
deemed to be an Advance hereunder and, thereafter, shall bear interest at the
rate then applicable to Advances under Section 2.6.
(c) Borrower hereby agrees to indemnify, save, defend, and
hold Foothill harmless from any loss, cost, expense, or liability, including
payments made by Foothill, expenses, and reasonable attorneys fees incurred by
Foothill arising out of or in connection with any Letter of Credit. Borrower
agrees to be bound by the issuing bank's regulations and interpretations of any
Letters of Credit guaranteed by Foothill and opened to or for Borrower's account
or by Foothill's interpretations of any L/C issued by Foothill to or for
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Borrower's account, even though this interpretation may be different from
Borrower's own, and Borrower understands and agrees that Foothill shall not be
liable for any error, negligence, or mistake, whether of omission or commission,
in following Borrower's instructions or those contained in the Letter of Credit
or any modifications, amendments, or supplements thereto. Borrower understands
that the L/C Guarantees may require Foothill to indemnify the issuing bank for
certain costs or liabilities arising out of claims by Borrower against such
issuing bank. Borrower hereby agrees to indemnify, save, defend, and hold
Foothill harmless with respect to any loss, cost, expense (including reasonable
attorneys fees), or liability incurred by Foothill under any L/C Guaranty as a
result of Foothill's indemnification of any such issuing bank.
(d) Borrower hereby authorizes and directs any bank that
issues a letter of credit guaranteed by Foothill to deliver to Foothill all
instruments, documents, and other writings and property received by the issuing
bank pursuant to such letter of credit, and to accept and rely upon Foothill's
instructions and agreements with respect to all matters arising in connection
with such letter of credit and the related application. Borrower may or may not
be the "applicant" or "account party" with respect to such letter of credit.
(e) Any and all charges, commissions, fees, and costs incurred
by Foothill relating to the letters of credit guaranteed by Foothill shall be
considered Foothill Expenses for purposes of this Agreement and immediately
shall be reimbursable by Borrower to Foothill.
(f) Immediately upon the termination of this Agreement,
Borrower agrees to either (i) provide cash collateral to be held by Foothill in
an amount equal to one hundred five percent (105%) of the maximum amount of
Foothill's obligations under Letters of Credit, or (ii) cause to be delivered to
Foothill releases of all of Foothill's obligations under outstanding Letters of
Credit. At Foothill's discretion, any proceeds of Collateral received by
Foothill after the occurrence and during the continuation of an Event of Default
may be held as the cash collateral required by this Section 2.2(e).
(g) If by reason of (i) any change in any applicable law,
treaty, rule, or regulation or any change in the interpretation or application
by any governmental authority of any such applicable law, treaty, rule, or
regulation, or (ii) compliance by the issuing bank or Foothill with any
direction, request, or requirement (irrespective of whether having the force of
law) of any governmental authority or monetary authority including, without
limitation, Regulation D of the Board of Governors of the Federal Reserve System
as from time to time in effect (and any successor thereto):
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(A) any reserve, deposit, or similar requirement is or shall
be imposed or modified in respect of any Letters of Credit issued
hereunder, or
(B) there shall be imposed on the issuing bank or Foothill any
other condition regarding any letter of credit, or Letter of Credit, as
applicable, issued pursuant hereto;
and the result of the foregoing is to increase, directly or indirectly, the cost
to the issuing bank or Foothill of issuing, making, guaranteeing, or maintaining
any letter of credit, or Letter of Credit, as applicable, or to reduce the
amount receivable in respect thereof by such issuing bank or Foothill, then, and
in any such case, Foothill may, at any time within a reasonable period after the
additional cost is incurred or the amount received is reduced, notify Borrower,
and Borrower shall pay on demand such amounts as the issuing bank or Foothill
may specify to be necessary to compensate the issuing bank or Foothill for such
additional cost or reduced receipt, together with interest on such amount from
the date of such demand until payment in full thereof at the rate set forth in
Section 2.6(a)(i) or (c)(i), as applicable. The determination by the issuing
bank or Foothill, as the case may be, of any amount due pursuant to this Section
2.2(f), as set forth in a certificate setting forth the calculation thereof in
reasonable detail, shall, in the absence of manifest or demonstrable error, be
final and conclusive and binding on all of the parties hereto.
2.3 Intentionally Omitted.
2.4 Intentionally Omitted.
2.5 Overadvances. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Foothill pursuant to Sections 2.1, 2.2 and 2.4
is greater than either the Dollar or percentage limitations set forth in
Sections 2.1 or 2.2 (an "Overadvance"), Borrower immediately shall pay to
Foothill, in cash, the amount of such excess to be used by Foothill first, to
repay Advances outstanding under Section 2.1 and, thereafter, to be held by
Foothill as cash collateral to secure Borrower's obligation to repay Foothill
for all amounts paid pursuant to Letters of Credit.
2.6 Interest and Letter of Credit Fees: Rates, Payments, and
Calculations.
(a) Interest Rate. Except as provided in clause (b) below, (i)
all Obligations (except for undrawn Letters of Credit and borrowings under the
Term Loan Subline) shall bear interest on the Daily Balance at a per annum rate
of one and one quarter percentage points (1.25%) above the Reference Rate, and
(ii) borrowings under the Term Loan
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Subline shall bear interest at a per annum rate of two percentage points (2.0%)
above the Reference Rate. For purposes of interest calculation, Advances under
Section 2.1 shall first be made under the Term Loan Subline.
(b) Letter of Credit Fee. Borrower shall pay Foothill a fee
(in addition to the charges, commissions, fees, and costs set forth in Section
2.2(e)) equal to one and one half percent (1.50%) per annum times the Daily
Balance of the aggregate undrawn amount of all outstanding Letters of Credit.
(c) Default Rate. Upon the occurrence and during the
continuation of an Event of Default, (i) all Obligations (except for undrawn
Letters of Credit) shall bear interest at a per annum rate equal to three
percentage points (3.0%) above the Interest Rate otherwise charged in Section
2.6(a), and (ii) the Letter of Credit fee provided in Section 2.6(b) shall be
increased to five percent (5%) per annum times the Daily Balance of the amount
of the undrawn Letters of Credit that were outstanding during the immediately
preceding month.
(d) Minimum Interest. In no event shall the rate of interest
chargeable hereunder for any day be less than eight percent (8%) per annum. To
the extent that interest accrued hereunder at the rate set forth herein would be
less than the foregoing minimum daily rate, the interest rate chargeable
hereunder for such day automatically shall be deemed increased to the minimum
rate. To the extent that interest accrued hereunder at the rate set forth herein
(including the minimum interest rate) would yield less than the foregoing
minimum amount, the interest rate chargeable hereunder for the period in
question automatically shall be deemed increased to that rate that would result
in the minimum amount of interest being accrued and payable hereunder.
(e) Payments. Interest and Letter of Credit fees payable
hereunder shall be due and payable, in arrears, on the first day of each month
during the term hereof. Borrower hereby authorizes Foothill, at its option,
without prior notice to Borrower, to charge such interest and Letter of Credit
fees, all Foothill Expenses (as and when incurred), the charges, commissions,
fees, and costs provided for in Section 2.2(d) (as and when accrued or
incurred), the fees and charges provided for in Section 2.11 (as and when
accrued or incurred), and all installments or other payments due under the Term
Loan Subline, or any Loan Document to Borrower's Loan Account, which amounts
thereafter shall accrue interest at the rate then applicable to Advances
hereunder. Any interest not paid when due shall be compounded and shall
thereafter accrue interest at the rate then applicable to Advances hereunder.
(f) Computation. The Reference Rate as of the date of this
Agreement is nine percent (9%) per annum. In the event the Reference Rate is
changed from
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time to time hereafter, the applicable rate of interest hereunder automatically
and immediately shall be increased or decreased by an amount equal to such
change in the Reference Rate. All interest and fees chargeable under the Loan
Documents shall be computed on the basis of a 360 day year for the actual number
of days elapsed.
(g) Intent to Limit Charges to Maximum Lawful Rate. In no
event shall the interest rate or rates payable under this Agreement, plus any
other amounts paid in connection herewith, exceed the highest rate permissible
under any law that a court of competent jurisdiction shall, in a final
determination, deem applicable. Borrower and Foothill, in executing and
delivering this Agreement, intend legally to agree upon the rate or rates of
interest and manner of payment stated within it; provided, however, that,
anything contained herein to the contrary notwithstanding, if said rate or rates
of interest or manner of payment exceeds the maximum allowable under applicable
law, then, ipso facto as of the date of this Agreement, Borrower is and shall be
liable only for the payment of such maximum as allowed by law, and payment
received from Borrower in excess of such legal maximum, whenever received, shall
be applied to reduce the principal balance of the Obligations to the extent of
such excess.
2.7 Collection of Accounts. Borrower shall at all times maintain
lockboxes (the "Lockboxes") and, immediately after the Closing Date, shall
instruct all Account Debtors with respect to the Accounts, General Intangibles,
and Negotiable Collateral of Borrower to remit all Collections in respect
thereof to such Lockboxes. Borrower, Foothill, and the Lockbox Banks shall enter
into the Lockbox Agreements, which among other things shall provide for the
opening of a Lockbox Account for the deposit of Collections at a Lockbox Bank.
Borrower agrees that all Collections and other amounts received by Borrower from
any Account Debtor or any other source immediately upon receipt shall be
deposited into a Lockbox Account. No Lockbox Agreement or arrangement
contemplated thereby shall be modified by Borrower without the prior written
consent of Foothill. Upon the terms and subject to the conditions set forth in
the Lockbox Agreements, all amounts received in each Lockbox Account shall be
wired each Business Day into an account (the "Foothill Account") maintained by
Foothill at a depositary selected by Foothill.
2.8 Crediting Payments; Application of Collections. The receipt of
any Collections by Foothill (whether from transfers to Foothill by the Lockbox
Banks pursuant to the Lockbox Agreements or otherwise) immediately shall be
applied provisionally to reduce the Obligations outstanding under Section 2.1,
but shall not be considered a payment on account unless such Collection item is
a wire transfer of immediately available federal funds and is made to the
Foothill Account or unless and until such Collection item is honored when
presented for payment. From and after the Closing Date, Foothill shall be
entitled to charge Borrower for one
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(1) Business Day of `clearance' or `float' at the rate set forth in Section
2.6(a)(i) or Section 2.6(c)(i), as applicable, on all Collections that are
received by Foothill (regardless of whether forwarded by the Lockbox Banks to
Foothill, whether provisionally applied to reduce the Obligations under Section
2.1, or otherwise). This across-the-board one (1) Business Day clearance or
float charge on all Collections is acknowledged by the parties to constitute an
integral aspect of the pricing of Foothill's financing of Borrower, and shall
apply irrespective of the characterization of whether receipts are owned by
Borrower or Foothill, and whether or not there are any outstanding Advances, the
effect of such clearance or float charge being the equivalent of charging one
(1) Business Days of interest on such Collections. Should any Collection item
not be honored when presented for payment, then Borrower shall be deemed not to
have made such payment, and interest shall be recalculated accordingly. Anything
to the contrary contained herein notwithstanding, any Collection item shall be
deemed received by Foothill only if it is received into the Foothill Account on
a Business Day on or before 11:00 a.m. California time. If any Collection item
is received into the Foothill Account on a non-Business Day or after 11:00 a.m.
California time on a Business Day, it shall be deemed to have been received by
Foothill as of the opening of business on the immediately following Business
Day.
2.9 Designated Account. Foothill is authorized to make the Advances,
the Letters of Credit, and the Term Loan Subline, under this Agreement based
upon telephonic or other instructions received from anyone purporting to be an
Authorized Person, or without instructions if pursuant to Section 2.6(e).
Borrower agrees to establish and maintain the Designated Account with the
Designated Account Bank for the purpose of receiving the proceeds of the
Advances requested by Borrower and made by Foothill hereunder. Unless otherwise
agreed by Foothill and Borrower, any Advance requested by Borrower and made by
Foothill hereunder shall be made to the Designated Account.
2.10 Maintenance of Loan Account; Statements of Obligations.
Foothill shall maintain an account on its books in the name of Borrower (the
"Loan Account") on which Borrower will be charged with all Advances, and the
Term Loan Subline made by Foothill to Borrower or for Borrower's account,
including, accrued interest, Foothill Expenses, and any other payment
Obligations of Borrower. In accordance with Section 2.8, the Loan Account will
be credited with all payments received by Foothill from Borrower or for
Borrower's account, including all amounts received in the Foothill Account from
any Lockbox Bank. Foothill shall render statements regarding the Loan Account to
Borrower, including principal, interest, fees, and including an itemization of
all charges and expenses constituting Foothill Expenses owing, and such
statements shall be conclusively presumed to be correct and accurate and
constitute an account stated between Borrower and Foothill unless, within thirty
(30) days after receipt
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thereof by Borrower, Borrower shall deliver to Foothill written objection
thereto describing the error or errors contained in any such statements.
2.11 Fees. Borrower shall pay to Foothill the following fees:
(a) Closing Fee. On the Closing Date, a closing fee of Three
Hundred Thousand Dollars ($300,000);
(b) Unused Line Fee. On the first day of each month during the
term of this Agreement, an unused line fee in an amount equal to one half
percent (0.5%) per annum times the Average Unused Portion of the Maximum Amount;
(c) Intentionally Omitted;
(d) Financial Examination, Documentation, and Appraisal Fees.
Foothill's customary fee of Seven Hundred Fifty Dollars ($750) per day per
examiner, plus out-of-pocket expenses for each financial analysis and
examination (i.e., audits) of Borrower performed by personnel employed by
Foothill; Foothill's customary appraisal fee of One Thousand Five Hundred
Dollars ($1,500) per day per appraiser, plus out-of-pocket expenses for each
appraisal of the Collateral performed by personnel employed by Foothill; and,
the actual charges paid or incurred by Foothill if it elects to employ the
services of one or more third Persons to perform such financial analyses and
examinations (i.e., audits) of Borrower or to appraise the Collateral. It is
agreed that so long as no Event of Default shall be in existence or event which
with the passage of time would become an Event of Default be in existence,
Foothill shall not audit Borrower more often than quarterly during any calendar
year;
(e) Servicing Fee. On the first day of each month during the
term of this Agreement, and thereafter so long as any Obligations are
outstanding, a servicing fee in an amount equal to Five Thousand Dollars
($5,000) provided, however that the Servicing Fee shall be Four Thousand Dollars
($4,000) if the Borrower uses electronic reporting acceptable to Foothill; and
(f) Account Receivable Fee. On the first day of each month
during the term of this Agreement, a fee of Fifty Thousand Dollars ($50,000)
(the "Account Receivable Fee") if (i) during the preceding month prior to
establishing Eligible Parts and Service Accounts, Borrower had any Advances
outstanding on Eligible Special Project Unbilled Accounts or Eligible Special
Project Billed Accounts or Eligible Special GM Project Unbilled Accounts or
Eligible Special GM Project Billed Accounts or there were Letters of Credit
outstanding and the foregoing in the aggregate, exceeded the sum of One Million
Five Hundred
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Thousand Dollars ($1,500,000) for more than one day, or (ii) during the
preceding month after the establishment of Eligible Parts and Service Accounts,
Borrower had any Advances including Letter of Credit exposure outstanding
hereunder against Eligible Special Project Unbilled Accounts or Eligible Special
Project Billed Accounts or Eligible Special GM Project Unbilled Accounts or
Eligible Special GM Project Billed Accounts.
For purposes of determining Advances outstanding initial
Advances shall be made against the Term Loan Subline, then against Eligible
Parts and Service Accounts and then against Eligible Special Project Unbilled
Accounts and then against Eligible Special Project Billed Accounts and then
against Eligible Special GM Project Unbilled Accounts and then against Eligible
Special GM Project Billed Accounts.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 Conditions Precedent to the Initial Advance, Letter of Credit,
and the Term Loan Subline. The obligation of Foothill to make the initial
Advance, to issue the initial Letter of Credit, or to make the Term Loan Subline
is subject to the fulfillment, to the satisfaction of Foothill and its counsel,
of each of the following conditions on or before the Closing Date:
(a) the Closing Date shall occur on or before March 31, 2000;
(b) Foothill shall have received searches reflecting the
filing of its financing statements and fixture filings as a first lien on the
Collateral except for the liens in favor of the Existing Lender and Bush Hog,
which liens shall be limited only to a lien in favor of the Existing Lender and
Bush Hog Investors, L.L.C. in the Borrower's interest in Bush Hog;
(c) Foothill shall have received each of the following
documents, duly executed, and each such document shall be in full force and
effect:
(i) the Lockbox Agreements;
(ii) the Disbursement Letter;
(iii) the Pay-Off Letter, together with UCC termination
statements and other documentation evidencing the termination by Bank of
America National Trust and Savings Association of its Liens in and to the
properties and assets of Borrower;
(iv) the Mortgages;
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(v) the Collateral Assignment;
(vi) the Pledge Agreements;
(vii) the Trademark, Patent and Copyright Pledge Agreements;
(viii) copy of a letter to GM requesting that Notice of any
non compliance with any purchase order be sent to Foothill.
(d) Foothill shall have received a certificate from the
Secretary of Borrower attesting to the resolutions of Borrower's Board of
Directors authorizing its execution, delivery, and performance of this Agreement
and the other Loan Documents to which Borrower is a party and authorizing
specific officers of Borrower to execute the same;
(e) Foothill shall have received copies of Borrower's
Governing Documents, as amended, modified, or supplemented to the Closing Date,
certified by the Secretary of Borrower;
(f) Foothill shall have received a certificate of status with
respect to Borrower, dated within ten (10) days of the Closing Date, such
certificate to be issued by the appropriate officer of the jurisdiction of
organization of Borrower, which certificate shall indicate that Borrower is in
good standing in such jurisdiction;
(g) Foothill shall have received certificates of status with
respect to Borrower, each dated within fifteen (15) days of the Closing Date,
such certificates to be issued by the appropriate officer of the jurisdictions
in which its failure to be duly qualified or licensed would constitute a
Material Adverse Change, which certificates shall indicate that Borrower is in
good standing in such jurisdictions;
(h) Foothill shall have received a certificate of insurance,
together with the endorsements thereto, as are required by Section 6.10, the
form and substance of which shall be satisfactory to Foothill and its counsel;
(i) Foothill shall have received duly executed certificates of
title with respect to that portion of the Collateral that is subject to
certificates of title;
(j) Foothill shall have received an opinion of Borrower's
counsel in form and substance satisfactory to Foothill and its counsel in its
sole discretion;
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(k) Foothill shall have received (i) appraisals of the Real
Property Collateral and appraisals of the Equipment, in each case satisfactory
to Foothill, and (ii) mortgagee title insurance policies (or marked commitments
to issue the same) for the Real Property Collateral issued by a title insurance
company satisfactory to Foothill and its counsel (each a "Mortgage Policy" and,
collectively, the "Mortgage Policies") in amounts satisfactory to Foothill
assuring Foothill that the Mortgages on such Real Property Collateral are valid
and enforceable first priority mortgage Liens on such Real Property Collateral
free and clear of all defects and encumbrances except Permitted Liens, and the
Mortgage Policies shall otherwise be in form and substance reasonably
satisfactory to Foothill and its counsel;
(l) Foothill shall have received phase-I environmental reports
on the Real Property Collateral and real estate surveys shall have been
completed with respect to the Real Property Collateral and copies thereof
delivered to Foothill; the environmental consultants and surveyors retained for
such reports or surveys, the scope of the reports or surveys, and the results
thereof shall be acceptable to Foothill in its reasonable discretion;
(m) Foothill shall have received reasonably satisfactory
evidence that all tax returns required to be filed by Borrower have been timely
filed and all taxes upon Borrower or its properties, assets, income, and
franchises (including real property taxes and payroll taxes) have been paid
prior to delinquency, except such taxes that are the subject of a Permitted
Protest;
(n) Foothill shall have received all SEC Reports;
(o) Foothill shall have received from Borrower a balance sheet
reflecting its financial position after the sale of its Bush Hog division to
Bush Hog.
(p) all other documents and legal matters in connection with
the transactions contemplated by this Agreement shall have been delivered,
executed, or recorded and shall be in form and substance satisfactory to
Foothill and its counsel;
(q) Borrower shall have availability of not less than Two
Million Five Hundred Thousand Dollars ($2,500,000) of the Maximum Amount after
payment of all other items required hereunder;
(r) Foothill shall have received final background checks on
the principal officers of Borrower which shall be satisfactory to Foothill; and
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(s) Foothill shall have received the Bush Hog Letter, the
LaSalle Letter and the Bank of America Letter.
3.2 Conditions Precedent to all Advances, all Letters of Credit, and
the Term Loan Subline. The following shall be conditions precedent to all
Advances, all Letters of Credit, and the Term Loan Subline hereunder:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all respects
on and as of the date of such extension of credit, as though made on and as of
such date (except to the extent that such representations and warranties relate
solely to an earlier date);
(b) no Default or Event of Default shall have occurred and be
continuing on the date of such extension of credit, nor shall either result from
the making thereof; and
(c) no injunction, writ, restraining order, or other order of
any nature prohibiting, directly or indirectly, the extending of such credit
shall have been issued and remain in force by any governmental authority against
Borrower, Foothill, or any of their Affiliates.
(d) Foothill shall have reviewed and approved the Fiscal
Projections (as defined below) except that this requirement shall not apply for
Advances made against Eligible Special GM Project Billed Accounts or Eligible
Special GM Project Unbilled Accounts or Eligible Service and Parts Accounts or
the Term Loan Subline.
3.3 Condition Subsequent. As a condition subsequent to initial
closing hereunder, Borrower shall perform or cause to be performed the following
(the failure by Borrower to so perform or cause to be performed constituting an
Event of Default):
(a) within thirty (30) days of the Closing Date, deliver to
Foothill the certified copies of the policies of insurance, together with the
endorsements thereto, as are required by Section 6.10, the form and substance of
which shall be satisfactory to Foothill and its counsel;
(b) on or before October 31, 2000, delivery to Foothill
updated financial projections for fiscal year 2001 (the "Fiscal Projections");
(c) within sixty (60) days of the Closing Date, deliver to
Foothill a Phase I Environmental Audit or such other information as Foothill
shall request with respect to
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the environmental status of the Real Property Collateral located in Hobart,
Indiana. Until delivery of said material and approval of same by Foothill in its
sole discretion Foothill shall retain the Environmental Reserve;
(d) within a reasonable time after the Closing Date, develop a
spare parts and service accounts ledger. Foothill will not make any Advances for
Service and Parts Accounts until an acceptable ledger system is developed by
Borrower and approved by Foothill; and
(e) Prior to an Advance, excluding Advances under the Term
Loan Subline, Foothill shall have conducted an updated audit of Borrower which
audit shall not disclose any Material Adverse Changes from the date hereof.
3.4 Term. This Agreement shall become effective upon the execution
and delivery hereof by Borrower and Foothill and subject to Section 3.6 hereof,
shall continue in full force and effect for a term ending on the date that is
three (3) years from the Closing Date (the "Termination Date"). The foregoing
notwithstanding, Foothill shall have the right to terminate its obligations
under this Agreement immediately and without notice upon the occurrence and
during the continuation of an Event of Default.
3.5 Effect of Termination. On the date of termination of this
Agreement, all Obligations (including contingent reimbursement obligations of
Borrower with respect to any outstanding Letters of Credit) immediately shall
become due and payable without notice or demand. No termination of this
Agreement, however, shall relieve or discharge Borrower of Borrower's duties,
Obligations, or covenants hereunder, and Foothill's continuing security
interests in the Collateral shall remain in effect until all Obligations have
been fully and finally discharged and Foothill's obligation to provide
additional credit hereunder is terminated.
3.6 Early Termination by Borrower. The provisions of Section 3.4
notwithstanding, Borrower has the option, at any time upon ninety (90) days
prior written notice to Foothill, to terminate this Agreement by paying to
Foothill, in cash, the Obligations (including an amount equal to one hundred and
five percent (105%) of the undrawn amount of the Letters of Credit), in full,
together with a premium (the "Early Termination Premium") equal to the
following:
(a) Three percent (3%) of the Maximum Amount with respect to
any prepayments made on or before the one (1) year anniversary date of the
Closing Date;
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(b) Two percent (2%) of the Maximum Amount with respect to any
prepayments made after the one (1) year anniversary date of the Closing Date and
on or before the two (2) year anniversary date of the Closing Date; and
(c) One percent (1%) of the Maximum Amount for any prepayment
made after the two year anniversary date of the Closing Date.
Notwithstanding anything to the contrary in this Section 3.6,
in the event that the Borrower refinances the Obligations in full with the
proceeds received from the sale of its interest in Bush Hog, L.L.C. or the sale
of its Verson division, or a secondary public offering of its securities, then
the Early Termination Premium shall be equal to one half of one percent (0.50%)
of the amount prepaid. There will be no Early Termination Premium if the
Borrower refinances the Obligations in full with Wells Fargo Bank.
3.7 Termination Upon Event of Default. If Foothill terminates this
Agreement upon the occurrence of an Event of Default, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Foothill's
lost profits as a result thereof, Borrower shall pay to Foothill upon the
effective date of such termination, a premium in an amount equal to the Early
Termination Premium. The Early Termination Premium shall be presumed to be the
amount of damages sustained by Foothill as the result of the early termination
and Borrower agrees that it is reasonable under the circumstances currently
existing. The Early Termination Premium provided for in this Section 3.7 shall
be deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower hereby grants to Foothill a
continuing security interest in all currently existing and hereafter acquired or
arising Personal Property Collateral and Real Property Collateral in order to
secure prompt repayment of any and all Obligations and in order to secure prompt
performance by Borrower of each of its covenants and duties under the Loan
Documents. Foothill's security interests in the Personal Property Collateral
shall attach to all Personal Property Collateral without further act on the part
of Foothill or Borrower. Anything contained in this Agreement or any other Loan
Document to the contrary notwithstanding, except for the sale of Inventory to
buyers in the ordinary course of business, Borrower has no authority, express or
implied, to dispose of any item or portion of the Personal Property Collateral
or the Real Property Collateral.
4.2 Negotiable Collateral. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower, immediately upon the
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request of Foothill, shall endorse and deliver physical possession of such
Negotiable Collateral to Foothill.
4.3 Collection of Accounts, General Intangibles, and Negotiable
Collateral. At any time, Foothill or Foothill's designee may (a) notify
customers or Account Debtors of Borrower that the Accounts, General Intangibles,
or Negotiable Collateral have been assigned to Foothill or that Foothill has a
security interest therein, and (b) after an Event of Default, collect the
Accounts, General Intangibles, and Negotiable Collateral directly and charge the
collection costs and expenses to the Loan Account. Borrower agrees that it will
hold in trust for Foothill, as Foothill's trustee, any Collections that it
receives and immediately will deliver said Collections to Foothill in their
original form as received by Borrower.
4.4 Delivery of Additional Documentation Required. At any time upon
the request of Foothill, Borrower shall execute and deliver to Foothill all
financing statements, continuation financing statements, fixture filings,
security agreements, pledges, assignments, endorsements of certificates of
title, applications for title, affidavits, reports, notices, schedules of
accounts, letters of authority, and all other documents that Foothill reasonably
may request, in form reasonably satisfactory to Foothill, to perfect and
continue perfected Foothill's security interests in the Collateral, and in order
to fully consummate all of the transactions contemplated hereby and under the
other the Loan Documents. Foothill is hereby authorized to execute any of the
foregoing on behalf of Borrower or to file same electronically pursuant to the
Code.
4.5 Power of Attorney. Borrower hereby irrevocably makes,
constitutes, and appoints Foothill (and any of Foothill's officers, employees,
or agents designated by Foothill) as Borrower's true and lawful attorney, with
power to (a) if Borrower refuses to, or fails timely to execute and deliver any
of the documents described in Section 4.4, sign the name of Borrower on any of
the documents described in Section 4.4, (b) at any time that an Event of Default
has occurred and is continuing or Foothill deems itself insecure, sign
Borrower's name on any invoice or bill of lading relating to any Account, drafts
against Account Debtors, schedules and assignments of Accounts, verifications of
Accounts, and notices to Account Debtors, (c) send requests for verification of
Accounts, (d) endorse Borrower's name on any Collection item that may come into
Foothill's possession, (e) at any time that an Event of Default has occurred and
is continuing or Foothill deems itself insecure, notify the post office
authorities to change the address for delivery of Borrower's mail to an address
designated by Foothill, to receive and open all mail addressed to Borrower, and
to retain all mail relating to the Collateral and forward all other mail to
Borrower, (f) at any time that an Event of Default has occurred and is
continuing or Foothill deems itself insecure, make, settle, and adjust all
claims under Borrower's policies of insurance and make all determinations and
decisions with respect to such policies of insurance, and (g) at any time that
an Event of Default has occurred
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and is continuing or Foothill deems itself insecure, settle and adjust disputes
and claims respecting the Accounts directly with Account Debtors, for amounts
and upon terms that Foothill determines to be reasonable, and Foothill may cause
to be executed and delivered any documents and releases that Foothill determines
to be necessary. The appointment of Foothill as Borrower's attorney, and each
and every one of Foothill's rights and powers, being coupled with an interest,
is irrevocable until all of the Obligations have been fully and finally repaid
and performed and Foothill's obligation to extend credit hereunder is
terminated.
4.6 Right to Inspect. Foothill (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter to
inspect Borrower's Books and to check, test, and appraise the Collateral in
order to verify Borrower's financial condition or the amount, quality, value,
condition of, or any other matter relating to, the Collateral, provided however,
that unless there is an Event of Default or an event, the occurrence of which
but for the passage of time would be an Event of Default, any such inspection as
set forth herein shall be after reasonable notice to the Borrower and shall take
place during the Borrower's normal business hours.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce Foothill to enter into this Agreement, Borrower
makes the following representations and warranties which shall be true, correct,
and complete in all respects as of the date hereof, and shall be true, correct,
and complete in all respects as of the Closing Date, and at and as of the date
of the making of each Advance, Letter of Credit, Term Loan Subline, or Capital
Expenditure Loan made thereafter, as though made on and as of the date of such
Advance, Letter of Credit, Term Loan Subline, or Capital Expenditure Loan
(except to the extent that such representations and warranties relate solely to
an earlier date) and such representations and warranties shall survive the
execution and delivery of this Agreement:
5.1 No Encumbrances. Borrower has good and indefeasible title to the
Collateral, free and clear of Liens except for Permitted Liens.
5.2 Eligible Accounts. The Eligible Special GM Project Billed
Accounts and Eligible Special Project Billed Accounts and Eligible Parts and
Service Accounts are bona fide existing obligations created by the sale and/or
delivery of Inventory or the rendition of services to Account Debtors in the
ordinary course of Borrower's business, unconditionally owed to Borrower without
defenses, disputes, offsets, counterclaims, or rights of return or cancellation.
Borrower has not received notice of actual or imminent bankruptcy, insolvency,
or material impairment of the financial condition of any Account Debtor
regarding any Eligible Special Project Account or Eligible Parts and Service
Account and Borrower has not received
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any notice from GM of non compliance with any Eligible Special GM Project
Accounts and Borrower is in compliance with all terms of each Special GM Project
Account or any other Eligible Special Project Account. Borrower has sufficient
liquidity (including Advances) to complete all required work on any Eligible
Special GM Project Account or any Eligible Special Project Account.
5.3 Intentionally Omitted.
5.4 Equipment. All of the Equipment is used or held for use in
Borrower's business.
5.5 Location of Inventory and Equipment. The Inventory and Equipment
are not stored with a bailee, warehouseman, or similar party (without Foothill's
prior written consent) and are located only at the locations identified on
Schedule 6.12 or otherwise permitted by Section 6.12.
5.6 Inventory Records. Borrower keeps correct and accurate records
itemizing and describing the kind, type, quality, and quantity of the Inventory,
and Borrower's cost therefor.
5.7 Location of Chief Executive Office; FEIN. The chief executive
office of Borrower is located at the address indicated in the preamble to this
Agreement and Borrower's FEIN is 36-4323354.
5.8 Due Organization and Qualification; Subsidiaries.
(a) Borrower is duly organized and existing and in good
standing under the laws of the jurisdiction of its incorporation and qualified
and licensed to do business in, and in good standing in, any state where the
failure to be so licensed or qualified reasonably could be expected to have a
Material Adverse Change.
(b) Set forth on Schedule 5.8, is a complete and accurate list
of Borrower's direct and indirect Subsidiaries, showing: (i) the jurisdiction of
their incorporation; (ii) the number of shares of each class of common and
preferred stock authorized for each of such Subsidiaries; and (iii) the number
and the percentage of the outstanding shares of each such class owned directly
or indirectly by Borrower. All of the outstanding capital stock of each such
Subsidiary has been validly issued and is fully paid and non-assessable.
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(c) Except as set forth on Schedule 5.8, no capital stock (or
any securities, instruments, warrants, options, purchase rights, conversion or
exchange rights, calls, commitments or claims of any character convertible into
or exercisable for capital stock) of any direct or indirect Subsidiary of
Borrower is subject to the issuance of any security, instrument, warrant,
option, purchase right, conversion or exchange right, call, commitment or claim
of any right, title, or interest therein or thereto.
(d) Except as set forth on Schedule 5.8, none of Borrower's
subsidiaries own any assets and Borrower will not create any new subsidiaries or
make any current subsidiary operational or transfer or acquire assets for any
subsidiary without Foothill's prior written consent.
5.9 Due Authorization; No Conflict.
(a) The execution, delivery, and performance by Borrower of
this Agreement and the Loan Documents to which it is a party have been duly
authorized by all necessary corporate action.
(b) The execution, delivery, and performance by Borrower of
this Agreement and the Loan Documents to which it is a party do not and will not
(i) violate any provision of federal, state, or local law or regulation
(including Regulations G, T, U, and X of the Federal Reserve Board) applicable
to Borrower, the Governing Documents of Borrower, or any order, judgment, or
decree of any court or other Governmental Authority binding on Borrower, (ii)
conflict with, result in a breach of, or constitute (with due notice or lapse of
time or both) a default under any material contractual obligation or material
lease of Borrower, (iii) result in or require the creation or imposition of any
Lien of any nature whatsoever upon any properties or assets of Borrower, other
than Permitted Liens, or (iv) require any approval of stockholders or any
approval or consent of any Person under any material contractual obligation of
Borrower.
(c) Other than the filing of appropriate financing statements,
fixture filings, and mortgages, the execution, delivery, and performance by
Borrower of this Agreement and the Loan Documents to which Borrower is a party
do not and will not require any registration with, consent, or approval of, or
notice to, or other action with or by, any federal, state, foreign, or other
Governmental Authority or other Person.
(d) This Agreement and the Loan Documents to which Borrower is
a party, and all other documents contemplated hereby and thereby, when executed
and delivered by Borrower will be the legally valid and binding obligations of
Borrower, enforceable against
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Borrower in accordance with their respective terms, except as enforcement may be
limited by equitable principles or by bankruptcy, insolvency, reorganization,
moratorium, or similar laws relating to or limiting creditors' rights generally.
(e) The Liens granted by Borrower to Foothill in and to its
properties and assets pursuant to this Agreement and the other Loan Documents
are validly created, perfected, and first priority Liens, subject only to
Permitted Liens.
5.10 Litigation. There are no actions or proceedings pending by or
against Borrower before any court or administrative agency and Borrower does not
have knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving Borrower or any guarantor of the Obligations, except for: (a) ongoing
collection matters in which Borrower is the plaintiff; (b) matters disclosed on
Schedule 5.10; and (c) matters arising after the date hereof that, if decided
adversely to Borrower, would not have a Material Adverse Change.
5.11 No Material Adverse Change. All financial statements relating
to Borrower or any guarantor of the Obligations that have been delivered by
Borrower to Foothill have been prepared in accordance with GAAP (except, in the
case of unaudited financial statements, for the lack of footnotes and being
subject to year-end audit adjustments) and fairly present Borrower's (or such
guarantor's, as applicable) financial condition as of the date thereof and
Borrower's results of operations for the period then ended. All financial
statements delivered by Borrower after the sale of its Bush Hog division to Bush
Hog, fairly present Borrower's financial condition after said sale. There has
not been a Material Adverse Change with respect to Borrower (or such guarantor,
as applicable) since the date of the latest financial statements submitted to
Foothill on or before the Closing Date, including financial statements
reflecting the sale of Borrower's Bush Hog division.
5.12 Solvency. Borrower is Solvent. No transfer of property is being
made by Borrower and no obligation is being incurred by Borrower in connection
with the transactions contemplated by this Agreement or the other Loan Documents
with the intent to hinder, delay, or defraud either present or future creditors
of Borrower.
5.13 Employee Benefits. None of Borrower, any of its Subsidiaries,
or any of their ERISA Affiliates maintains or contributes to any Benefit Plan,
other than those listed on Schedule 5.13. Borrower, each of its Subsidiaries and
each ERISA Affiliate have satisfied the minimum funding standards of ERISA and
the IRC with respect to each Benefit Plan to which it is obligated to
contribute. No ERISA Event has occurred nor has any other event occurred that
may result in an ERISA Event that reasonably could be expected to result in a
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Material Adverse Change. None of Borrower or its Subsidiaries, any ERISA
Affiliate, or any fiduciary of any Plan is subject to any direct or indirect
liability with respect to any Plan under any applicable law, treaty, rule,
regulation, or agreement. None of Borrower or its Subsidiaries or any ERISA
Affiliate is required to provide security to any Plan under Section 401(a)(29)
of the IRC.
5.14 Environmental Condition. Except as disclosed on Schedule 5.14,
none of Borrower's properties or assets has (a) ever been used by Borrower or,
to the best of Borrower's knowledge, by previous owners or operators in the
disposal of, or to produce, store, handle, treat, release, or transport, any
Hazardous Materials, or (b) ever been designated or identified in any manner
pursuant to any environmental protection statute as a Hazardous Materials
disposal site, or a candidate for closure pursuant to any environmental
protection statute. No Lien arising under any environmental protection statute
has attached to any revenues or to any real or personal property owned or
operated by Borrower. Borrower has not during the past three (3) years received
a summons, citation, notice, or directive from the Environmental Protection
Agency or any other federal or state governmental agency concerning any action
or omission by Borrower resulting in the releasing or disposing of Hazardous
Materials into the environment.
5.15 Intellectual Property. Borrower is the owner of all
Intellectual Property as set forth on Schedule 5.15 including all patents,
trademarks, trade names and copyrights set forth on Schedule 5.15 and Schedule
5.15 accurately sets forth each patent, trademark, trade name and copyright
owned by Borrower.
5.16 Machinery and Equipment. Borrower has reviewed that certain
Machinery and Equipment Appraisal of its Verson Division prepared by Norman Levy
Associates, Inc. dated as of October 27, 1999 (the "M&E Appraisal") and
represents that all of the machinery and equipment set forth thereon, except as
set forth on Schedule 5.16, is owned by Borrower and not subject to any lease.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, and
unless Foothill shall otherwise consent in writing, Borrower shall do all of the
following:
6.1 Accounting System. Maintain a standard and modern system of
accounting that enables Borrower to produce financial statements in accordance
with GAAP, and maintain records pertaining to the Collateral that contain
information as from time to time
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may be reasonably requested by Foothill. Borrower also shall keep a modern
inventory reporting system that shows all additions, sales, claims, returns, and
allowances with respect to the Inventory.
6.2 Collateral Reporting. Provide Foothill with the following
documents at the following times in form satisfactory to Foothill: (a) on each
Business Day, a sales journal, collection journal, and credit register since the
last such schedule and a calculation of the Borrowing Base as of such date, (b)
on a monthly basis and, in any event, by no later than the tenth (10th) day of
each month during the term of this Agreement, (i) a detailed calculation of the
Borrowing Base, and (ii) a detailed aging, by total, of the Accounts, together
with a reconciliation to the detailed calculation of the Borrowing Base
previously provided to Foothill, (c) on a monthly basis and, in any event, by no
later than the tenth (10th) day of each month during the term of this Agreement,
a summary aging, by vendor, of Borrower's accounts payable and any book
overdraft, (d) on a monthly basis, Inventory reports specifying Borrower's cost
of its Inventory by category, with additional detail showing additions to and
deletions from the Inventory, (e) on each Business Day, notice of all returns,
disputes, or claims, (f) upon request, copies of invoices in connection with the
Accounts, customer statements, credit memos, remittance advices and reports,
deposit slips, shipping and delivery documents in connection with the Accounts
and for Inventory and Equipment acquired by Borrower, purchase orders and
invoices, (g) on a quarterly basis, a detailed list of Borrower's customers, (h)
on a monthly basis, a calculation of the Dilution for the prior month; and (i)
such other reports as to the Collateral or the financial condition of Borrower
as Foothill may request from time to time. Original sales invoices evidencing
daily sales shall be mailed by Borrower to each Account Debtor and, at
Foothill's direction after an Event of Default or after the occurrence of an
event but for the passage of time would be an Event of Default, the invoices
shall indicate on their face that the Account has been assigned to Foothill and
that all payments are to be made directly to Foothill. Borrower shall provide
Foothill with access to its electronic data for all of the foregoing.
6.3 Financial Statements, Reports, Certificates.
(a) Deliver to Foothill: (i) as soon as available, but in any
event within forty-five (45) days after the end of the last month of each
calendar quarter during each of Borrower's fiscal years and within thirty (30)
days after the end of every other month during each of Borrower's fiscal years,
a company prepared balance sheet, income statement, and statement of cash flow
covering Borrower's operations during such period; and (ii) as soon as
available, but in any event within ninety (90) days after the end of each of
Borrower's fiscal years, financial statements of Borrower for each such fiscal
year, audited by independent certified public accountants reasonably acceptable
to Foothill and certified, without any qualifications, by such accountants to
have been prepared in accordance with GAAP, together
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with a certificate of such accountants addressed to Foothill stating that such
accountants do not have knowledge of the existence of any Default or Event of
Default. Foothill acknowledges that PricewaterhouseCoopers L.L.P. is a public
accountant acceptable to Foothill. Such audited financial statements shall
include a balance sheet, profit and loss statement, and statement of cash flow
and, if prepared, such accountants' letter to management. If Borrower is a
parent company of one or more Subsidiaries, or Affiliates, or is a Subsidiary or
Affiliate of another company, then, in addition to the financial statements
referred to above, Borrower agrees to deliver financial statements prepared on a
consolidating basis so as to present Borrower and each such related entity
separately, and on a consolidated basis.
(b) Together with the above, Borrower also shall deliver to
Foothill all SEC Reports including but not limited to Borrower's Form 10-Q
Quarterly Reports, Form 10-K Annual Reports, and Form 8-K Current Reports, and
any other filings made by Borrower with the Securities and Exchange Commission,
if any, as soon as the same are filed, or any other information that is provided
by Borrower to its shareholders, and any other report reasonably requested by
Foothill relating to the financial condition of Borrower.
(c) Each month, together with the financial statements
provided pursuant to Section 6.3(a), Borrower shall deliver to Foothill a
certificate signed by its chief financial officer to the effect that: (i) all
financial statements delivered or caused to be delivered to Foothill hereunder
have been prepared in accordance with GAAP (except, in the case of unaudited
financial statements, for the lack of footnotes and being subject to year-end
audit adjustments) and fairly present the financial condition of Borrower, (ii)
the representations and warranties of Borrower contained in this Agreement and
the other Loan Documents are true and correct in all material respects on and as
of the date of such certificate, as though made on and as of such date (except
to the extent that such representations and warranties relate solely to an
earlier date), (iii) for each month that also is the date on which a financial
covenant in Section 7.20 is to be tested, a Compliance Certificate demonstrating
in reasonable detail compliance at the end of such period with the applicable
financial covenants contained in Section 7.20, and (iv) on the date of delivery
of such certificate to Foothill there does not exist any condition or event that
constitutes a Default or Event of Default (or, in the case of clauses (i), (ii),
or (iii), to the extent of any non-compliance, describing such non-compliance as
to which he or she may have knowledge and what action Borrower has taken, is
taking, or proposes to take with respect thereto).
(d) Borrower shall have issued written instructions to its
independent certified public accountants authorizing them to communicate with
Foothill and to release to Foothill whatever financial information concerning
Borrower that Foothill may request. Borrower hereby irrevocably authorizes and
directs all auditors, accountants, or other third
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parties to deliver to Foothill, at Borrower's expense, copies of Borrower's
financial statements, papers related thereto, and other accounting records of
any nature in their possession, and to disclose to Foothill any information they
may have regarding Borrower's business affairs and financial conditions.
6.4 Tax Returns. Deliver to Foothill copies of each of Borrower's
future federal income tax returns, and any amendments thereto, within thirty
(30) days of the filing thereof with the Internal Revenue Service.
6.5 Guarantor Reports. Cause any guarantor of any of the Obligations
to deliver its annual financial statements at the time when Borrower provides
its audited financial statements to Foothill and copies of all federal income
tax returns as soon as the same are available and in any event no later than
thirty (30) days after the same are required to be filed by law.
6.6 Returns. Cause returns and allowances, if any, as between
Borrower and its Account Debtors to be on the same basis and in accordance with
the usual customary practices of Borrower, as they exist at the time of the
execution and delivery of this Agreement. If, at a time when no Event of Default
has occurred and is continuing, any Account Debtor returns any Inventory to
Borrower, Borrower promptly shall determine the reason for such return and, if
Borrower accepts such return, issue a credit memorandum (with a copy to be sent
to Foothill) in the appropriate amount to such Account Debtor. If, at a time
when an Event of Default has occurred and is continuing, any Account Debtor
returns any Inventory to Borrower, Borrower promptly shall determine the reason
for such return and, if Foothill consents (which consent shall not be
unreasonably withheld), issue a credit memorandum (with a copy to be sent to
Foothill) in the appropriate amount to such Account Debtor.
6.7 Title to Equipment. Upon Foothill's request, Borrower
immediately shall deliver to Foothill, properly endorsed, any and all evidences
of ownership of, certificates of title, or applications for title to any items
of Equipment.
6.8 Maintenance of Equipment. Maintain the Equipment in good
operating condition and repair (ordinary wear and tear excepted), and make all
necessary replacements thereto so that the value and operating efficiency
thereof shall at all times be maintained and preserved. Other than those items
of Equipment that constitute fixtures on the Closing Date, Borrower shall not
permit any item of Equipment to become a fixture to real estate or an accession
to other property, and such Equipment shall at all times remain personal
property.
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6.9 Taxes. Cause all assessments and taxes, whether real, personal,
or otherwise, due or payable by, or imposed, levied, or assessed against
Borrower or any of its property to be paid in full, before delinquency or before
the expiration of any extension period, except to the extent that the validity
of such assessment or tax shall be the subject of a Permitted Protest. Borrower
shall make due and timely payment or deposit of all such federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Foothill, on demand, appropriate certificates attesting
to the payment thereof or deposit with respect thereto. Borrower will make
timely payment or deposit of all tax payments and withholding taxes required of
it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state
disability, and local, state, and federal income taxes, and will, upon request,
furnish Foothill with proof satisfactory to Foothill indicating that Borrower
has made such payments or deposits.
6.10 Insurance.
(a) At its expense, keep the Personal Property Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as are ordinarily insured against
by other owners in similar businesses. Borrower also shall maintain business
interruption, public liability, product liability, and property damage insurance
relating to Borrower's ownership and use of the Personal Property Collateral, as
well as insurance against larceny, embezzlement, and criminal misappropriation.
(b) At its expense, obtain and maintain (i) insurance of the
type necessary to insure the Improvements and Property (as such terms are
defined in the Mortgages), for the full replacement cost thereof, against any
loss by fire, lightning, windstorm, hail, explosion, aircraft, smoke damage,
vehicle damage, earthquakes, elevator collision, and other risks from time to
time included under "extended coverage" policies, in such amounts as Foothill
may require, but in any event in amounts sufficient to prevent Borrower from
becoming a co-insurer under such policies, (ii) combined single limit liability
insurance for claims arising from the Real Property Collateral, in an amount of
not less than Ten Million Dollars ($10,000,000) in the aggregate; and (iii)
insurance for such other risks as Foothill may require. Replacement costs, at
Foothill's option, may be redetermined by an insurance appraiser, satisfactory
to Foothill, not more frequently than once every 12 months at Borrower's cost.
(c) All such policies of insurance shall be in such form, with
such companies, and in such amounts as may be reasonably satisfactory to
Foothill. All insurance required herein shall be written by companies which are
authorized to do insurance business in the States of Indiana and Illinois. All
hazard insurance and such other insurance as Foothill shall specify, shall
contain a California Form 438BFU (NS) mortgagee endorsement, or an
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equivalent endorsement satisfactory to Foothill, showing Foothill as sole loss
payee thereof, and shall contain a waiver of warranties. Every policy of
insurance referred to in this Section 6.10 shall contain an agreement by the
insurer that it will not cancel such policy except after thirty (30) days prior
written notice to Foothill and that any loss payable thereunder shall be payable
notwithstanding any act or negligence of Borrower or Foothill which might,
absent such agreement, result in a forfeiture of all or a part of such insurance
payment and notwithstanding (i) occupancy or use of the Real Property Collateral
for purposes more hazardous than permitted by the terms of such policy, (ii) any
foreclosure or other action or proceeding taken by Foothill pursuant to the
Mortgages upon the happening of an Event of Default, or (iii) any change in
title or ownership of the Real Property Collateral. Borrower shall deliver to
Foothill certified copies of such policies of insurance and evidence of the
payment of all premiums therefor.
(d) Original policies or certificates thereof satisfactory to
Foothill evidencing such insurance shall be delivered to Foothill at least
thirty (30) days prior to the expiration of the existing or preceding policies.
Borrower shall give Foothill prompt notice of any loss covered by such
insurance, and Foothill shall have the right to adjust any loss. Foothill shall
have the exclusive right to adjust all losses in excess of Twenty-five Thousand
Dollars ($25,000) payable under any such insurance policies without any
liability to Borrower whatsoever in respect of such adjustments. Any monies
received as payment for any loss under any insurance policy including the
insurance policies mentioned above, shall be paid over to Foothill to be applied
at the option of Foothill either to the prepayment of the Obligations without
premium, in such order or manner as Foothill may elect, or shall be disbursed to
Borrower under stage payment terms satisfactory to Foothill for application to
the cost of repairs, replacements, or restorations. All repairs, replacements,
or restorations shall be effected with reasonable promptness and shall be of a
value at least equal to the value of the items or property destroyed prior to
such damage or destruction. Upon the occurrence of an Event of Default, Foothill
shall have the right to apply all prepaid premiums to the payment of the
Obligations in such order or form as Foothill shall determine.
(e) Borrower shall not take out separate insurance concurrent
in form or contributing in the event of loss with that required to be maintained
under this Section 6.10, unless Foothill is included thereon as named insured
with the loss payable to Foothill under a standard California 438BFU (NS)
Mortgagee endorsement, or its local equivalent. Borrower immediately shall
notify Foothill whenever such separate insurance is taken out, specifying the
insurer thereunder and full particulars as to the policies evidencing the same,
and originals of such policies immediately shall be provided to Foothill.
6.11 No Setoffs or Counterclaims. Make payments hereunder and under
the other Loan Documents by or on behalf of Borrower without setoff or
counterclaim and free and
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clear of, and without deduction or withholding for or on account of, any
federal, state, or local taxes.
6.12 Location of Inventory and Equipment. Keep the Inventory and
Equipment only at the locations identified on Schedule 6.12; provided, however,
that Borrower may amend Schedule 6.12 so long as such amendment occurs by
written notice to Foothill not less than thirty (30) days prior to the date on
which the Inventory or Equipment is moved to such new location, so long as such
new location is within the continental United States, and so long as, at the
time of such written notification, Borrower provides any financing statements or
fixture filings necessary to perfect and continue perfected Foothill's security
interests in such assets and also provides to Foothill a Collateral Access
Agreement.
6.13 Compliance with Laws. Comply in all material respects with the
requirements of all applicable laws, rules, regulations, and orders of any
governmental authority, including the Fair Labor Standards Act and the Americans
With Disabilities Act, other than laws, rules, regulations, and orders the
non-compliance with which, individually or in the aggregate, would not have and
could not reasonably be expected to have a Material Adverse Change.
6.14 Employee Benefits.
(a) Promptly, and in any event within ten (10) Business Days
after Borrower or any of its Subsidiaries knows or has reason to know that an
ERISA Event has occurred that reasonably could be expected to result in a
Material Adverse Change, a written statement of the chief financial officer of
Borrower describing such ERISA Event and any action that is being taking with
respect thereto by Borrower, any such Subsidiary or ERISA Affiliate, and any
action taken or threatened by the IRS, Department of Labor, or PBGC. Borrower or
such Subsidiary, as applicable, shall be deemed to know all facts known by the
administrator of any Benefit Plan of which it is the plan sponsor, (ii)
promptly, and in any event within three (3) Business Days after the filing
thereof with the IRS, a copy of each funding waiver request filed with respect
to any Benefit Plan and all communications received by Borrower, any of its
Subsidiaries or, to the knowledge of Borrower, any ERISA Affiliate with respect
to such request, and (iii) promptly, and in any event within three (3) Business
Days after receipt by Borrower, any of its Subsidiaries or, to the knowledge of
Borrower, any ERISA Affiliate, of the PBGC's intention to terminate a Benefit
Plan or to have a trustee appointed to administer a Benefit Plan, copies of each
such notice.
(b) Cause to be delivered to Foothill, upon Foothill's
request, each of the following: (i) a copy of each Plan (or, where any such plan
is not in writing, complete
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description thereof) (and if applicable, related trust agreements or other
funding instruments) and all amendments thereto, all written interpretations
thereof and written descriptions thereof that have been distributed to employees
or former employees of Borrower or its Subsidiaries; (ii) the most recent
determination letter issued by the IRS with respect to each Benefit Plan; (iii)
for the three most recent plan years, annual reports on Form 5500 Series
required to be filed with any governmental agency for each Benefit Plan; (iv)
all actuarial reports prepared for the last three plan years for each Benefit
Plan; (v) a listing of all Multiemployer Plans, with the aggregate amount of the
most recent annual contributions required to be made by Borrower or any ERISA
Affiliate to each such plan and copies of the collective bargaining agreements
requiring such contributions; (vi) any information that has been provided to
Borrower or any ERISA Affiliate regarding withdrawal liability under any
Multiemployer Plan; and (vii) the aggregate amount of the most recent annual
payments made to former employees of Borrower or its Subsidiaries under any
Retiree Health Plan.
6.15 Leases. Pay when due all rents and other amounts payable under
any leases to which Borrower is a party or by which Borrower's properties and
assets are bound, unless such payments are the subject of a Permitted Protest.
To the extent that Borrower fails timely to make payment of such rents and other
amounts payable when due under its leases, Foothill shall be entitled, in its
discretion, to reserve an amount equal to such unpaid amounts against the
Borrowing Base.
6.16 Contracts Related to Eligible Special Project Accounts and
Eligible Special GM Project Account. Cause to be delivered to Foothill monthly
status reports with respect to all work in process pursuant to Purchase Orders
and contracts with respect to Eligible Special Project Accounts or Eligible
Special GM Project Accounts. In addition, Borrower shall deliver to Foothill any
notices received from GM with respect to any Eligible Special GM Project
Accounts or from any other Account Debtors with respect to Eligible Special
Project Accounts.
6.17 Price Adjustments in Bush Hog Sale. Cause to be delivered to
Foothill all information relating to any price adjustments made with respect to
the sale by Borrower of its Bush Hog division to Bush Hog as required pursuant
to that certain Limited Liability Company Interest Purchase and Asset
Contribution Agreement by and between Borrower and Bush Hog Investors, L.L.C.
and Bush Hog dated as of October 21, 1999, as amended and cause to be delivered
to Foothill copies of any amendments or modifications of the Bush Hog Amended
and Restated Operating Agreement dated March 7, 2000.
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6.18 Labor Developments. Cause to be delivered to Foothill monthly
status reports with respect to its labor negotiations from a new labor contract
as well as a copy of its new labor contract after execution of same.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, Borrower
will not do any of the following without Foothill's prior written consent:
7.1 Indebtedness. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement, together with
Indebtedness to issuers of letters of credit that are the subject of L/C
Guarantees;
(b) Indebtedness set forth in the latest financial statements
of Borrower submitted to Foothill on or prior to the Closing Date;
(c) Indebtedness secured by Permitted Liens; and
(d) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b) and (c) of this Section 7.1 except that there may be
no additional borrowings from the Existing Lender (and continuance or renewal of
any Permitted Liens associated therewith) so long as: (i) the terms and
conditions of such refinancings, renewals, or extensions do not materially
impair the prospects of repayment of the Obligations by Borrower, (ii) the net
cash proceeds of such refinancings, renewals, or extensions do not result in an
increase in the aggregate principal amount of the Indebtedness so refinanced,
renewed, or extended, (iii) such refinancings, renewals, refundings, or
extensions do not result in a shortening of the average weighted maturity of the
Indebtedness so refinanced, renewed, or extended, and (iv) to the extent that
Indebtedness that is refinanced was subordinated in right of payment to the
Obligations, then the subordination terms and conditions of the refinancing
Indebtedness must be at least as favorable to Foothill as those applicable to
the refinanced Indebtedness.
7.2 Liens. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its property or assets, of any
kind, whether now owned or hereafter acquired, including without limitation any
of Borrower's interest in High Production Technology L.L.C. or Verson
Pressentechnik GmbH, or any income or profits therefrom, except for Permitted
Liens (including Liens that are replacements of Permitted Liens to the extent
that
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the original Indebtedness is refinanced under Section 7.1(d) and so long as the
replacement Liens only encumber those assets or property that secured the
original Indebtedness).
7.3 Restrictions on Fundamental Changes. Enter into any merger,
consolidation, reorganization, or recapitalization, or reclassify its capital
stock, or liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose of,
in one transaction or a series of transactions, all or any substantial part of
its property or assets.
7.4 Disposal of Assets. Sell, lease, assign, transfer, or otherwise
dispose of any of Borrower's properties or assets other than sales of Inventory
to buyers in the ordinary course of Borrower's business as currently conducted.
7.5 Change Name. Change Borrower's name, FEIN, corporate structure
(within the meaning of Section 9-402(7) or any amendment thereto or revision
thereof of the Code), or identity, or add any new fictitious name.
7.6 Guarantee. Guarantee or otherwise become in any way liable with
respect to the obligations of any third Person except by endorsement of
instruments or items of payment for deposit to the account of Borrower or which
are transmitted or turned over to Foothill.
7.7 Nature of Business. Make any change in the principal nature of
Borrower's business.
7.8 Prepayments and Amendments.
(a) Except in connection with a refinancing permitted by
Section 7.1(d) or payment of the indebtedness owed Existing Lender upon the sale
by Borrower of its nineteen and nine tenths percent (19.9%) membership interest
in Bush Hog, prepay, redeem, retire, defease, purchase, or otherwise acquire any
Indebtedness owing to any third Person, other than the Obligations in accordance
with this Agreement, and
(b) Directly or indirectly, amend, modify, alter, increase, or
change any of the terms or conditions of any agreement, instrument, document,
indenture, or other writing evidencing or concerning Indebtedness permitted
under Sections 7.1(b), (c), or (d).
7.9 Change of Control. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
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7.10 Consignments. Consign any Inventory or sell any Inventory on
bill and hold, sale or return, sale on approval, or other conditional terms of
sale.
7.11 Distributions. Make any distribution or declare or pay any
dividends (in cash or other property, other than capital stock) on, or purchase,
acquire, redeem, or retire any of Borrower's capital stock, of any class,
whether now or hereafter outstanding.
7.12 Accounting Methods. Except as set forth in Footnote 1 to the
Report of Independent Accountants prepared by PriceWaterhouseCoopers, L.L.P. and
dated April 15, 1999, modify or change its method of accounting or enter into,
modify, or terminate any agreement currently existing, or at any time hereafter
entered into with any third party accounting firm or service bureau for the
preparation or storage of Borrower's accounting records without said accounting
firm or service bureau agreeing to provide Foothill information regarding the
Collateral or Borrower's financial condition. Borrower waives the right to
assert a confidential relationship, if any, it may have with any accounting firm
or service bureau in connection with any information requested by Foothill
pursuant to or in accordance with this Agreement, and agrees that Foothill may
contact directly any such accounting firm or service bureau in order to obtain
such information.
7.13 Investments. Directly or indirectly make, acquire, or incur any
liabilities (including contingent obligations) for or in connection with (a) the
acquisition of the securities (whether debt or equity) of, or other interests
in, a Person, (b) loans, advances (excluding travel advances of up to One
Hundred Thousand Dollars ($100,000) in the aggregate in any one year), capital
contributions except for quarterly contributions to Verson Pressentechnik, GmbH
pursuant to that certain Agreement dated August 27, 1998 and except for
contributions to High Production Technology, L.L.C. as required pursuant to the
terms of that certain Limited Liability Company Operating Agreement dated June
17, 1997, provided however that such contributions in the aggregate shall not
exceed in any one year One Million and No/100 Dollars ($1,000,000), or transfers
of property to a Person, or (c) the acquisition of all or substantially all of
the properties or assets of a Person.
7.14 Transactions with Affiliates. Directly or indirectly enter into
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms, that are fully disclosed to Foothill, and that
are no less favorable to Borrower than would be obtained in an arm's length
transaction with a non-Affiliate.
7.15 Suspension. Suspend or go out of a substantial portion of its
business.
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7.16 Compensation. Increase the annual fee or per-meeting fees paid
to directors during any year by more than fifteen percent (15%) over the prior
year; pay or accrue total cash compensation, during any year, to officers and
senior management employees in an aggregate amount in excess of one hundred
fifteen percent (115%) of that paid or accrued in the prior year.
7.17 Use of Proceeds. Use (a) the proceeds of the Advances made
hereunder for any purpose other than on the Closing Date to pay transactional
costs and expenses incurred in connection with this Agreement, and thereafter,
consistent with the terms and conditions hereof, for its lawful and permitted
corporate purposes. Use of proceeds of the Advances may not be used to pay any
amount due the Existing Lender.
7.18 Change in Location of Chief Executive Office; Inventory and
Equipment with Bailees. Relocate its chief executive office to a new location
without providing thirty (30) days prior written notification thereof to
Foothill and so long as, at the time of such written notification, Borrower
provides any financing statements or fixture filings necessary to perfect and
continue perfected Foothill's security interests and also provides to Foothill a
Collateral Access Agreement with respect to such new location. The Inventory and
Equipment shall not at any time now or hereafter be stored with a bailee,
warehouseman, or similar party without Foothill's prior written consent.
7.19 No Prohibited Transactions Under ERISA. Directly or indirectly:
(a) engage, or permit any Subsidiary of Borrower to engage, in
any prohibited transaction which is reasonably likely to result in a civil
penalty or excise tax described in Sections 406 of ERISA or 4975 of the IRC for
which a statutory or class exemption is not available or a private exemption has
not been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan any
accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of
the IRC), whether or not waived;
(c) fail, or permit any Subsidiary of Borrower to fail, to pay
timely required contributions or annual installments due with respect to any
waived funding deficiency to any Benefit Plan;
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(d) terminate, or permit any Subsidiary of Borrower to
terminate, any Benefit Plan where such event would result in any liability of
Borrower, any of its Subsidiaries or any ERISA Affiliate under Title IV of
ERISA;
(e) fail, or permit any Subsidiary of Borrower to fail, to
make any required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of Borrower to fail, to pay
any required installment or any other payment required under Section 412 of the
IRC on or before the due date for such installment or other payment;
(g) amend, or permit any Subsidiary of Borrower to amend, a
Plan resulting in an increase in current liability for the plan year such that
either of Borrower, any Subsidiary of Borrower or any ERISA Affiliate is
required to provide security to such Plan under Section 401(a)(29) of the IRC;
or
(h) withdraw, or permit any Subsidiary of Borrower to
withdraw, from any Multiemployer Plan where such withdrawal is reasonably likely
to result in any liability of any such entity under Title IV of ERISA;
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of Borrower, any of its
Subsidiaries or any ERISA Affiliate in excess of One Hundred Thousand Dollars
($100,000).
7.20 Financial Covenants. Fail to maintain:
(a) For the prior three (3) months for the period ending June
30, 2000, EBITDA equal to or greater than negative One Million Three Hundred
Thousand Dollars (-$1,300,000);
(b) For the prior six (6) months for the period ending
September 30, 2000, EBITDA equal to or greater than negative Three Million Five
Hundred Thousand Dollars (-$3,500,000);
(c) For the prior nine (9) months for the period ending
December 31, 2000, EBITDA equal to or greater than negative Four Million Six
Hundred Thousand Dollars (-$4,600,000);
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(d) For the prior twelve (12) months for the following periods
ending, as set forth below, EBITDA equal to or greater than:
March 31, 2001 - $3,900,000
June 30, 2001 - $3,000,000
September 30, 2001 $1,300,000
December 31, 2001 $7,600,000; or
(e) For each period ending after the period ending December
31, 2001 and thereafter, for each period ending on the last day of each calendar
quarter, EBITDA equal to or greater than Seven Million, Six Hundred Thousand
Dollars ($7,600,000).
7.21 Capital Expenditures. Make capital expenditures in the fiscal
year ending December 31, 2000 with respect to that certain G&L Horizontal Mill
being purchased by Borrower (the "G&L Mill") in excess of Five Million, Two
Hundred Thousand Dollars ($5,200,000) or any other capital expenditures ending
in December 31, 2000 in excess of One Million, Five Hundred Thousand Dollars
($1,500,000) or make any capital expenditures in the fiscal year ending in
December 31, 2001 in excess of Two Million, Seven Hundred Fifty Thousand Dollars
($2,750,000) with respect to the G&L Mill, or in excess of Two Million, Six
Hundred Fifty Dollars ($2,650,000) to rebuild an existing horizontal boring mill
or in excess of One Million Dollars ($1,000,000) for other capital expenditures,
provided, however, that non-financed capital expenditures for fiscal year
ending December 31, 2001 may not exceed Two Million Dollars ($2,000,0000) in the
aggregate.
7.22 Availability for Payment to Existing Lender. Make any payment
to Existing Lender unless Borrower has availability hereunder after giving
effect to such payment of not less than Five Million Dollars ($5,000,000).
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
(a) If Borrower fails to pay when due and payable or when
declared due and payable, any portion of the Obligations (whether of principal,
interest (including any interest which, but for the provisions of the Bankruptcy
Code, would have accrued on such amounts), fees and charges due Foothill,
reimbursement of Foothill Expenses, or other amounts constituting Obligations);
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(b) If Borrower fails to perform, keep, or observe any term,
provision, condition, covenant, or agreement contained in this Agreement, in any
of the Loan Documents, or in any other present or future agreement between
Borrower and Foothill, provided however, that Borrower shall have five (5) days
to cure its failure to perform, keep or observe any term, provision, condition,
covenant or agreement with respect to Section Nos. 6.2, 6.3, 6.4, 6.6, 6.12 or
6.15;
(c) If there is a Material Adverse Change;
(d) If any material portion of Borrower's properties or assets
is attached, seized, subjected to a writ or distress warrant, or is levied upon,
or comes into the possession of any third Person;
(e) If an Insolvency Proceeding is commenced by Borrower;
(f) If an Insolvency Proceeding is commenced against Borrower
and any of the following events occur: (a) Borrower consents to the institution
of the Insolvency Proceeding against it; (b) the petition commencing the
Insolvency Proceeding is not timely controverted; (c) the petition commencing
the Insolvency Proceeding is not dismissed within forty five (45) calendar days
of the date of the filing thereof; provided, however, that, during the pendency
of such period, Foothill shall be relieved of its obligation to extend credit
hereunder; (d) an interim trustee is appointed to take possession of all or a
substantial portion of the properties or assets of, or to operate all or any
substantial portion of the business of, Borrower; or (e) an order for relief
shall have been issued or entered therein;
(g) If Borrower is enjoined, restrained, or in any way
prevented by court order from continuing to conduct all or any material part of
its business affairs;
(h) If a notice of Lien, levy, or assessment is filed of
record with respect to any of Borrower's properties or assets by the United
States Government, or any department, agency, or instrumentality thereof, or by
any state, county, municipal, or governmental agency, or if any taxes or debts
owing at any time hereafter to any one or more of such entities becomes a Lien,
whether choate or otherwise, upon any of Borrower's properties or assets and the
same is not paid on the payment date thereof but excluding taxes not yet due and
payable;
(i) If a judgment in excess of Fifty Thousand Dollars
($50,000) or other claim becomes a Lien or encumbrance upon any material portion
of Borrower's properties or assets;
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(j) If there is a default in any material agreement to which
Borrower is a party with one or more third Persons and such default (a) occurs
at the final maturity of the obligations thereunder, or (b) results in a right
by such third Person(s), irrespective of whether exercised, to accelerate the
maturity of Borrower's obligations thereunder;
(k) If Borrower makes any payment on account of Indebtedness
that has been contractually subordinated in right of payment to the payment of
the Obligations, except to the extent such payment is permitted by the terms of
the subordination provisions applicable to such Indebtedness;
(l) If any misstatement or misrepresentation of a material
fact exists now or hereafter in any warranty, representation, statement, or
report made to Foothill by Borrower or any officer, employee, agent, or director
of Borrower, or if any such warranty or representation is withdrawn;
(m) If the obligation of any guarantor under its guaranty or
other third Person under any Loan Document is limited or terminated by operation
of law or by the guarantor or other third Person thereunder, or any such
guarantor or other third Person becomes the subject of an Insolvency Proceeding;
or
(n) failure of Borrower to sell to Bush Hog Investors its
Nineteen and nine tenths percent (19.9%) membership interest in Bush Hog on or
before June 30, 2000 with Borrower receiving net proceeds of not less than Six
Million Dollars ($6,000,000) for said sale after payment of all obligations to
Existing Lender and to Bush Hog Investors and after all adjustments to the
purchase price between Borrower and Bush Hog Investors and net of all amounts to
be held under any escrow arrangement.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies.
(a) Upon the occurrence, and during the continuation, of an
Event of Default Foothill may, at its election, without notice of its election
and without demand, do any one or more of the following, all of which are
authorized by Borrower:
(i) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise,
immediately due and payable;
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(ii) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement, under any of the Loan
Documents, or under any other agreement between Borrower and
Foothill;
(iii) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of Foothill, but
without affecting Foothill's rights and security interests in the
Personal Property Collateral or the Real Property Collateral and
without affecting the Obligations;
(iv) Settle or adjust disputes and claims directly with
Account Debtors for amounts and upon terms which Foothill considers
advisable, and in such cases, Foothill will credit Borrower's Loan
Account with only the net amounts received by Foothill in payment of
such disputed Accounts after deducting all Foothill Expenses
incurred or expended in connection therewith;
(v) Cause Borrower to hold all returned Inventory in trust for
Foothill, segregate all returned Inventory from all other property
of Borrower or in Borrower's possession and conspicuously label said
returned Inventory as the property of Foothill;
(vi) Without notice to or demand upon Borrower or any
guarantor, make such payments and do such acts as Foothill considers
necessary or reasonable to protect its security interests in the
Collateral. Borrower agrees to assemble the Personal Property
Collateral if Foothill so requires, and to make the Personal
Property Collateral available to Foothill as Foothill may designate.
Borrower authorizes Foothill to enter the premises where the
Personal Property Collateral is located, to take and maintain
possession of the Personal Property Collateral, or any part of it,
and to pay, purchase, contest, or compromise any encumbrance,
charge, or Lien that in Foothill's determination appears to conflict
with its security interests and to pay all expenses incurred in
connection therewith. With respect to any of Borrower's owned or
leased premises, Borrower hereby grants Foothill a license to enter
into possession of such premises and to occupy the same, without
charge, for up to one hundred twenty (120) days in order to exercise
any of Foothill's rights or remedies provided herein, at law, in
equity, or otherwise;
(vii) Without notice to Borrower (such notice being expressly
waived), and without constituting a retention of any collateral in
satisfaction of an obligation (within the meaning of Section 9-505
and any amendments thereof
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of the Code), set off and apply to the Obligations any and all (i)
balances and deposits of Borrower held by Foothill (including any
amounts received in the Lockbox Accounts), or (ii) indebtedness at
any time owing to or for the credit or the account of Borrower held
by Foothill;
(viii) Hold, as cash collateral, any and all balances and
deposits of Borrower held by Foothill, and any amounts received in
the Lockbox Accounts, to secure the full and final repayment of all
of the Obligations;
(ix) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner
provided for herein) the Personal Property Collateral. Foothill is
hereby granted a license or other right to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name,
trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it
pertains to the Personal Property Collateral, in completing
production of, advertising for sale, and selling any Personal
Property Collateral and Borrower's rights under all licenses and all
franchise agreements shall inure to Foothill's benefit;
(x) Sell the Personal Property Collateral at either a public
or private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such
places (including Borrower's premises) as Foothill determines is
commercially reasonable. It is not necessary that the Personal
Property Collateral be present at any such sale;
(xi) Foreclose on the Real Property Collateral in accord with
the terms of the Mortgages; and
(xii) Direct Borrower to sell all of its membership interest
in Bush Hog in accord with Article 7 of Bush Hog's Amended and
Restated Operating Agreement dated March 7, 2000.
(b) Foothill shall give notice of the disposition of the
Personal Property Collateral as follows:
(i) Foothill shall give Borrower and each holder of a security
interest in the Personal Property Collateral who has filed with
Foothill a written request for notice, a notice in writing of the
time and place of public sale, or, if the sale is a private sale or
some other disposition other than a public sale is to be made
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of the Personal Property Collateral, then the time on or after which
the private sale or other disposition is to be made;
(ii) The notice shall be personally delivered or mailed,
postage prepaid, to Borrower as provided in Section 12, at least
five (5) days before the date fixed for the sale, or at least five
(5) days before the date on or after which the private sale or other
disposition is to be made; no notice needs to be given prior to the
disposition of any portion of the Personal Property Collateral that
is perishable or threatens to decline speedily in value or that is
of a type customarily sold on a recognized market. Notice to Persons
other than Borrower claiming an interest in the Personal Property
Collateral shall be sent to such addresses as they have furnished to
Foothill;
(iii) If the sale is to be a public sale, Foothill also shall
give notice of the time and place by publishing a notice one time at
least five (5) days before the date of the sale in a newspaper of
general circulation in the county in which the sale is to be held;
(iv) Foothill may credit bid and purchase at any public sale;
and
(v) Any deficiency that exists after disposition of the
Personal Property Collateral as provided above or after disposition
of the Real Property Collateral will be paid immediately by
Borrower. Any excess will be returned, without interest and subject
to the rights of third Persons, by Foothill to Borrower.
9.2 Remedies Cumulative. Foothill's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Foothill shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Foothill of one
right or remedy shall be deemed an election, and no waiver by Foothill of any
Event of Default shall be deemed a continuing waiver. No delay by Foothill shall
constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If Borrower fails to pay any monies (whether taxes, assessments,
insurance premiums, or, in the case of leased properties or assets, rents or
other amounts payable under such leases) due to third Persons, or fails to make
any deposits or furnish any required proof of payment or deposit, all as
required under the terms of this Agreement, then, to the extent that
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Foothill determines that such failure by Borrower could result in a Material
Adverse Change, in its discretion and without prior notice to Borrower, Foothill
may do any or all of the following: (a) make payment of the same or any part
thereof; (b) set up such reserves in Borrower's Loan Account as Foothill deems
necessary to protect Foothill from the exposure created by such failure; or (c)
obtain and maintain insurance policies of the type described in Section 6.10,
and take any action with respect to such policies as Foothill deems prudent. Any
such amounts paid by Foothill shall constitute Foothill Expenses. Any such
payments made by Foothill shall not constitute an agreement by Foothill to make
similar payments in the future or a waiver by Foothill of any Event of Default
under this Agreement. Foothill need not inquire as to, or contest the validity
of, any such expense, tax, or Lien and the receipt of the usual official notice
for the payment thereof shall be conclusive evidence that the same was validly
due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 Demand; Protest; etc. Borrower waives demand, protest, notice
of protest, notice of default or dishonor, notice of payment and nonpayment,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of accounts, documents, instruments, chattel paper, and guarantees at any time
held by Foothill on which Borrower may in any way be liable.
11.2 Foothill's Liability for Collateral. So long as Foothill
complies with its obligations, if any, under Section 9-207 of the Code, Foothill
shall not in any way or manner be liable or responsible for: (a) the safekeeping
of the Collateral; (b) any loss or damage thereto occurring or arising in any
manner or fashion from any cause; (c) any diminution in the value thereof; or
(d) any act or default of any carrier, warehouseman, bailee, forwarding agency,
or other Person. All risk of loss, damage, or destruction of the Collateral
shall be borne by Borrower.
11.3 Indemnification. Borrower shall pay, indemnify, defend, and
hold Foothill, each Participant, and each of their respective officers,
directors, employees, counsel, agents, and attorneys-in-fact (each, an
"Indemnified Person") harmless (to the fullest extent permitted by law) from and
against any and all claims, demands, suits, actions, investigations,
proceedings, and damages, and all reasonable attorneys fees and disbursements
and other costs and expenses actually incurred in connection therewith (as and
when they are incurred and irrespective of whether suit is brought), at any time
asserted against, imposed upon, or incurred by any of them in connection with or
as a result of or related to the execution, delivery, enforcement, performance,
and administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
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litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified Person under this Section 11.3 with respect to any Indemnified
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person. This provision shall survive the termination of this Agreement and the
repayment of the Obligations.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands
by any party relating to this Agreement or any other Loan Document shall be in
writing and (except for financial statements and other informational documents
which may be sent by first-class mail, postage prepaid) shall be personally
delivered or sent by registered or certified mail (postage prepaid, return
receipt requested), overnight courier, or telefacsimile to Borrower or to
Foothill, as the case may be, at its address set forth below:
If to Borrower: Allied Products Corporation
10 South Riverside Plaza
Chicago, Illinois 60606
Attn: Corporate Secretary
Fax No. 312/454-9608
with copies to: Gardner Carton & Douglas
Quaker Tower
321 N. Clark Street
Chicago, Illinois 60610
Attn: David Rubenstein, Esq.
Fax No. 312/644-3381
If to Foothill: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. 310/478-9788
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with copies to: Foothill Capital Corporation
60 State Street, Suite 1150
Boston, Massachusetts 02109
Attn: Loan Portfolio Manager
Fax No. 617/624-4400
Kenneth A. Latimer
Duane, Morris & Heckscher LLP
227 W. Monroe Street
Suite 3400
Chicago, Illinois 60606
Fax No. 312/499-6701
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given to
the other. All notices or demands sent in accordance with this Section 12, other
than notices by Foothill in connection with Sections 9-504 or 9-505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or three
(3) days after the deposit thereof in the mail. Borrower acknowledges and agrees
that notices sent by Foothill in connection with Sections 9-504 or 9-505 of the
Code shall be deemed sent when deposited in the mail or personally delivered,
or, where permitted by law, transmitted telefacsimile or other similar method
set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN AN ANOTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER
OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS. THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE
STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF COOK, STATE OF ILLINOIS OR, AT
THE SOLE OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH FOOTHILL SHALL INITIATE
LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER
THE MATTER IN CONTROVERSY. EACH OF BORROWER AND FOOTHILL WAIVES, TO THE EXTENT
PERMITTED UNDER APPLICABLE
-61-
<PAGE>
LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR
TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH
THIS SECTION 13. BORROWER AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF
THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH OF BORROWER AND FOOTHILL REPRESENTS THAT IT HAS REVIEWED
THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers
delivered to Foothill may be destroyed or otherwise disposed of by Foothill 4
months after they are delivered to or received by Foothill, unless Borrower
requests, in writing, the return of said documents, schedules, or other papers
and makes arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS.
15.1 Effectiveness. This Agreement shall be binding and deemed
effective when executed by Borrower and Foothill.
15.2 Successors and Assigns. This Agreement shall bind and inure to
the benefit of the respective successors and assigns of each of the parties;
provided, however, that Borrower may not assign this Agreement or any rights or
duties hereunder without Foothill's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by Foothill
shall release Borrower from its Obligations. Foothill may assign this Agreement
and its rights and duties hereunder and no consent or approval by Borrower is
required in connection with any such assignment. Foothill reserves the right to
sell, assign, transfer, negotiate, or grant participations in all or any part
of, or any interest in Foothill's rights and benefits hereunder. In connection
with any such assignment or participation, Foothill may disclose all documents
and information which Foothill now or hereafter may have relating to Borrower or
Borrower's business. To the extent that Foothill assigns its rights and
obligations hereunder to a third Person, Foothill thereafter shall be released
from such assigned obligations
-62-
<PAGE>
to Borrower and such assignment shall effect a novation between Borrower and
such third Person.
15.3 Section Headings. Headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the context,
everything contained in each section applies equally to this entire Agreement.
15.4 Interpretation. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Foothill or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
15.5 Severability of Provisions. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
15.6 Amendments in Writing. This Agreement can only be amended by a
writing signed by both Foothill and Borrower.
15.7 Counterparts; Telefacsimile Execution. This Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
15.8 Revival and Reinstatement of Obligations. If the incurrence or
payment of the Obligations by Borrower or any guarantor of the Obligations or
the transfer by either or both of such parties to Foothill of any property of
either or both of such parties should for any reason subsequently be declared to
be void or voidable under any state or federal law relating to creditors'
rights, including provisions of the Bankruptcy Code relating to fraudulent
conveyances, preferences, and other voidable or recoverable payments of money or
transfers of property (collectively, a "Voidable Transfer"), and if Foothill is
required to repay or restore, in whole or in part, any such Voidable Transfer,
or elects to do so upon the reasonable advice of its counsel, then, as to any
such Voidable Transfer, or the amount thereof that Foothill is
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<PAGE>
required or elects to repay or restore, and as to all reasonable costs,
expenses, and attorneys fees of Foothill related thereto, the liability of
Borrower or such guarantor automatically shall be revived, reinstated, and
restored and shall exist as though such Voidable Transfer had never been made.
15.9 Integration. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
(Signature page to follow.)
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Loan and
Security Agreement to be executed in Los Angeles, California.
ALLIED PRODUCTS CORPORATION,
a Delaware corporation
By: /S/ Mark Standefer
-------------------------------------
Title: Vice President & Secretary
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /S/ Patricia McLoughlin
-------------------------------------
Title: Vice President
-65-
<PAGE>
================================================================================
FACILITY ADDRESS CITY COUNTY STATE FOOTHILL NAME AMOUNT
- - -------- ------- ---- ------ ----- -------- ---- ------
NAME AND ZIP LIEN OF OF PRIOR
- - ---- ------- ---- -- --------
CODE POSITION PRIOR LIEN
---- -------- ----- ----
LIENOR
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
================================================================================
Schedule R-1
<PAGE>
EXHIBIT 21
State or Other % Of
Jurisdiction Securities
In Which Owned by
Subsidiaries of Registrant (1) Incorporated Registrant
- - --------------------------------------------------------------------------------
Verson Pressentechnik GmbH.......... Germany 60% (2)
(1) Unnamed subsidiaries considered in the aggregate do not constitute a
significant subsidiary.
(2) Subsidiary included in consolidated financial statements.
04/06/00
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Allied Products Corporation
registration statement on Form S-8 (File No. 33-60058) of our report, dated
April , 2000, on our audits of the consolidated financial statements and
financial statement schedule of Allied Products Corporation and consolidated
subsidiaries as of December 31, 1999 and 1998 and for the three years in the
period ended December 31, 1999, which report is included in the 1999 Annual
Report of Form 10-K.
/s/PricewaterhouseCoopers LLP
Chicago, Illinois
April 14, 2000
<PAGE>
Exhibit 24
POWER OF ATTORNEY
WHEREAS, ALLIED PRODUCTS CORPORATION, a Delaware corporation (herein
referred to as the "Company"), is about to file with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, as
amended, its annual report on Form 10-K for the year ended December 31, 1999 and
WHEREAS, each of the undersigned holds the office or offices in the
Company hereinbelow set opposite his name, respectively;
NOW THEREFORE, each of the undersigned hereby constitutes and appoints
Mark C. Standefer as his attorney, with full power to act for him and in his
name, place and stead, to sign his name in the capacity or capacities set forth
below to said Form 10-K and to any and all amendments thereto, and hereby
ratifies and confirms all said attorney may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands this
13th day of April, 2000.
/s/[RICHARD A. DREXLER]
------------------------------------
Richard A. Drexler, Chairman of the
Board, President and Chief
Executive Officer; Director
/s/[ROBERT J. FLECK]
------------------------------------
Robert J. Fleck, Vice President -
Accounting, Chief Accounting
and Administrative Officer
/s/[LLOYD A. DREXLER]
------------------------------------
Lloyd A. Drexler, Director
/s/[STANLEY J. GOLDRING]
------------------------------------
Stanley J. Goldring, Director
/s/[JOHN E. JONES]
------------------------------------
John E. Jones, Director
/s/[MITCHELL I. QUAIN]
------------------------------------
Mitchell I. Quain, Director
/s/[S. S. SHERMAN]
------------------------------------
S. S. Sherman, Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1999 AND THE CONSOLIDATED STATEMENT
OF INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOW FOR THE YEAR ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,054
<SECURITIES> 0
<RECEIVABLES> 21,590
<ALLOWANCES> 1,130
<INVENTORY> 46,665
<CURRENT-ASSETS> 161,475
<PP&E> 90,709
<DEPRECIATION> 32,023
<TOTAL-ASSETS> 256,611
<CURRENT-LIABILITIES> 204,907
<BONDS> 378
0
0
<COMMON> 140
<OTHER-SE> 42,930
<TOTAL-LIABILITY-AND-EQUITY> 256,611
<SALES> 143,775
<TOTAL-REVENUES> 143,775
<CGS> 147,961
<TOTAL-COSTS> 147,961
<OTHER-EXPENSES> 30,154
<LOSS-PROVISION> 1,367
<INTEREST-EXPENSE> 6,205
<INCOME-PRETAX> (34,340)
<INCOME-TAX> 0
<INCOME-CONTINUING> (34,340)
<DISCONTINUED> 7,575
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,765)
<EPS-BASIC> (2.26)
<EPS-DILUTED> (2.26)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1998 AND THE CONSOLIDATED STATEMENT
OF INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOW FOR THE YEAR ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 727
<SECURITIES> 0
<RECEIVABLES> 25,967
<ALLOWANCES> 266
<INVENTORY> 67,207
<CURRENT-ASSETS> 181,864
<PP&E> 83,587
<DEPRECIATION> 26,971
<TOTAL-ASSETS> 275,804
<CURRENT-LIABILITIES> 196,819
<BONDS> 572
0
0
<COMMON> 140
<OTHER-SE> 71,590
<TOTAL-LIABILITY-AND-EQUITY> 275,804
<SALES> 137,020
<TOTAL-REVENUES> 137,020
<CGS> 147,114
<TOTAL-COSTS> 147,114
<OTHER-EXPENSES> 25,905
<LOSS-PROVISION> 179
<INTEREST-EXPENSE> 3,732
<INCOME-PRETAX> (35,999)
<INCOME-TAX> (6,213)
<INCOME-CONTINUING> (29,786)
<DISCONTINUED> 15,673
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,113)
<EPS-BASIC> (1.19)
<EPS-DILUTED> (1.19)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997 AND THE CONSOLIDATED STATEMENT
OF INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOW FOR THE YEAR ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 609
<SECURITIES> 0
<RECEIVABLES> 20,770
<ALLOWANCES> 231
<INVENTORY> 50,937
<CURRENT-ASSETS> 141,949
<PP&E> 60,729
<DEPRECIATION> 30,090
<TOTAL-ASSETS> 195,064
<CURRENT-LIABILITIES> 95,736
<BONDS> 419
0
0
<COMMON> 140
<OTHER-SE> 88,413
<TOTAL-LIABILITY-AND-EQUITY> 195,064
<SALES> 151,091
<TOTAL-REVENUES> 151,091
<CGS> 123,099
<TOTAL-COSTS> 123,099
<OTHER-EXPENSES> 20,311
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 1,889
<INCOME-PRETAX> 7,681
<INCOME-TAX> 2,841
<INCOME-CONTINUING> 4,840
<DISCONTINUED> 10,806
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,646
<EPS-BASIC> 1.29
<EPS-DILUTED> 1.27
</TABLE>
