<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number
September 30, 1998 1-3574
HASTINGS MANUFACTURING COMPANY
(Exact Name of Registrant as Specified in its Charter)
MICHIGAN 38-0633740
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
325 NORTH HANOVER STREET
HASTINGS, MICHIGAN 49058
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code:
616-945-2491
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __X__ No _____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
OUTSTANDING AT
CLASS OCTOBER 23, 1998
----- ----------------
<S> <C> <C>
Common stock, $2 par value 783,926 shares
</TABLE>
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Hastings Manufacturing Company and Subsidiaries
Contents
====================
PART I - FINANCIAL INFORMATION PAGE
Item 1 - Financial Statements:
Report on Review by Independent Certified Public
Accountants 3
Condensed Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997 4-5
Condensed Consolidated Statements of Income -
Three Months and Nine Months Ended
September 30, 1998 and 1997 6
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1998 and 1997 7-8
Notes to Condensed Consolidated Financial
Statements 9-11
Review by Independent Certified Public Accountants 12
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13-20
Item 3 - Quantitative and Qualitative Disclosure About
Market Risk 20
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 21-22
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<PAGE>
Report on Review by Independent Certified Public Accountants
===========================
Board of Directors
Hastings Manufacturing Company
Hastings, Michigan
We have reviewed the accompanying condensed consolidated balance sheets of
Hastings Manufacturing Company and subsidiaries as of September 30, 1998,
and the related condensed consolidated statements of income for the three-
month and nine-month periods ended September 30, 1998 and 1997, and cash
flows for the nine-month period ended September 30, 1998 and 1997, included
in the accompanying Securities and Exchange Commission Form 10-Q for the
period ended September 30, 1998. These condensed consolidated financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial
statements for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1997, and the
related consolidated statements of operations, stockholders' equity and
cash flows for the year then ended (not presented herein). In our report
dated February 27, 1998, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of
December 31, 1997, is fairly stated in all material respects in relation to
the consolidated balance sheet from which it has been derived.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Grand Rapids, Michigan
October 23, 1998
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Hastings Manufacturing Company and Subsidiaries
<TABLE>
Condensed Consolidated Balance Sheets
===========================
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 339,854 $ 558,172
Accounts receivable, less allowance
for possible losses of $175,000
and $215,000 6,110,314 5,148,906
Refundable income taxes 5,205 13,475
Inventories:
Finished products 7,370,245 7,460,534
Work in process 558,286 572,307
Raw materials 2,296,231 1,239,657
Prepaid expenses and other assets 84,321 75,669
Future income tax benefits 2,391,463 2,351,687
Other current assets - 958,517
-------------- -------------
TOTAL CURRENT ASSETS 19,155,919 18,378,924
-------------- -------------
PROPERTY AND EQUIPMENT
Land and improvements 637,241 658,243
Buildings 4,793,922 4,633,937
Machinery and equipment 18,810,548 18,180,840
-------------- -------------
24,241,711 23,473,020
Less accumulated depreciation 16,151,160 15,156,120
-------------- -------------
NET PROPERTY AND EQUIPMENT 8,090,551 8,316,900
-------------- -------------
PREPAID PENSION ASSET (Note 2) 2,675,688 -
INTANGIBLE PENSION ASSET 815,189 815,189
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<PAGE>
FUTURE INCOME TAX BENEFITS 5,052,764 5,828,923
OTHER ASSETS 11,966 50,395
-------------- -------------
$ 35,802,077 $ 33,390,331
============== =============
</TABLE>
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<PAGE>
Hastings Manufacturing Company and Subsidiaries
<TABLE>
Condensed Consolidated Balance Sheets
===========================
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks $ 1,100,000 $ 3,400,000
Accounts payable 1,397,290 1,475,098
Accruals:
Compensation 744,386 494,781
Pension plan contribution - 608,786
Taxes other than income 115,173 172,854
Income taxes 109,656 -
Miscellaneous 417,598 217,731
Current portion of postretirement
benefit obligation 1,044,175 1,110,442
Current maturities of
long-term debt (Note 2) 1,320,000 1,462,500
-------------- ---------------
TOTAL CURRENT LIABILITIES 6,248,278 8,942,192
LONG-TERM DEBT,
less current maturities (Note 2) 5,280,000 565,625
PENSION AND DEFERRED COMPENSATION
OBLIGATIONS, less current portion 3,222,993 3,243,618
POSTRETIREMENT BENEFIT OBLIGATION,
less current portion 14,827,367 15,318,770
-------------- ---------------
TOTAL LIABILITIES 29,578,638 28,070,205
-------------- ---------------
STOCKHOLDERS' EQUITY
Preferred stock, $2 par value,
authorized and unissued
500,000 shares - -
Common stock, $2 par value,
1,750,000 shares authorized;
783,926 and 780,626 shares
issued and outstanding 1,567,852 1,561,252
Additional paid-in capital 245,532 145,788
Retained earnings 6,804,525 5,793,219
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<PAGE>
Accumulated other comprehensive
income (Note 4):
Cumulative foreign currency
translation adjustment (964,992) (750,655)
Pension liability adjustment (1,429,478) (1,429,478)
-------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 6,223,439 5,320,126
-------------- ---------------
$ 35,802,077 $ 33,390,331
============== ===============
</TABLE>
See accompanying independent accountants' review report and notes to
condensed consolidated financial statements.
-7-
<PAGE>
Hastings Manufacturing Company and Subsidiaries
<TABLE>
Condensed Consolidated Statements of Income
===========================
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 9,255,806 $ 8,838,664 $ 29,829,994 $ 27,193,053
COST OF SALES 6,503,789 5,990,310 20,538,990 18,519,107
------------- -------------- --------------- --------------
Gross profit 2,752,017 2,848,354 9,291,004 8,673,946
------------- -------------- --------------- --------------
OPERATING EXPENSES
Advertising 50,234 107,343 240,288 306,485
Selling 717,858 749,305 2,311,676 2,282,202
General and administrative 1,417,429 1,469,236 4,365,661 4,401,980
------------- -------------- --------------- --------------
2,185,521 2,325,884 6,917,625 6,990,667
------------- -------------- --------------- --------------
Operating income 566,496 522,470 2,373,379 1,683,279
------------- -------------- --------------- --------------
OTHER EXPENSE (INCOME)
Interest expense 114,223 127,899 336,793 385,022
Interest income (16,205) (8,670) (35,982) (31,449)
Other, net (5,060) 17,892 (5,261) 13,516
------------- -------------- --------------- --------------
92,958 137,121 295,550 367,089
------------- -------------- --------------- --------------
Income before income tax expense 473,538 385,349 2,077,829 1,316,190
INCOME TAX EXPENSE 218,000 153,000 879,000 526,000
------------- -------------- --------------- --------------
NET INCOME $ 255,538 $ 232,349 $ 1,198,829 $ 790,190
============= ============== =============== ==============
BASIC AND DILUTED NET INCOME
PER SHARE OF COMMON STOCK
(Notes 3 and 5) $.33 $.30 $1.55 $1.03
DIVIDENDS PER SHARE OF
COMMON STOCK (Note 5) $.08 $.075 $.235 $.175
</TABLE>
See accompanying independent accountants' review report and notes to
condensed consolidated financial statements.
-8-
<PAGE>
Hastings Manufacturing Company and Subsidiaries
<TABLE>
Condensed Consolidated Statements of Cash Flows
===========================
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998 1997
------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,198,829 $ 790,190
Adjustments to reconcile net
income to net cash from (for)
operating activities:
Depreciation 1,135,743 1,013,017
Deferred income taxes 748,000 447,000
Gain on sale of property
and equipment (1,980) (9,534)
Change in postretirement
benefit obligation (557,670) (676,602)
Changes in operating
assets and liabilities:
Accounts receivable (1,003,629) (630,906)
Refundable income taxes - 15,282
Inventories (1,049,819) 205,810
Prepaid expenses and other
current assets (1,299) 28,750
Other assets (2,637,259) (41,091)
Accounts payable and accruals (77,003) (191,315)
------------- ---------------
Net cash from (for) operating activities (2,246,087) 950,601
------------- ---------------
INVESTING ACTIVITIES
Capital expenditures (1,010,120) (1,300,416)
Proceeds from sale of property
and equipment 17,972 5,386
Release of filter sale escrow funds 958,517 -
------------- ---------------
Net cash for investing activities (33,631) (1,295,030)
------------- ---------------
FINANCING ACTIVITIES
Proceeds from issuance of notes
payable to banks 6,000,000 5,300,000
Principal payments on notes
payable to banks (8,300,000) (5,100,000)
Proceeds from issuance of long-term
debt to banks 6,600,000 -
Principal payments on long-term debt (2,028,125) (1,096,875)
Dividends paid (184,223) (136,669)
------------- ---------------
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<PAGE>
Net cash from (for) financing activities 2,087,652 (1,033,544)
------------- ---------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (26,252) (3,540)
------------- ---------------
NET DECREASE IN CASH (218,318) (1,381,513)
CASH, beginning of period 558,172 1,457,783
------------- ---------------
CASH, end of period $ 339,854 $ 76,270
============= ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest $ 372,709 $ 389,546
Income taxes, net of refunds 5,749 15,205
</TABLE>
See accompanying independent accountants' review report and notes to
condensed consolidated financial statements.
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<PAGE>
Hastings Manufacturing Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
==========================
NOTE 1 In the opinion of the management of Hastings Manufacturing Company
and subsidiaries (the "Company"), the accompanying unaudited
condensed consolidated financial statements include all normal
recurring adjustments considered necessary to present fairly the
financial position as of September 30, 1998, and the results of
operations for the three months and nine months ended September
30, 1998 and 1997, and cash flows for the nine months ended
September 30, 1998 and 1997.
The results of operations for the nine months ended September 30,
1998, are not necessarily indicative of the anticipated results for
all of 1998.
The condensed consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All significant
intercompany balances, transactions and stockholdings have been
eliminated.
The accompanying consolidated financial statements are condensed and
do not contain all of the information and footnote disclosures
required by generally accepted accounting principles in a complete
set of financial statements.
NOTE 2 In late August 1998, the Company entered into a loan agreement with
its primary lender which provides for an unsecured $6,600,000 term
loan and an unsecured $3,000,000 credit authorization for revolving
credit loans and letters of credit. The entire $6,600,000 was
borrowed and was used to additionally fund the Company's defined
benefit plans, to pay off the previously outstanding long-term debt
and to reduce short-term notes payable. The additional funding to
the Company's defined benefit plans resulted in the $2,675,688
prepaid pension asset in the accompanying condensed consolidated
balance sheet at September 30, 1998. The term loan is payable in
quarterly principal payments of $330,000, plus interest. Under the
agreement, the Company's short-term line with its primary lender was
reduced from $5,000,000 to $3,000,000. Total short-term lines
available to the Company as of September 30, 1998 totaled
$5,200,000, of which $4,100,000 was unused.
Under the new loan agreement, interest for both the short- and long-
term borrowings is based on three different pricing options: a
negotiated rate, a eurodollar rate (LIBOR plus a factor) and a
floating rate (greater of the federal funds rate plus a factor or
the prime rate). The effective eurodollar rate and floating rate
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<PAGE>
are increased by a margin rate, ranging from 1.50% to 2.00%, which
is based upon certain Company performance parameters. In connection
with the $6,600,000 term loan agreement, the Company entered into an
interest rate swap agreement essentially to fix the interest rate on
these long-term borrowings at 5.95% plus the above-mentioned margin
rate, resulting in an interest rate range of 7.45% to 7.95%. As of
September 30, 1998, the interest rate in effect on these long-term
borrowings was 7.70%.
NOTE 3 In February 1997, Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings Per Share," was issued. This Statement
simplifies the standards for computing earnings per share (EPS) and
makes them comparable to international EPS standards. It requires
the presentation of both "basic" and "diluted" EPS on the face of
the income statement with a supplementary reconciliation of the
numerators and denominators used in the calculations. The Statement
was effective for financial statements issued for periods after
December 15, 1997, including interim periods.
A reconciliation of the numerators and denominators used in the
"basic" and "diluted" EPS calculations follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Numerator:
Net income used
for both "basic"
and "diluted"
EPS calculation $ 255,538 $ 232,349 $ 1,198,829 $ 790,190
============ ============ =========== ===========
Denominator:
Weighted average shares
outstanding for the
period - used for
"basic" EPS calculation 771,496 768,516 771,496 768,516
Dilutive effect of stock
options 836 - 1,066 -
------------ ------------ ----------- -----------
Weighted average shares
outstanding for the
period - used for
"diluted" EPS
calculation $ 772,332 $ 768,516 $ 772,562 $ 768,516
============ ============ =========== ===========
</TABLE>
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<PAGE>
SFAS No. 128 had no effect on EPS for the three-month and nine-month
periods ended September 30, 1997. All outstanding shares have been
adjusted for the two-for-one stock split discussed in Note 5.
NOTE 4 SFAS No. 130, "Reporting Comprehensive Income," issued in September
1997, was adopted by the Company during the first quarter of 1998.
This Statement requires that all components of comprehensive income
and total comprehensive income be reported in one of the following:
a statement of income and comprehensive income, a statement of
comprehensive income or a statement of stockholders' equity. The
Company has elected to report comprehensive income in its
consolidated statement of stockholders' income (which is not
presented for interim reporting purposes). Comprehensive income is
comprised of net income and all changes to stockholders' equity,
except those due to investments by owners and distributions to
owners. For interim reporting purposes, SFAS 130 requires
disclosures of total comprehensive income.
Comprehensive income and its components consist of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income $ 255,538 $ 232,349 $ 1,198,829 $ 790,190
Other comprehensive
income, net of tax:
Foreign currency
translation
adjustments (124,376) (21,424) (214,337) (49,538)
Minimum pension
liability adjustment - - - -
----------- ----------- ------------ -----------
Other comprehensive
income (124,376) (21,424) (214,337) (49,538)
----------- ----------- ------------ -----------
Comprehensive income $ 131,162 $ 210,925 $ 984,492 $ 740,652
=========== =========== ============ ===========
</TABLE>
Accumulated other comprehensive income totaled $2,394,470 and
$2,180,133 at September 30, 1998 and December 31, 1997,
respectively.
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<PAGE>
NOTE 5 On February 17, 1998, the Board of Directors authorized a two-for-
one stock split, effected in the form of a stock dividend, effective
March 23, 1998, payable to shareholders of record on March 2, 1998.
All references to number of common shares, except shares authorized,
and to all per share information have been adjusted to reflect the
stock split on a retroactive basis.
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<PAGE>
Hastings Manufacturing Company and Subsidiaries
Review by Independent Certified Public Accountants
===========================
The September 30, 1998 and 1997, condensed consolidated financial
statements included in this filing on Form 10-Q have been reviewed by BDO
Seidman, LLP, Independent Certified Public Accountants, in accordance with
established professional standards and procedures for such a review.
-15-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
As noted in the Company's 1997 Annual Report, 1997 reflected four quarters
of post-filter operating results following the sale of the Company's filter
operations. As such, no 1998 versus 1997 comparisons are impacted by that
event. Certain comparisons between 1997 and 1996, however, continued to be
impacted by the transition period following the filter assets and operations
sale. While most of the transition effects were phased out by the third
quarter of 1996, certain items, as detailed in previous filings, carried
through the 1996 year end.
RESULTS OF OPERATIONS
NET SALES
Net sales in the third quarter of 1998 increased $417,142, or 4.7%, from
$8,838,664 in the third quarter of 1997 to $9,255,806. Net sales for the
nine-month period ended September 30, 1998 increased $2,636,941, or 9.7%,
from $27,193,053 in 1997 to $29,829,994. The slower growth in the third
quarter reflects a reduced trend of piston ring sales to the domestic
aftermarket, combined with a slight reduction in the Company's original
equipment volume. The domestic aftermarket volume was adversely impacted
during the quarter by inventory shortages that followed the strong sales
volume through the first half of this year. The Company is currently
addressing that issue in an effort to minimize its effects in future
periods. The original equipment volume was impacted slightly by a work
stoppage at one of the Company's primary accounts early in the current
quarter. The growth for the nine-month period, however, continues to
reflect increases in piston ring sales volume within all areas of the
business; domestic aftermarket, private brand and export. The growth in
the domestic aftermarket is the result of the continued success of the
Company's increased focus in this aspect of the piston ring market. The
growth in the private brand area is the result of the increased volume to
several major customers. The increase in the export area is the result of
the on-going development and growth of the Company's direct export efforts,
as detailed in previous reports.
Net sales in the third quarter of 1997 decreased $282,157, or 3.1%, from
the third quarter of 1996. Net sales for the nine-month period ended
September 30, 1997 decreased $4,069,803, or 13.0%, from the same period in
1996. Filter operations accounted for $879,000 in net sales volume for the
third quarter of 1996, and $5,785,000 through the first nine months of that
same year, whereas no filter volume is included in the 1997 results. As
such, net sales from the remaining products in 1997 increased $597,000, or
7.2%, and $1,715,000, or 6.7%, for the comparative third quarter and nine-
month periods, respectively.
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<PAGE>
COST OF SALES AND GROSS PROFIT
Cost of sales in the third quarter of 1998 increased $513,479, or 8.6%,
from $5,990,310 in the third quarter of 1997, to $6,503,789. For the first
nine months of 1998, cost of sales increased $2,019,883, or 10.9%, from
$18,519,107 to $20,538,990. The increased cost of sales reflects the
corresponding increase in net sales. The gross profit margins decreased
for the third quarter of 1998, from 32.2% for the third quarter of 1997, to
29.7%. For the first nine months of 1998, gross margins also decreased,
from 31.9% for the first nine months of 1997, to 31.1%. The decreases in
the gross profit margins for both periods noted are the result of a sales
mix change. The Company has maintained a significant increase in export
piston ring activity throughout the year. The export piston ring sales
market has traditionally generated a lower gross profit margin than
domestic sales, due to the lower level of operating expenses that are
required to service domestic sales volume. This item, when combined with
the previously noted lower relative increase in domestic aftermarket piston
ring sales and the slight reduction in private brand sales during the third
quarter of 1998, resulted in decreased gross profit margins for both the
third quarter and nine-month periods in 1998. In addition, during the
third quarter of 1998, there was an increase in certain product-driven
distribution and support operating costs that are included in cost of
sales. This too had the effect of reducing the gross profit margins for
the third quarter and nine months ending September 30, 1998, in comparison
to the same periods in 1997. Through the first nine months of 1998, the
individual product cost factors (material, labor and overhead) have changed
slightly from 1997. While material costs have declined slightly, labor
rates have increased by 3.0% in 1998. Overhead rates applied to these
labor rates have declined, however, resulting in a minimal total cost per
unit change.
Cost of sales during the third quarter of 1997 decreased $625,692, or 9.5%,
from the third quarter of 1996. For the first nine months of 1997, cost of
sales decreased by $4,353,770, or 19.0%, from the same period in 1996. The
reduced cost of sales totals primarily reflect the absence of any filter
related activity in 1997. The gross profit margin for the first nine
months of 1997 improved to 31.9% from 26.8% in the corresponding period in
1996. The 1996 results were affected by the transition agreement that the
Company had with the purchaser of the Company's filter operations. This
agreement resulted in minimal gross profit being generated on filter products
in 1996. In addition to the specific filter production costs that are
included in the 1996 results, certain product-driven distribution and
support operating costs are included in cost of sales. Following the 1996
relocation from the Knoxville facility, these operating costs decreased
from $2,805,000 in the first nine months of 1996, to $1,997,000 in the
first nine months of 1997.
-17-
<PAGE>
OPERATING EXPENSES
Total operating expenses for the third quarter of 1998 decreased $140,363,
or 6.0%, from $2,325,884 in the third quarter of 1997, to $2,185,521. For
the first nine months of 1998 these expenses decreased $73,042, or 1.0%,
from $6,990,667 to $6,917,625. Advertising costs for the third quarter of
1998 declined $57,109, or 53.2%, from the third quarter of 1997. This
decrease reflects the further absorption of biannual product catalog
expenses in 1997, combined with a decrease in cooperative advertising costs
during the third quarter of 1998. Advertising costs for the first nine
months of 1998 decreased $66,197, or 21.6%, from the same period in 1997,
reflecting the effects of the aforementioned items. Selling expenses for
the third quarter of 1998 decreased $31,447, or 4.2%, from the third
quarter of 1997. This decrease is primarily the result of reductions in
various sales personnel expenses. Selling costs for the first nine months
of 1998 increased $29,474, or 1.3%, from the same period in 1997. This is
primarily due to an increase in the volume-driven agency commissions costs,
combined with a slight increase in sales promotion expense. General and
administrative costs decreased $51,807, or 3.5%, from the third quarter of
1997. This decrease reflects the inclusion of costs associated with the
completion of the restructuring of the Company's Canadian subsidiary in 1997,
combined with a decrease in various salaried personnel costs during the
third quarter of 1998. General and administrative costs for the first nine
months of 1998 decreased $36,319, or 0.8%, from the same period in 1997.
This decrease reflects the inclusion of the aforementioned 1997
restructuring costs, combined with cost savings that were attained in 1998
as a result of the amendment to the postretirement benefit plan in the
second quarter of 1997. These reductions were offset in part by slight
increases in various salaried personnel expenses, and in the accounts
receivable allowance for possible losses. The personnel costs include
approximately $50,000 of severance related to staffing reductions in early
1998. It should be noted that the Company's financial results have been
impacted by the devaluation of the Canadian dollar against the U.S. dollar.
The relative Canadian dollars of expenses at the Company's Canadian subsidiary
have remained consistent over the time period reviewed in this report. The
devaluation of the Canadian dollar, however, has resulted in the
recognition of lower relative current year expenses when the Canadian
financial statements are translated into U.S. dollars for consolidation
purposes. As a result of this devaluation, selling expenses were
approximately $11,000 and $35,000 lower during the third quarter and nine-
month period of 1998, respectively, in comparison to the same periods in
1997. General and administrative expenses were approximately $10,000 and
$30,000 lower for the same periods noted. Canadian advertising expenses
are insignificant to the Company's consolidated financial statements, and
as such were not materially affected by this devaluation.
Total operating expenses for both the third quarter and first nine months
of 1997 decreased significantly from the comparative periods in 1996.
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<PAGE>
These reductions reflect the full elimination of any filter sensitive
expenses by the Company in 1997, as well as the favorable results of the
restructuring plan as reported in the Company's 1996 Annual Report.
OTHER EXPENSES (INCOME)
Other expenses netted to $92,958 for the third quarter of 1998, compared to
$137,121 for the third quarter of 1997. For the first nine months of 1998,
these expenses netted to $295,550, compared to $367,089 for the first nine
months of 1997. Short-term borrowings in 1998 remained above the 1997
levels through late August of this year, reflecting increased working
capital requirements as driven by the net sales increase. Increased
interest costs associated with these short-term borrowings, however, were
offset by the lower interest costs realized from the lower long-term debt
obligations through late August. The net effect was a reduction in
interest expense in both the third quarter and the first nine months of
1998. As discussed in "Liquidity and Capital Resources," the Company
restructured its debt obligations in late August of this year. This debt
restructuring had a minimal effect on the interest expense amounts noted
for both the third quarter and nine-month periods of 1998. The 1998 and
1997 interest income amounts are derived from the escrowed funds generated
by the sale of the filter operations which were held until early September
of this year.
Excluding the $205,000 gain from termination of an interest rate swap
agreement in March 1996, other expenses, net for both the third quarter and
first nine months of 1997 decreased from the comparative periods in 1996.
The net interest position reflects both lower expense and income in the
1997 comparative periods. This reflects a continued decline in the
Company's net borrowed position resulting from normal long-term debt
amortization combined with the use of interest earning funds that were
previously held for capital equipment acquisitions.
TAXES ON INCOME
The effective tax rates for the nine-month periods September 30, 1998 and
1997 are 42.3% and 40.0%, respectively. These rates are higher than the
domestic statutory rate primarily due to the impact of various state income
taxes and the impact of a higher statutory rate applicable to the Canadian
subsidiary. The 1998 rate was also affected by an adjustment arising from
the filing of a prior year's amended tax return.
As of September 30, 1998, the Company recorded net deferred income tax
assets of $7,444,227. The major components of that asset are the tax
effects of net operating loss carryforwards and accrued retirement and
postretirement benefit obligations. The realization of this recorded
benefit is dependent upon the generation of future taxable income.
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<PAGE>
Management believes it is more likely than not that adequate levels of
future taxable income will be generated to absorb the net operating loss
carryforwards, the deductible amounts related to the retirement and
postretirement benefit obligations and the remaining net deductible
temporary differences.
YEAR 2000 READINESS DISCLOSURE
The year 2000 (Y2K) issue is the result of computer programs having been
written using two digits, rather than four, to define the applicable year.
Any of the Company's computers, computer programs, manufacturing and
administrative equipment or products that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. If
any of the Company's systems that have date-sensitive software use only two
digits, system failures or miscalculations may result causing disruptions
of operations, including, among other things, a temporary inability to
process transactions or engage in similar normal business activities.
During 1995, the Company's internal data processing personnel began an
evaluation of the Company's exposure to the effects of the Y2K issue. As a
member of certain automotive supplier trade associations, awareness of the
Y2K issue was both highlighted and charted beginning in early 1996. At
that point, a multi-disciplined committee was established to broaden and
coordinate the Company's efforts in addressing the Y2K impact. This
committee continues to include several members of the internal Executive
Committee with responsibility for board level reporting on this issue.
Through the efforts of this committee, the Company coordinates both
internal and external reviews of its Y2K exposure.
Internally, this committee evaluated the general operating systems for the
Company as well as the security system, telecommunications network,
manufacturing equipment and internal personal computer (PC) operations.
Through the second half of 1996 and much of 1997, the Company utilized the
services of an outside consultant, as well as its internal resources, to
convert its computer systems to be Y2K compliant. As of December 31, 1997,
the Company's core operating system and applications, its PC operating
systems and the majority of its PC applications were believed to be
compliant. The remaining PC applications are expected to be compliant by
December 31, 1998, pending installation of the next software release or
upgrade as needed. Manufacturing equipment testing has been completed with
no Y2K exposure perceived there. At this point, the Company is targeting a
full-scale, live test of its operating systems for Y2K compliance in early
1999. Costs related to the Y2K project, primarily consisting of expenses
related to the consultant, approximated $110,000 through 1997 and were
expensed as incurred in operating expenses. Current year and future costs
to be incurred to complete Y2K compliance and testing procedures are not
expected to be material.
-20-
<PAGE>
With the inception of the committee in 1996, the Company began to focus
externally as well. The committee identified suppliers of products and
services deemed to be critical to the Company's operations as well as
customers deemed to have the greatest Y2K exposure (i.e., EDI
communications). The Company has sent surveys to these key contacts and
has received back a majority of these surveys. While the Company cannot
guarantee Y2K compliance by its key suppliers and customers, and in many
cases will be relying on statements from outside vendors without
independent verification, preliminary surveys indicate that these key
suppliers and customers are aware of the issues and are working to assure
their compliance before the year 2000. At this time, the Company is not
aware of any key suppliers or customers who will not be Y2K compliant by
the year 2000. The Company's next steps will be to complete the
solicitation of key customers, obtain more detailed information from
certain key suppliers and customers and follow up with those companies who
did not respond to the original surveys. In addition, final plans must be
developed for the 1999 internal compliance test procedures. Pending the
results of that procedure, the Company intends to prepare a contingency
plan that will specify what exposures it still perceives and what it plans
to do if it or important external companies are not Y2K compliant in a
timely manner. The Company expects to prepare and evaluate its contingency
plan during 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements continue to be for operating
expenses, such as labor costs and raw materials, and for funding accounts
receivable, capital expenditures and long-term debt service. Historically,
the Company's primary sources of cash have been from operations and from
bank borrowings. As a result of the full transition out of filter
operations, and the favorable impact of the subsequent restructuring
effort, the Company expects to generate sufficient future funds from
operations and bank borrowings to fund its growth and operating needs. In
late August 1998, the Company entered into a $6,600,000 long-term debt
agreement with its primary lender. This new agreement allowed the Company
to take advantage of favorable interest rate conditions. Borrowings under
this new long-term debt agreement were used for several purposes including:
bringing the Company's defined benefit plans up to funding levels that
would alleviate the payment of the variable rate PBGC premiums; paying off
the remaining long-term debt obligations; and paying down certain short-
term notes payable. As a result of this new long-term debt agreement, the
Company's short-term line with its primary lender was reduced from
$5,000,000 to $3,000,000. Total short-term lines available to the Company
as of September 30, 1998 totaled $5,200,000, of which $4,100,000 was
unused. In connection with the floating rate debt agreement, the Company
entered into an interest rate swap agreement essentially to fix the
interest rate on that debt within a small range. The rate will fluctuate
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<PAGE>
within a range of 7.45% to 7.95% depending upon certain Company
performance parameters. As of September 30, the "fixed" rate on those
borrowings was 7.70%.
During the first nine months of 1998, the Company used $2,246,087 of net
cash for operating activities. The realized net income, depreciation, and
decreases in deferred income taxes, were offset by increases in accounts
receivable, inventories and other assets, and a decrease in the periodic
postretirement benefit obligation. The decline in the deferred income tax
asset is the result of the partial utilization of the tax net operating
loss carryforward. The increased accounts receivable and inventory reflect
the additional working capital requirements that are necessary to support
the higher sales level. The increase in other assets primarily reflects
the prepaid pension asset of $2,675,688 that was generated when the Company
funded the defined benefit plans to specified limits. As such, it did not
have a direct effect on operations during the current period. Excluding
this item, net cash generated from operating activities amounted to
$429,601. Capital expenditures for the first nine months of 1998 were at
$1,010,120, which represents a slight decrease in comparison to
expenditures of $1,300,416 in the first half of 1997. While third quarter
capital expenditures have slowed to $252,172 from $757,948 in the first
half of 1998, total capital expenditures for 1998 may approach the 1997
total of $1,770,302, as several significant capital projects are currently
in process. Investing activities also reflect the September 1998 release of
escrow funds relating to the 1995 sale of filter operations. These funds
were subsequently used to reduce short-term notes payable. Financing
activities for the first nine months of 1998 reflect the increased reliance
on upon short-term borrowings to help satisfy increased working capital
needs. Financing activities also reflect the proceeds from the new long-
term debt agreement, and the subsequent utilization of those proceeds to
pay down short-term and long-term debt. Dividends paid increased in the
first nine months of 1998.
During the first nine months of 1997, the Company generated $950,601 of net
cash from operations. The realized net income and absorbed depreciation,
combined with the reductions in the deferred income tax asset and
inventories, was offset slightly by the increase in accounts receivable,
and the decreases in the periodic postretirement benefit obligation and
accounts payable and accruals. Investing activities in the first nine
months of 1997 were quite high, reflecting the timing of several major
capital expenditures. Financing activities for the first nine months of
1997 reflected the normal amortization of the Company's long-term debt
obligation, as well as reduced reliance on the Company's short-term lines
subsequent to the filter operations transition.
As noted throughout the above discussion, the Company has realized
increased sales activity through the first nine months of 1998. This
growth has resulted in an increased net income level combined with
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<PAGE>
increased working capital demands. The Company will continue to monitor
its working capital needs in order to balance its cash and growth demands.
At this time, the Company anticipates that operations (which will be
subject to minimal current cash outflows for U.S. income taxes due to the
utilization of the net operating loss carryforwards), in combination with
the balancing of available short-term lines with our operations, will
generate cash flows that will be sufficient to fund its working capital,
capital outlays and dividend requirements for the remainder of 1998.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures
about Segments of an Enterprise and Related Information," issued in June
1997 and which supersedes SFAS No. 14, "Financial Reporting for Segments of
a Business Enterprise," establishes standards for the way that public
companies report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating
segments as components of a company about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance.
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," issued in February 1998, revises employers'
disclosures about pension and other postretirement benefit plans. It does
not change the measurement or recognition of those plans. SFAS No. 132
standardizes the disclosure requirements to the extent practicable,
requires additional information on changes in the benefit obligations and
fair values of plan assets that will facilitate financial analysis and
eliminates certain disclosures that are no longer as useful as when they
were first required to be presented.
SFAS No. 131 and 132 are effective for the Company's 1998 year-end
financial statements and require restatement of prior year comparative
information. The implementation of these new Statements will not affect
results of operations and financial position, but may have an impact on
future financial statement disclosures. With respect to SFAS No. 131, the
Company does not expect to change its operating segment groupings.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," issued in June 1998, requires companies to recognize all
derivatives contracts as either assets or liabilities in the balance sheet
and to measure them at fair value. If certain conditions are met, a
derivative may be specifically designated as a hedge, the objective of
which is to match the timing of gain or loss recognition on the hedging
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<PAGE>
derivative with the recognition of (i) the changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative
not designated as a hedging instrument, the gain or loss is recognized in
income in the period of change. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999.
Historically, the Company has not entered into derivatives contracts for
speculative purposes. The Company does periodically enter into interest
rate swap and collar agreements to reduce the impact of changes in interest
rates on its floating rate borrowings. However, the fair value of such
derivatives are not significant. Accordingly, the Company does not expect
adoption of the new standard on January 1, 2000 to materially affect its
financial statements.
FORWARD-LOOKING STATEMENTS
With the exception of historical matters, the matters discussed in this
commentary include certain predictions and projections that may be
considered forward-looking statements under securities laws, including, but
not limited to, those statements under the captions "Results of
Operations," "Year 2000" and "Liquidity and Capital Resources." These
statements are subject to a number of important risks and uncertainties
that could cause actual results to differ materially including, but not
limited to, economic, competitive, governmental and technological factors
affecting the Company's operations, markets, products, services and prices.
The Company undertakes no obligation to update, amend or clarify forward-
looking statements, whether as a result of new information, future events
or otherwise.
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<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to potential market risks on interest rates
relating to a swap agreement transacted with its primary lender in connection
with its long-term debt agreement. Management believes that the fluctuation
in interest rates in the near future will not have a material impact on the
consolidated financial statements taken as a whole. The Company does not
use derivative financial instruments for trading purposes.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following documents are filed as exhibits to this
report on Form 10-Q:
EXHIBIT
NUMBER DOCUMENT
3(a) Articles of Incorporation of Hastings Manufacturing Company,
as amended to date.
3(b) Bylaws of Hastings Manufacturing Company, as amended to
date.
4(a) Articles of Incorporation of Hastings Manufacturing Company,
as amended to date. See Exhibit 3(a).
4(b) Bylaws of Hastings Manufacturing Company, as amended to
date. See Exhibit 3(b).
4(c) Instruments defining the rights of security holders,
including indentures filed as an exhibit to the Form 10-K
Annual Report for the year ended December 31, 1983, are
incorporated herein by reference.
4(d) NBD Bank, N.A. $3,312,500 Term Loan Agreement and Term Note,
filed as an exhibit to the Form 10-K Annual Report for the
year ended December 31, 1993, is incorporated herein by
reference.
4(e) NBD Bank, N.A. $4,000,000 Term Loan Agreement and Term Note,
filed as an exhibit to the Form 10-K Annual Report for the
year ended December 31, 1994, is incorporated herein by
reference.
4(f) NBD Bank Amended and Restated Letter Agreement for
$6,600,000 Term Loan and $3,000,000 Credit Authorization to
Make Revolving Credit Loans and Issue Letters of Credit,
dated August 28, 1998.
4(g) Restated Master Agreement, dated August 10, 1998, regarding
an interest rate swap transaction between Hastings
Manufacturing Company and NBD Bank.
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<PAGE>
4(h) Confirmation, dated as of March 12, 1996, regarding an
interest rate collar transaction between Hastings
Manufacturing Company and NBD Bank, filed as an exhibit to
the Form 10-K Annual Report for the year ended December 31,
1996, is incorporated herein by reference.
4(i) Commercial Line of Credit Agreement and Note, dated as of
January 23, 1998, between Hastings Manufacturing Company and
Hastings City Bank, filed as an exhibit to the Form 10-Q
Quarterly Report for the period ended June 30, 1998, is
incorporated herein by reference.
4(j) Preferred Stock Purchase Rights, filed as an exhibit to Form
8-K filed with the Securities and Exchange Commission on
February 15, 1996, is incorporated herein by reference.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K. The Company did not file any reports on
Form 8-K during the quarter for which this report is filed.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on his behalf by the
undersigned thereunto duly authorized.
HASTINGS MANUFACTURING COMPANY
Date: November 16, 1998 /S/MONTY C. BENNETT
Monty C. Bennett
Its Vice-President, Employee
Relations, Secretary and Director
Date: November 16, 1998 /S/THOMAS J. BELLGRAPH
Thomas J. Bellgraph
Its Vice-President, Finance
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<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DOCUMENT
3(a) Articles of Incorporation of Hastings Manufacturing Company,
as amended to date.
3(b) Bylaws of Hastings Manufacturing Company, as amended to
date.
4(a) Articles of Incorporation of Hastings Manufacturing Company,
as amended to date. See Exhibit 3(a).
4(b) Bylaws of Hastings Manufacturing Company, as amended to
date. See Exhibit 3(b).
4(c) Instruments defining the rights of security holders,
including indentures filed as an exhibit to the Form 10-K
Annual Report for the year ended December 31, 1983, are
incorporated herein by reference.
4(d) NBD Bank, N.A. $3,312,500 Term Loan Agreement and Term Note,
filed as an exhibit to the Form 10-K Annual Report for the
year ended December 31, 1993, is incorporated herein by
reference.
4(e) NBD Bank, N.A. $4,000,000 Term Loan Agreement and Term Note,
filed as an exhibit to the Form 10-K Annual Report for the
year ended December 31, 1994, is incorporated herein by
reference.
4(f) NBD Bank Amended and Restated Letter Agreement for
$6,600,000 Term Loan and $3,000,000 Credit Authorization to
Make Revolving Credit Loans and Issue Letters of Credit,
dated August 28, 1998.
4(g) Restated Master Agreement, dated August 10, 1998, regarding
an interest rate swap transaction between Hastings
Manufacturing Company and NBD Bank.
4(h) Confirmation, dated as of March 12, 1996, regarding an
interest rate collar transaction between Hastings
Manufacturing Company and NBD Bank, filed as an exhibit to
the Form 10-K Annual Report for the year ended December 31,
1996, is incorporated herein by reference.
<PAGE>
4(i) Commercial Line of Credit Agreement and Note, dated as of
January 23, 1998, between Hastings Manufacturing Company and
Hastings City Bank, filed as an exhibit to the Form 10-Q
Quarterly Report for the period ended June 30, 1998, is
incorporated herein by reference.
4(j) Preferred Stock Purchase Rights, filed as an exhibit to Form
8-K filed with the Securities and Exchange Commission on
February 15, 1996, is incorporated herein by reference.
27 Financial Data Schedule
<PAGE>
EXHIBIT 4(f)
NBD Bank
611 Woodward Avenue
Detroit, Michigan 48226
August 28, 1998
Hastings Manufacturing Company
325 North Hanover
Hastings, Michigan 49058
Attention: Mr. Thomas J. Bellgraph, Treasurer
Re: $6,600,000 TERM LOAN AND $3,000,000 CREDIT AUTHORIZATION
TO MAKE REVOLVING CREDIT LOANS AND ISSUE LETTERS OF CREDIT
Gentlemen:
This Amended and Restated Letter Agreement (this "Agreement") contains
the terms and conditions under which NBD Bank, a Michigan banking
corporation (the "Bank"), may, in its sole discretion, make loans to and
issue commercial and standby letters of credit for the benefit of Hastings
Manufacturing Company, a Michigan corporation (the "Company").
This Agreement is intended to amend and restate that certain Letter
Agreement dated May 31, 1994, as amended by First Amendment to Letter
Agreement dated as of May 2, 1995, Second Amendment to Letter Agreement
dated as of September 30, 1995, Third Amendment to Letter Agreement dated
as of May 31, 1996, Fourth Amendment to Credit Agreement dated as of May
31, 1996 and Fifth Amendment to Letter Agreement dated as of May 31, 1998,
each by and between the Company and the Bank.
1. DEFINITIONS. As used herein the following terms shall have the
following respective meanings:
"ADVANCES" shall mean the Revolving Credit Loans and the Letter of
Credit Advances made or issued under this Agreement.
"APPLICABLE MARGIN" shall mean, with the respect to any Eurodollar
Rate Loan, Floating Rate Loan, commitment fees payable under paragraph 4 or
standby letter of credit fees payable pursuant to paragraph 3(d), as the
case may be, the applicable margin set forth in the table below based on
the Funded Debt Ratio and the ratio of Total Liabilities to Tangible Net
Worth, as adjusted on the first day of each fiscal quarter based on each
<PAGE>
Hastings Manufacturing Company
August 28, 1998
Page 2
such ratio as of the last day of the fiscal quarter immediately preceding
such fiscal quarter, commencing with the fiscal quarter ending September
30, 1998, PROVIDED that the Applicable Margin in effect on the first day of
any Eurodollar Interest Period for any Eurodollar Rate Loan shall remain in
effect for the entire Eurodollar Interest Period and, notwithstanding
anything herein to the contrary, upon or during the continuance of any
Event of Default the Applicable Margin shall be based on the highest
possible Applicable Margin described in the table below, regardless of the
Funded Debt Ratio or the ratio of Total Liabilities to Tangible Net Worth:
<TABLE>
<CAPTION>
APPLICABLE MARGIN OTHER FEES
- --------------------------------------------------------------------------------------
FUNDED DEBT TOTAL PRIME LIBOR COMMIT- STANDBY
TO EBITDA LIABILITIES TO MENT FEE LETTER OF
TANGIBLES NET CREDIT
WORTH COMMISSION
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
>2.50: 1.00 or >1.90: 1.00 0 b.p. 200 b.p. 25 b.p. 200 b.p.
>1.40: 1.00 or >1.40: 1.00 0 b.p. 175 b.p. 25 b.p. 175 b.p.
<1.40: 1.00 and <1.40: 1.00 0 b.p. 150 b.p. 25 b.p. 150 b.p.
</TABLE>
The middle tier set forth in the table above shall apply through and
including September 30, 1998, until adjusted as provided above.
"BUSINESS DAY" shall mean a day other than a Saturday, Sunday or
other day on which the Bank is not open to the public for carrying on
substantially all of its banking functions.
"CAPITAL LEASE" of any person shall mean any lease which, in
accordance with generally accepted accounting principles, is or should be
capitalized on the books of such person.
"CHANGE OF CONTROL" shall mean the following event: any Person or
group of Persons (within the meaning of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended) shall either (i) acquire
beneficial ownership (within the meaning of Rule 13d-3 of the Securities
and Exchange Commission under the Securities Exchange Act of 1934) of 30%
or more of the outstanding shares of voting stock of the Company or (ii)
obtain the power (whether or not exercised) to elect a majority of the
Company's directors.
<PAGE>
Hastings Manufacturing Company
August 28, 1998
Page 3
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations thereunder.
"CONSOLIDATED" shall mean, when used with reference to any financial
term in this Agreement, the aggregate for two or more persons of the
amounts signified by such term for all such persons determined on a
consolidated basis in accordance with generally accepted accounting
principles.
"CONTINGENT LIABILITIES" of any person shall mean, as of any date, all
obligations of such person or of others for which such person is
contingently liable, as obligor, guarantor, surety, accommodation party,
partner or in any other capacity, or in respect of which obligations such
person assures a creditor against loss or agrees to take any action to
prevent any such loss (other than endorsements of negotiable instruments
for collection in the ordinary course of business), including without
limitation all reimbursement obligations of such person in respect of any
letters of credit, surety bonds or similar obligations (including, without
limitation, bankers acceptances) and all obligations of such person to
advance funds to, or to purchase assets, property or services from, any
other person in order to maintain the financial condition of such other
person.
"CUMULATIVE NET INCOME" of any person shall mean, as of any date, the
net income (after deduction for income and other taxes of such person
determined by reference to income or profits of such person) for the period
commencing on the specified date through the end of the most recently
completed fiscal year of such person (but without reduction for any net
loss incurred for any fiscal year during such period), taken as one
accounting period, all as determined in accordance with generally accepted
accounting principles.
"DEBT SERVICE COVERAGE RATIO" shall mean, for any period, the ratio of
(i) Cumulative Net Income plus all amounts deducted in determining such
Cumulative Net Income on account of (a) Interest Expense and (b) income
taxes and the State of Michigan single business tax to (ii) Interest
Expense plus the current portion of Funded Debt, commencing June 30, 1998
for the four consecutive fiscal quarters most recently ended of the Company
and its Subsidiaries on a consolidated basis in accordance with generally
accepted accounting principles.
"DEFAULT" shall mean any event or condition which might become an
Event of Default with notice or lapse of time or both.
"DOLLARS" and "$" shall mean the lawful money of the United States of
America.
<PAGE>
Hastings Manufacturing Company
August 28, 1998
Page 4
"EBITDA" shall mean, for any period, Cumulative Net Income for such
period plus all amounts deducted in determining such Cumulative Net Income
on account of (a) Interest Expense and (b) income taxes and the State of
Michigan single business tax, and (c) depreciation and amortization
expense, all as determined for the Company and its Subsidiaries on a
consolidated basis in accordance with generally accepted accounting
principles.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations thereunder.
"ERISA AFFILIATE" shall mean any trade or business (whether or not
incorporated) which, together with the Company, would be treated as a
single employer under Section 414 of the Code and the regulations
promulgated thereunder.
"EURODOLLAR BUSINESS DAY" shall mean, with respect to any Eurodollar
Rate Loan, a day which is both a Business Day and a day on which dealings
in Dollar deposits are carried out in the London interbank market.
"EURODOLLAR INTEREST PERIOD" shall mean, with respect to any
Eurodollar Rate Loan, the period commencing on the day such Eurodollar Rate
Loan is made or converted to a Eurodollar Rate Loan and ending on the day
which is one, two, three or six months thereafter (or such other period as
may be agreed to by the Bank), as the Company may elect under paragraph 6,
and each subsequent period commencing on the last day of the immediately
preceding Eurodollar Interest Period and ending on the day which is one,
two, three or six months thereafter (or such other period as may be agreed
to by the Bank), as the Company may elect under paragraph 6, PROVIDED,
HOWEVER, that (a) any Eurodollar Interest Period which commences on the
last Eurodollar Business Day of a calendar month (or on any day for which
there is no numerically corresponding day in the appropriate subsequent
calendar month) shall end on the last Eurodollar Business Day of the
appropriate subsequent calendar month, (b) each Eurodollar Interest Period
which would otherwise end on a day which is not a Eurodollar Business Day
shall end on the next succeeding Eurodollar Business Day or, if such next
succeeding Eurodollar Business Day falls in the next succeeding calendar
month, on the next preceding Eurodollar Business Day, and (c) no Eurodollar
Interest Period shall be permitted which would end after Maturity Date A
with respect to any Revolving Credit Loan or Maturity Date B with respect
to the Term Loan.
"EURODOLLAR RATE" shall mean, with respect to any Eurodollar Rate
Loan and the related Eurodollar Interest Period, the per annum rate that is
equal to the sum of the Applicable Margin plus the rate per annum obtained
by dividing (A) the per annum rate of interest at which deposits in Dollars
<PAGE>
Hastings Manufacturing Company
August 28, 1998
Page 5
for such Eurodollar Interest Period and in an aggregate amount comparable
to the amount of such Eurodollar Rate Loan to be made by the Bank are
offered to the Bank by other prime banks in the London interbank market at
approximately 11:00 a.m. London time on the second Eurodollar Business Day
prior to the first day of such Eurodollar Interest Period by (B) an amount
equal to one minus the stated maximum rate (expressed as a decimal) of all
reserve requirements (including, without limitation, any marginal,
emergency, supplemental, special or other reserves) that are specified on
the first day of such Eurodollar Interest Period by the Board of Governors
of the Federal Reserve System (or any successor agency thereto) for
determining the maximum reserve requirement with respect to eurocurrency
funding (currently referred to as "Eurocurrency liabilities" in Regulation
D of such Board) maintained by a member bank of such System; all as
conclusively determined by the Bank, such sum to be rounded up, if
necessary, to the nearest whole multiple of one one-hundredth of one
percent (1/100 of 1%).
"EURODOLLAR RATE LOAN" shall mean any Loan which bears interest at
the Eurodollar Rate.
"EVENT OF DEFAULT" shall mean any of the events or conditions
described in paragraph 13 of this Agreement.
"FEDERAL FUNDS RATE" shall mean the per annum rate of interest
established and announced by the Bank from time to time as the opening
federal funds rate paid by the Bank in its regional federal funds market
for overnight borrowings from other banks, which Federal Funds Rate shall
change simultaneously with any change in such announced rate.
"FLOATING RATE" shall mean the per annum rate equal to the sum of the
Applicable Margin plus the greater of (i) the sum of (a) one percent (1%)
per annum plus (b) the Federal Funds Rate in effect from time to time, or
(ii) the Prime Rate in effect from time to time; which Floating Rate shall
change simultaneously with any change in such Federal Funds Rate or Prime
Rate, as the case may be.
"FLOATING RATE LOAN" shall mean any Loan which bears interest at the
Floating Rate.
"FUNDED DEBT" of any person, as of any date, shall mean: (a) all debt
for borrowed money and similar monetary obligations evidenced by bonds,
notes, debentures, Capital Lease obligations or otherwise, including
without limitation obligations in respect of the deferred purchase price of
properties or assets, in each case whether direct or indirect; (b) all
liabilities secured by any Lien existing on property owned or acquired
subject thereto, whether or not the liability secured thereby shall have
<PAGE>
Hastings Manufacturing Company
August 28, 1998
Page 6
been assumed; (c) all reimbursement obligations under outstanding letters
of credit in respect of drafts which (i) may be presented or (ii) have been
presented and have not yet been paid, and (d) all Contingent Liabilities
relating to any of the obligations of others similar in character to those
described in the foregoing clauses (a) through (c).
"FUNDED DEBT RATIO" shall mean, as of any date, the ratio of (a)
Funded Debt as of such date to (b) EBITDA, commencing June 30, 1998 for the
four consecutive fiscal quarters most recently ended of the Company and its
Subsidiaries on a consolidated basis in accordance with generally accepted
accounting principles.
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" shall mean generally
accepted accounting principles applied on a basis consistent with that
reflected in the most recent financial statements of the Company submitted
to the Bank prior to the date hereof.
"GUARANTY" shall mean each guaranty agreement from time to time
entered into by any Guarantor for the benefit of the Bank pursuant to this
Agreement in substantially the form of Exhibit C hereto.
"GUARANTOR" shall mean each Subsidiary of the Company.
"INDEBTEDNESS" of any person shall mean, as of any date, (a) all
obligations of such person for borrowed money, (b) all obligations of such
person as lessee under any Capital Lease, (c) all obligations which are
secured by any Lien existing on any asset or property of such person
whether or not the obligation secured thereby shall have been assumed by
such person, (d) the unpaid purchase price for goods, property or services
acquired by such person, except for trade accounts payable arising in the
ordinary course of business that are not past due, (e) all obligations of
such person to purchase goods, property or services where payment therefor
is required regardless of whether delivery of such goods or property or the
performance of such services is ever made or tendered (generally referred
to as "take or pay contracts"), (f) all liabilities of such person in
respect of unfunded benefit liabilities under any plan of such person or of
any member of a controlled group of which such person is a member, (g) all
obligations of such person in respect of any interest rate or currency
swap, rate cap or other similar transaction (valued in an amount equal to
the highest termination payment, if any, that would be payable by such
person upon termination for any reason on the date of determination),
except any such obligations arising under any interest rate or currency
swap, rate cap or other similar transaction entered into by and between
such person and the Bank, and (h) all obligations of others similar in
character to those described in clauses (a) through (g) of this definition
for which such person is contingently liable, as obligor, guarantor, surety
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Hastings Manufacturing Company
August 28, 1998
Page 7
or in any other capacity, or in respect of which obligations such person
assures a creditor against loss or agrees to take any action to prevent any
such loss (other than endorsements of negotiable instruments for collection
in the ordinary course of business), including without limitation all
reimbursement obligations of such person in respect of letters of credit,
surety bonds or similar obligations and all obligations of such person to
advance funds to, or to purchase assets, property or services from, any
other person in order to maintain the financial condition of such other
person.
"INTEREST EXPENSE" shall mean, for any period, total interest and
related expense (including, without limitation, that portion of any
Capitalized Lease obligation attributable to interest expense in conformity
with generally accepted accounting principles, amortization of debt
discount, all capitalized interest, the interest portion of any deferred
payment obligations, all commissions, discounts and other fees and charges
owed with respect to letter of credit and bankers acceptance financing, the
net costs and net payments under any interest rate hedging, cap or similar
agreement or arrangement, prepayment charges, agency fees, administrative
fees, commitment fees and capitalized transaction costs allocated to
interest expense) and all dividends and other distributions on any
preferred capital stock of the Company paid, payable or accrued during such
period, without duplication for any period, with respect to all outstanding
Indebtedness of the Company and its Subsidiaries, all as determined for the
Company and its Subsidiaries on a consolidated basis for such period in
accordance with generally accepted accounting principles.
"INTEREST PAYMENT DATE" shall mean, (a) with respect to any Negotiated
Rate Loan, the last day of each Negotiated Interest Period with respect to
such Negotiated Rate Loan, (b) with respect to any Eurodollar Rate Loan,
the last day of each Eurodollar Interest Period with respect to such
Eurodollar Rate Loan, in either case of any Interest Period exceeding
ninety days, those days that occur during such Interest Period at intervals
of ninety days after the first day of such Interest Period, and (c) in all
other cases, the last Business Day of each March, June, September and
December occurring after the date hereof, commencing with the first such
Business Day occurring after the date of this Agreement.
"INTEREST PERIOD" shall mean any Eurodollar Interest Period or
Negotiated Interest Period.
"LETTER OF CREDIT" shall mean a standby or commercial letter of credit
having a stated expiry date not later than one year from the date of
issuance thereof, issued on or prior to Maturity Date A by the Bank for the
account of the Company under an application and related documentation
acceptable to the Bank requiring, among other things, immediate
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Hastings Manufacturing Company
August 28, 1998
Page 8
reimbursement by the Company to the Bank in respect of all drafts or other
demand for payment honored thereunder and all expenses paid or incurred by
the Bank relative thereto.
"LETTER OF CREDIT ADVANCE" shall mean any issuance of any Letter of
Credit under paragraph 2.
"LETTER OF CREDIT DOCUMENTS" shall have the meaning ascribed thereto
in paragraph 3.
"LIEN" shall mean any pledge, assignment, hypothecation, mortgage,
security interest, deposit arrangement, option, conditional sale or title
retaining contract, sale and leaseback transaction, financing statement
filing, lessor's or lessee's interest under any lease, subordination of any
claim or right, or any other type of lien, charge, encumbrance,
preferential arrangement or other claim or right.
"LOAN" shall mean any Revolving Credit Loan or Term Loan.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (a)
the business, assets, operations or condition (financial or otherwise) of
the Company and its Subsidiaries on a consolidated basis, (b) the ability
of the Company or any Subsidiary to perform its obligations under this
Agreement or any Note, or (c) the validity of enforceability of this
Agreement or any Note or the rights or remedies of the Bank under this
Agreement or any Note.
"MATURITY DATE A" shall mean the earlier to occur of (a) May 31, 2000,
and (b) the date on which the Advances shall be due and payable pursuant to
paragraph 13 of this Agreement.
"MATURITY DATE B" shall mean the earlier to occur of (a) June 30,
2003, and (b) the date on which the Term Loan shall be due and payable
pursuant to paragraph 13 of this Agreement.
"MAXIMUM AMOUNT" shall mean the maximum amount of the Advances that
may be made hereunder pursuant to paragraph 2(a), which shall be $3,000,000
as such amount may be amended from time to time.
"MULTIEMPLOYER PLAN" shall mean any "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA or Section 414(f) of the Code.
"NEGOTIATED INTEREST PERIOD" shall mean with respect to any
Negotiated Rate Loan, the period commencing on the date such Negotiated
Rate Loan is made or converted to a Negotiated Rate Loan and ending on the
date agreed upon between the Company and the Bank at the time such
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Hastings Manufacturing Company
August 28, 1998
Page 9
Negotiated Rate Loan is made, and each subsequent period commencing on the
last day of the immediately preceding Negotiated Interest Period and ending
on the date agreed upon between the Company and the Bank at the time such
Negotiated Rate Loan is elected to be continued as a Negotiated Rate Loan
by the Company under paragraph 6 of this Agreement, PROVIDED, HOWEVER, that
no Negotiated Interest Period which would end after Maturity Date A with
respect to any Revolving Credit Loan or Maturity Date B with respect to the
Term Loan shall be permitted.
"NEGOTIATED RATE" shall mean, with respect to any Negotiated Rate
Loan, the rate per annum agreed upon between the Company and the Bank at
the time such Negotiated Rate Loan is made.
"NEGOTIATED RATE LOAN" shall mean any Loan which bears interest at
the Negotiated Rate.
"NOTE" shall mean any Revolving Credit Note or Term Note.
"OVERDUE RATE" shall mean, (a) in respect of principal of Floating
Rate Loans or any other amount payable by the Company hereunder (other than
interest and indebtedness described in clause (b) of this definition), an
interest rate per annum that is equal to the sum of three percent (3%) per
annum plus the Floating Rate, and (b) in respect of principal of Negotiated
Rate Loans or Eurodollar Rate Loans, an interest rate per annum that is
equal to the sum of three percent (3%) per annum plus the per annum rate in
effect thereon until the end of the then current Interest Period for such
Loan and, thereafter, an interest rate per annum that is equal to the sum
of three percent (3%) per annum plus the Floating Rate.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.
"PERMITTED LIENS" shall mean Liens permitted by paragraph 10(e) of
this Agreement.
"PERSON" shall include an individual, a corporation, a limited
liability company, an association, a partnership, a trust or estate, a
joint stock company, an unincorporated organization, a joint venture, a
trade or business (whether or not incorporated), a government (foreign or
domestic) and any agency or political subdivision thereof, or any other
entity.
"PLAN" shall mean any pension plan (including a Multiemployer Plan)
subject to Title IV of ERISA or to the minimum funding standards of Section
412 of the Code which has been established or maintained by the Company or
any ERISA Affiliate.
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Hastings Manufacturing Company
August 28, 1998
Page 10
"PRIME RATE" shall mean the per annum rate of interest announced by
the Bank from time to time as its "prime rate" (it being acknowledged that
such announced rate may not necessarily be the lowest rate charged by the
Bank to any of its customers), which Prime Rate shall change simultaneously
with any change in such announced rate.
"PROHIBITED TRANSACTION" shall mean any transaction involving any
Plan which is proscribed by Section 406 of ERJSA or Section 4975 of the
Code and to which no statutory or administrative exemption applies.
"REPORTABLE EVENT" shall mean a reportable event with respect to any
Plan as described in Section 4043(c) of ERISA, excluding those events as to
which the thirty (30) day notice period is waived under Part 2615 of the
regulations promulgated by the PBGC under ERISA.
"REVOLVING CREDIT FACILITY" shall mean the credit facility described
in paragraph 2(a).
"REVOLVING CREDIT LOAN" shall mean any loan pursuant to paragraph
2(a).
"REVOLVING CREDIT NOTE" shall mean the master promissory note of the
Company evidencing a Revolving Credit Loan, in substantially the form
annexed hereto as EXHIBIT A, as amended or modified from time to time and
together with any promissory note or notes issued in exchange or
replacement therefor.
"SUBSIDIARY" of any person shall mean any other person (whether now
existing or hereafter organized or acquired) in which (other than directors
qualifying shares required by law) at least a majority of the securities or
other ownership interests of each class having ordinary voting power or
analogous right (other than securities or other ownership interests which
have such power or right only by reason of the happening of a contingency),
at the time as of which any determination is being made, are owned,
beneficially and of record, by such person or by one or more of the other
Subsidiaries of such person or by any combination thereof. Unless
otherwise specified, reference to "Subsidiary" shall mean a Subsidiary of
the Company.
"SWAP AGREEMENT" shall mean the swap agreement dated as of even date
herewith by and between the Company and the Bank, as the same may hereafter
be amended or modified from time to time.
"TANGIBLE NET WORTH" of any person shall mean, as of any date, (a) the
amount of any capital stock, paid in capital and similar equity accounts
plus (or minus in the case of a deficit) the capital surplus and retained
<PAGE>
Hastings Manufacturing Company
August 28, 1998
Page 11
earnings of such person and the amount of any foreign currency translation
adjustment account shown as a capital account of such person, less (b) the
net book value of all items of the following character which are included
in the assets of such person: (i) goodwill, including without limitation,
the excess of cost over book value of any asset, (ii) organization or
experimental expenses, (iii) unamortized debt discount and expense, (iv)
patents, trademarks, trade names and copyrights, (v) treasury stock, (vi)
deferred taxes and deferred charges, (vii) franchises, licenses and
permits, and (viii) other assets which are deemed intangible assets under
generally accepted accounting principles.
"TERM LOAN" shall mean the term loan issued pursuant to paragraph
2(b).
"TERM NOTE" shall mean the promissory note of the Company evidencing
the Term Loan, in substantially the form annexed hereto as EXHIBIT B, as
amended or modified from time to time and together with any promissory note
or notes issued in exchange or replacement therefor.
"TOTAL LIABILITIES" of any person shall mean, as of any date, all
obligations which, in accordance with generally accepted accounting
principles, are or should be classified as liabilities on a balance sheet
of such person.
2. LOANS AND ADVANCES.
(a) REVOLVING CREDIT LOANS AND ADVANCES. The Bank may, in its
sole and uncontrolled discretion, make Revolving Credit Loans to the
Company or issue Letters of Credit for the benefit of the Company. The
aggregate outstanding principal amount of Advances made by the Bank to the
Company hereunder shall not at any time exceed the Maximum Amount. The
aggregate stated amount of Letter of Credit Advances issued by the Bank for
the benefit of the Company under this Agreement shall not at any time
exceed One Million Dollars ($1,000,000). The Revolving Credit Loans shall
be evidenced by Revolving Credit Notes, payable on demand by the Bank but
no later than Maturity Date A, with interest payable prior to maturity
(whether by demand or otherwise) on demand by the Bank but no later than
each Interest Payment Date and at maturity (whether by demand or otherwise)
at the Negotiated Rate, the Eurodollar Rate or the Floating Rate, as
elected by the Company hereunder and during such periods as may be
permitted hereunder, and after maturity (whether by demand or otherwise) on
demand at the Overdue Rate. The Letter of Credit Advances, if not promptly
reimbursed pursuant to paragraph 3 hereof, shall bear interest on demand at
the Overdue Rate. All Negotiated Rate Loans shall be in the minimum amount
of $500,000 and in integral multiples of $100,000, all Eurodollar Rate
Loans shall be in the minimum amount of $1,000,000 and in integral
<PAGE>
Hastings Manufacturing Company
August 28, 1998
Page 12
multiples of $100,000, and all Floating Rate Loans shall be in the minimum
amount of $50,000 and in integral multiples thereof. All Letter of Credit
Advances shall be in a minimum amount of $50,000.
(b) TERM LOAN. The Bank agrees to make a term loan to the
Company in the amount of Six Million Six Hundred Thousand Dollars
($6,600,000). The Term Loan shall be evidenced by the Term Note, and,
unless earlier payment is required under this Agreement, shall be payable
in equal quarterly principal payments of $330,000, plus interest (at the
Negotiated Rate, the Eurodollar Rate or the Floating Rate, as elected by
the Company hereunder and during such periods as may be permitted
hereunder, and after maturity, whether by demand or otherwise on demand at
the Overdue Rate).
(c) PREPAYMENT OF LOANS. The Company may at any time and from
time to time prepay all or a portion of the Eurodollar Rate Loans or
Floating Rate Loans, without premium or penalty, PROVIDED that (i) the
Company may not prepay any portion of any such Loan as to which an election
for a continuation of or a conversion to a Eurodollar Rate Loan is pending
pursuant to this paragraph 2, and (ii) unless earlier payment is required
under this Agreement, any Eurodollar Rate Loan or Negotiated Rate Loan may
only be prepaid on the last day of the then current Interest Period with
respect to such Loan. Upon the giving of such notice, the aggregate
principal amount of such Loan or portion thereof so specified in such
notice, together with such accrued interest and other amounts, shall become
due and payable on the specified prepayment date.
3. LETTER OF CREDIT ADVANCES: REIMBURSEMENT PAYMENTS.
(a) The Company agrees to pay to the Bank, on the day on which
the Bank shall honor a draft or other demand for payment presented or made
under any Letter of Credit, an amount equal to the amount paid by the Bank
in respect of such draft or other demand under such Letter of Credit and
all expenses paid or incurred by the Bank relative thereto. Unless the
Company shall have made such payment to the Bank an such day, upon each
such payment by the Bank, the Bank shall be deemed to have disbursed to the
Company, and the Company shall be deemed to have elected to satisfy its
reimbursement obligation by, a Loan bearing interest at the Floating Rate
in an amount equal to the amount so paid by the Bank in respect of such
draft or other demand under such Letter of Credit. Such Loan shall be
disbursed notwithstanding any failure to satisfy any conditions for
disbursement of any Loan set forth in paragraph 8 hereof and, to the extent
of the Loan so disbursed, the reimbursement obligation of the Company under
this paragraph 3 shall be deemed satisfied.
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Hastings Manufacturing Company
August 28, 1998
Page 13
(b) The reimbursement obligation of the Company under this
paragraph 3 shall be absolute, unconditional and irrevocable and shall
remain in fall force and effect until all obligations of the Company to the
Bank hereunder shall have been satisfied, and such obligations of the
Company shall not be affected, modified or impaired upon the happening of
any event, including without limitation, any of the following, whether or
not with notice to, or the consent of, the Company:
(i) Any lack of validity or enforceability of any Letter of
Credit or any documentation relating to any Letter of Credit or
to any transaction related in any way to such Letter of Credit
(the "Letter of Credit Documents");
(ii) Any amendment, modification, waiver, consent, or any
substitution, exchange or release of or failure to perfect any
interest in collateral or security, with respect to any of the
Letter of Credit Documents;
(iii) The existence of any claim, setoff, defense or other
right which the Company may have at any time against any
beneficiary or any transferee of any Letter of Credit (or any
persons or entities for whom any such beneficiary or any such
transferee may be acting) Bank or any other person or entity,
whether in connection with any of the Letter of Credit Documents,
the transactions contemplated herein or therein or any unrelated
transactions;
(iv) Any draft or other statement or document presented
under any Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect;
(v) Payment by the Bank to the beneficiary under any Letter
of Credit against presentation of documents which do not comply
with the terms of the Letter of Credit, including failure of any
documents to bear any reference or adequate reference to such
Letter of Credit;
(vi) Any failure, omission, delay or lack on the part of the
Bank or any party to any of the Letter of Credit Documents to
enforce, assert or exercise any right, power or remedy conferred
upon the Bank or any such party under this Agreement or any of
the Letter of Credit Documents, or any other acts or omissions on
the part of the Bank or any such party;
<PAGE>
Hastings Manufacturing Company
August 28, 1998
Page 14
(vii) Any other event or circumstance that would, in the
absence of this clause, result in the release or discharge by
operation of law or otherwise of the Company from the performance
or observance of any obligation, covenant or agreement contained
in this paragraph 3.
(c) No setoff, counterclaim, reduction or diminution of any
obligation or any defense of any kind or nature which the Company has or
may have against the beneficiary of any Letter of Credit shall be available
hereunder to the Company against the Bank.
(d) On or before the date of issuance of any Letter of Credit,
the Company agrees to pay to the Bank a fee computed: (i) at a rate equal
to the Applicable Margin of the maximum amount available to be drawn from
time to time under such Letter of Credit for the period from and including
the date of issuance of such Letter of Credit to and including the stated
expiry date of such Letter of Credit, in the case of standby letters of
credit, and (ii) at a rate to be agreed upon between the Bank and the
Company in the case of commercial letters of credit. Such fees are non-
refundable and the Company shall not be entitled to any rebate of any
portion thereof if such Letter of Credit does not remain outstanding
through its stated expiry date or for any other reason. The Company
further agrees to pay to the Bank, on demand, such other customary
administrative fees, charges and expenses of the Bank in respect of the
issuance, negotiation, acceptance, amendment, transfer and payment of such
Letter of Credit or otherwise payable pursuant to the application and
related documentation under which such Letter of Credit is issued.
4. COMMITMENT FEE. The Company agrees to pay to the Bank a
commitment fee on the daily average unused amount of the Revolving Credit
Facility (calculated on a 360-day basis), at a rate equal to the Applicable
Margin. Accrued commitment fees shall be payable quarterly in arrears on
the last Business Day of each March, June, September and December,
commencing on the first such Business Day occurring after the date of this
Agreement, and on Maturity Date A.
5. REQUEST FOR ADVANCES. The Company shall give the Bank a written
request, or a verbal request followed immediately by a written request, for
each requested Revolving Credit Loan not later than 11:00 a.m. Detroit
time, on the date such Advance is requested to be made in the case of any
requested Revolving Credit Loan, and three Business Days prior to the date
such Advance is requested to be made in the case of any requested Letter of
Credit Advance, which notice shall specify whether a Negotiated Rate Loan,
Eurodollar Rate Loan, Floating Rate Loan or Letter of Credit Advance is
<PAGE>
Hastings Manufacturing Company
August 28, 1998
Page 15
requested and, in the case of each requested Negotiated Rate Loan or
Eurodollar Rate Loan, the Interest Period to be initially applicable to
such Revolving Credit Loan.
6. CONTINUATION AND CONVERSION OF LOANS. The Company may elect,
subject to the Bank's approval in its sole discretion, to continue a
Negotiated Rate Loan as a Negotiated Rate Loan or may elect to convert a
Floating Rate Loan to a Negotiated Rate Loan or a Eurodollar Rate Loan, or
may elect to convert a Negotiated Rate Loan to a Floating Rate Loan or a
Eurodollar Rate Loan, or may elect to convert a Eurodollar Rate Loan to a
Negotiated Rate Loan or a Floating Rate Loan, in each case by giving
written request therefor, or a verbal request followed immediately by a
written request, not later than 11:00 a.m. Detroit time on the date such
continuation or conversion is requested, PROVIDED that an outstanding
Negotiated Rate Loan or Eurodollar Rate Loan may only be continued on the
last day of the then-current Interest Period with respect to such Loan and
PROVIDED, FURTHER, if a continuation of a Loan as, or conversion of a Loan
to, a Negotiated Rate Loan or a Eurodollar Rate Loan is requested, such
request shall also specify the applicable Interest Period to be applicable
thereto. If the Company shall not deliver such a notice with respect to
any Negotiated Rate Loan or Eurodollar Rate Loan, the Company shall be
deemed to have elected to convert such Loan on the last day of the then
current Negotiated Interest Period with respect to such Negotiated Rate
Loan, or on the last day of the then current Eurodollar Interest Period
with respect to such Eurodollar Rate Loan, to a Floating Rate Loan.
7. INCREASED COSTS; LIMITATIONS ON REQUESTS. The Company agrees
that (a) in the event that any applicable law, treaty, rule or regulation
(whether domestic or foreign) now or hereafter in effect (including without
limitation the Federal Deposit Insurance Act) and whether or not presently
applicable to the Bank, or any interpretation or administration thereof by
any governmental authority or compliance by the Bank with any guideline,
request or directive of any such authority (whether or not having the force
of law), shall (i) affect the basis of taxation of payments to the Bank of
any amounts payable by the Company pursuant to this Agreement, (ii) impose,
modify or deem applicable any insurance assessment or reserve, special
deposit or similar requirement against assets of, deposits with or for the
account of, or credit extended by the Bank, or (iii) affect the amount of
capital required or expected to be maintained by the Bank or its parent
bank holding company, the Company shall pay to the Bank, from time to time
upon request of the Bank, additional amounts sufficient to compensate the
Bank for such increased costs or reduced sum receivable related thereto,
(b) the Company shall indemnify the Bank for any and all losses the Bank
may incur if the Company makes any payment of principal with respect to any
Negotiated Rate Loan on any date other than the last day of an Negotiated
Interest Period applicable thereto or if the Company fails to borrow any
<PAGE>
Hastings Manufacturing Company
August 28, 1998
Page 16
Negotiated Rate Loan after notice requesting such Loan has been given to
the Bank, and (c) the Company shall indemnify the Bank for any and all
losses the Bank may incur if the Company makes any payment of principal
with respect to any Eurodollar Rate Loan on any date other than the last
day of an Eurodollar Interest Period applicable thereto or if the Company
fails to borrow any Eurodollar Rate Loan after notice requesting such Loan
has been given to the Bank. A detailed statement as to the amount of such
increased cost or reduced sum receivable, prepared in good faith and
submitted by the Bank to the Company, shall be conclusive and binding for
all purposes absent manifest error in computation. The Company further
agrees that it may not elect the Negotiated Rate if it is impracticable,
unlawful or impossible for any reason for the Bank to make or maintain a
Negotiated Rate Loan and, if it is unlawful or impossible for the Bank to
maintain an outstanding Negotiated Rate Loan, such Loan shall be
immediately due and payable, together with accrued interest and any amount
specified in paragraph 7(b) hereof, on the last day of the then current
Negotiated Interest Period applicable to such Loan if the Bank may lawfully
continue to maintain such Loan to such day or immediately if the Bank may
not continue to maintain such Loan to such day.
8. CONDITIONS OF LOANS. Prior to or simultaneously with its first
request for an Advance hereunder, the Company shall furnish to the Bank the
following documents, each in form and substance satisfactory to the Bank:
(a) Certified copies of such corporate documents of the
Company, including those evidencing necessary corporate action with respect
to this Agreement, any Note and the Advances hereunder, as the Bank shall
request.
(b) The Revolving Credit Note and the Term Note.
(c) An opinion of counsel to the Company, in form and substance
satisfactory to the Bank, with respect to the matters set forth in
subparagraphs (a) through (e) of paragraph 11 of this Agreement and such
other matters as the Bank may request.
(d) Payment of any fees due as of the date of this Agreement,
including without limitation a closing fee in the amount of $5,000.
(e) Certified copies of such corporate documents and resolutions
as requested by the Bank.
(f) A Guaranty executed by each Guarantor.
(g) Such other documents and agreements requested by the Bank.
<PAGE>
Hastings Manufacturing Company
August 28, 1998
Page 17
In addition to the above subparagraphs (a)-(d), no Advance shall be
made under this Agreement if any of the representations and warranties
contained in this Agreement are not true and correct as of the date on
which such Advance is made or requested to be made or if any Default or
Event of Default shall exist or shall have occurred and be continuing on
the date such Advance is made or requested to be made. A request for
Advance by the Company shall be deemed to be a representation that the
conditions in this paragraph have been satisfied.
9. AFFIRMATIVE COVENANTS. The Company covenants and agrees that,
until Maturity Date B and thereafter until payment in fall of the principal
of and accrued interest on each Note and the performance of all other
obligations of the Company under this Agreement, unless the Bank shall
otherwise consent in writing, it shall, and shall cause each of its
Subsidiaries to:
(a) PRESERVATION OF CORPORATE EXISTENCE, ETC. Do or cause to be
done all things necessary to preserve, renew and keep in full force and
effect its legal existence and its qualification as a foreign corporation
in good standing in each jurisdiction in which such qualification is
necessary under applicable law, and the rights, licenses, permits
(including those required under any environmental law), franchises,
patents, copyrights, trademarks and trade names material to the conduct of
its businesses; and defend all of the foregoing against all claims,
actions, demands, suits or proceedings at law or in equity or by or before
any governmental instrumentality or other agency or regulatory authority.
(b) COMPLIANCE WITH LAWS, ETC. Comply in all material respects
with all applicable laws, rules, regulations and orders of any governmental
authority, whether federal, state, local or foreign (including without
limitation ERISA, the Code and all federal, state and local environmental
laws, regulations and orders), in effect from time to time; and pay and
discharge promptly when due all taxes, assessments and governmental charges
or levies imposed upon it or upon its income, revenues or property, before
the same shall become delinquent or in default, as well as all lawful
claims for labor, materials and supplies or otherwise, which, if unpaid,
might give rise to Liens upon such properties or any portion thereof,
except to the extent that payment of any of the foregoing is then being
contested in good faith by appropriate legal proceedings and with respect
to which adequate financial reserves have been established on the books and
records of the Company or such Subsidiary.
(c) MAINTENANCE OF PROPERTIES, INSURANCE. Maintain, preserve
and protect all property that is material to the conduct of the business of
the Company or any of its Subsidiaries and keep such property in good
repair, working order and condition and from time to time make, or cause to
<PAGE>
Hastings Manufacturing Company
August 28, 1998
Page 18
be made all needful and proper repairs, renewals, additions, improvements
and replacements thereto necessary in order that the business carried on in
connection therewith may be properly conducted at all times in accordance
with customary and prudent business practices for similar businesses; and
maintain in full force and effect insurance with responsible and reputable
insurance companies or associations in such amounts, on such terms and
covering such risks, including fire and other risks insured against by
extended coverage, as is usually carried by companies engaged in similar
businesses and owning similar properties similarly situated and maintain in
full force and effect public liability insurance, insurance against claims
for personal injury or death or property damage occurring in connection
with any of its activities or any of any properties owned, occupied or
controlled by it, in such amount as it shall reasonably deem necessary, and
maintain such other insurance as may be required by law or as may be
reasonably requested by the Bank for purposes of assuring compliance with
this paragraph 9(c).
(d) REPORTING REQUIREMENTS. Furnish to the Bank the following:
(i) Promptly and in any event within three calendar days
after becoming aware of the occurrence of (A) any Default or
Event of Default, (B) the commencement of any material litigation
against, by or affecting the Company or any of its Subsidiaries,
and any material developments therein, or (C) any development in
the business or affairs of the Company or any of its Subsidiaries
which has resulted in or which is likely in the reasonable
judgment of the Company, to result in a material adverse change
in the business, properties, operations or condition (financial
or otherwise) of the Company or any of its Subsidiaries, a
statement of the chief financial officer of the Company setting
forth details of such Default or Event of Default or event or
condition and the action which the Company or such Subsidiary, as
the case may be, has taken and proposes to take with respect
thereto;
(ii) As soon as available and in any event within 45 days
after the end of each fiscal quarter of the Company, the
consolidated balance sheet of the Company and its Subsidiaries as
of the end of such quarter, and the related consolidated
statements of income, retained earnings and changes in cash flow
for the period commencing at the end of the previous fiscal year
and ending with the end of such quarter, setting forth in each
case in comparative form the corresponding figures for the
corresponding date or period of the preceding fiscal year, all in
reasonable detail and duly certified (subject to year-end audit
adjustments) by the chief financial officer of the Company as
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Hastings Manufacturing Company
August 28, 1998
Page 19
having been prepared in accordance with generally accepted
accounting principles, together with a certificate of the chief
financial officer of the Company stating (A) that no Default or
Event of Default has occurred and is continuing or, if a Default
or Event of Default has occurred and is continuing, a statement
setting forth the details thereof and the action which the
Company has taken and proposes to take with respect thereto, and
(B) that a computation (which computation shall accompany such
certificate and shall be in reasonable detail) showing compliance
with paragraph 10(a), (b), (c), (d), (h), (i) and (j) hereof is
in conformity with the terms of this Agreement;
(iii) As soon as available and in any event within 90 days
after the end of each fiscal year of the Company, a copy of the
consolidated balance sheet of the Company and its Subsidiaries as
of the end of such fiscal year and the related consolidated
statements of income, retained earnings and changes in cash flow
of the Company and its Subsidiaries for such fiscal year, with a
customary audit report of BDO Seidman or other independent
certified public accountants selected by the Company and
acceptable to the Bank, without qualifications unacceptable to
the Bank, together with a certificate of such accountants stating
(A) that they have reviewed this Agreement and stating further
whether, in the course of their review of such financial
statements, they have become aware of any Default or Event of
Default and, if such Default or Event of Default exists and is
continuing, a statement setting forth the nature and status
thereof, and (B) that a computation by the Company (which
computation shall accompany such certificate and shall be in
reasonable detail) showing compliance with paragraph 10(a), (b),
(c), (d), (h), (i) and (j) hereof is in conformity with the terms
of this Agreement;
(iv) Promptly after the sending or filing thereof, copies of
all reports, proxy statements and financial statements which the
Company or any of its Subsidiaries sends to or files with any of
their respective security holders or any securities exchange or
the Securities and Exchange Commission or any successor agency
thereof; and
(v) Promptly, such other information respecting the
business, properties, operations or condition (financial or
otherwise) of the Company or any of it Subsidiaries as Bank may
from time to time reasonably request.
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Hastings Manufacturing Company
August 28, 1998
Page 20
(e) ACCOUNTING; ACCESS TO RECORDS, BOOKS, ETC. Maintain a
system of accounting established and administered in accordance with sound
business practices to permit preparation of financial statements in
accordance with generally accepted accounting principles and to comply with
the requirements of this Agreement and, at any reasonable time and from
time to time, permit the Bank or any agents or representatives thereof to
examine and make copies of and abstracts from the records and books of
account of, and visit the properties of, the Company and its Subsidiaries,
and to discuss the affairs, finances and accounts of the Company and its
Subsidiaries with their respective directors, officers, employees and
independent auditors, and by this provision the Company does hereby
authorize such persons to discuss such affairs, finances and accounts with
the Bank.
10. NEGATIVE COVENANTS. Until Maturity Date B and thereafter until
payment in full of the principal of and accrued interest on any outstanding
Note and the performance of all other obligations of the Company under this
Agreement, the Company agrees that, unless the Bank shall otherwise consent
in writing it shall not, and shall not permit any of its Subsidiaries to:
(a) FUNDED DEBT RATIO. Permit or suffer the Funded Debt Ratio
of the Company and its Subsidiaries to be greater than: (i) 2.80 to 1.00 at
any time from and including the date hereof to but excluding December 31,
1998 or (ii) 2.50 to 1.00 from and including December 31, 1998 to but
excluding December 31, 1999 or (iii) 2.00 to 1.00 thereafter.
(b) DEBT SERVICE COVERAGE RATIO. Permit or suffer the Debt
Service Coverage Ratio of the Company and its Subsidiaries to be less than
1.20:1.00 at any time.
(c) TOTAL LIABILITIES TO TANGIBLE NET WORTH. Permit or suffer
the ratio of the consolidated Total Liabilities of the Company and its
Subsidiaries to the consolidated Tangible Net Worth of the Company and its
Subsidiaries to be greater than 2.00 to 1.00 at any time.
(d) INDEBTEDNESS. Create, incur, assume or in any manner become
liable in respect of, or suffer to exist, any Indebtedness other than:
(i) The Advances;
(ii) The Indebtedness described on SCHEDULE 10(D), having
the same terms as those existing on the date of this Agreement,
but no extension or renewal thereof shall be permitted;
(iii) Indebtedness of any Subsidiary of the Company owing to
the Company or to any other Subsidiary of the Company; and
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Hastings Manufacturing Company
August 28, 1998
Page 21
(iv) Indebtedness under lines of credit to other banks in an
aggregate principal amount not to exceed $2,500,000 at any time.
(e) LIENS. Create, incur or suffer to exist any Lien on any of
the assets, rights, revenues or property, real, personal or mixed, tangible
or intangible, whether now owned or hereafter acquired, of the Company or
any of its Subsidiaries, other than:
(i) Liens for taxes not delinquent or for taxes being
contested in good faith by appropriate proceedings and as to
which adequate financial reserves have been established on its
books and records;
(ii) Liens (other than any Lien imposed by ERISA) created
and maintained in the ordinary course of business which are not
material in the aggregate, and which would not have a Material
Adverse Effect and which constitute: (A) pledges or deposits
under worker's compensation laws, unemployment insurance laws or
similar legislation, (B) good faith deposits in connection with
bids, tenders, contracts or leases to which the Company or any of
its Subsidiaries is a party for a purpose other than borrowing
money or obtaining credit, including rent security deposits, (C)
Liens imposed by law, such as those of carriers, warehousemen and
mechanics, if payment of the obligation secured thereby is not
yet due, (D) Liens securing taxes, assessments or other
governmental charges or levies not yet subject to penalties for
nonpayment, and (E) pledges or deposits to secure public or
statutory obligations of the Company or any of its Subsidiaries,
or surety or customs bonds to which the Company or any of its
Subsidiaries is a party; and
(iii) Each Lien described in on SCHEDULE 10(E) may be
suffered to exist upon the same terms as those existing on the
date hereof, but no extension or renewal thereof shall be
permitted.
(f) MERGER; ACQUISITIONS; ETC. Purchase or otherwise acquire,
whether in one or a series of transactions, all or a substantial portion of
the business assets, rights, revenues or property, real, personal or mixed,
tangible or intangible, of any person, or all or a substantial portion of
the capital stock of or other ownership interest in any other person nor
make any substantial change in the nature of its business; nor merge or
consolidate or amalgamate with any other person or take any other action
having a similar effect, nor enter into any joint venture or similar
arrangement with any other person, PROVIDED, HOWEVER, that this paragraph
10(f) shall not prohibit any merger or acquisition if the Company shall be
<PAGE>
Hastings Manufacturing Company
August 28, 1998
Page 22
the surviving or continuing corporation thereof and, immediately after such
merger or acquisition, no Default or Event of Default shall exist or shall
have occurred and be continuing.
(g) DISPOSITION OF ASSETS, ETC. Sell, lease, license, transfer,
assign or otherwise dispose of all or a substantial portion of its
business, assets, rights, revenues or property, real, personal or mixed,
tangible or intangible, whether in one or a series of transactions, other
than inventory sold in the ordinary course of business upon customary
credit terms and sales of scrap or obsolete material or equipment.
(h) DIVIDENDS AND OTHER RESTRICTED PAYMENTS. Make, pay, declare
or authorize any dividend, payment or other distribution in respect of any
class of its capital stock or any dividend, payment or distribution in
connection with the redemption, purchase, retirement or other acquisition,
directly or indirectly, of any shares of its capital stock other than such
dividends, payments or other distributions to the extent payable solely in
shares of the capital stock of the Company, PROVIDED, HOWEVER, that, if no
Default or Event of Default shall exist or shall have occurred and be
continuing, the Company may make, pay, declare or authorize dividends,
payments and other such distributions made after the date hereof which, in
the aggregate, do not exceed the sum of (i) $2,000,000 at any time plus
(ii) beginning January 1, 1998, fifty percent (50%) of the consolidated
Cumulative Net Income of the Company and its Subsidiaries. For purposes of
this paragraph 10(h), "capital stock" shall include capital stock and any
securities exchangeable for or convertible into capital stock and any
warrants, rights or other options to purchase or otherwise acquire capital
stock or such securities.
(i) INVESTMENTS, LOANS AND ADVANCES. Purchase or otherwise
acquire any capital stock of or other ownership interest in, or debt
securities of or other evidences of Indebtedness of, any other person; nor
make any loan or advance of any of its funds or property or make any other
extension of credit to, or make any investment or acquire any interest
whatsoever in, any other person; nor incur any Material contingent
liability, other than (i) extensions of trade credit made in the ordinary
course of business on customary credit terms and commission, travel and
similar advances made to officers and employees in the ordinary course of
business, and (ii) amounts which do not exceed, in the aggregate,
$1,000,000.
(j) LEASES. Enter into, permit or suffer to remain outstanding
any arrangement for the leasing of real or personal property, wherein the
total annual liability for lease payments exceeds $750,000 in the aggregate
for the Company and its Subsidiaries, excluding those lease obligations of
the Company under the EDC bonds described on SCHEDULE 10(J).
<PAGE>
Hastings Manufacturing Company
August 28, 1998
Page 23
(k) NEGATIVE PLEDGE LIMITATION. Enter into any agreement with
any person other than the Bank pursuant hereto which prohibits or limits
the ability of the Company or any Subsidiary to create, incur, assume or
suffer to exist any Lien upon any of its assets, rights, revenue or
property, real, personal or mixed, tangible or intangible, whether now
owned or hereafter acquired.
For purposes of this paragraph 10, compliance with the covenants shall
be determined in accordance with generally accepted accounting principles;
PROVIDED, HOWEVER, that (i) the terms "Tangible Net Worth" and "Cumulative
Net Income," as such terms are defined and used herein, shall exclude the
one-time effect of the application of Statement of Financial Accounting
Standard 106 ("SFAS 106") on the financial condition of the Company in an
approximate amount of $11,209,000, (ii) the term "Total Liabilities," as
such term is defined and used herein, shall exclude the amount shown on the
balance sheet of the Company under the heading "Post-Retirement Benefit
Obligation" or similar title evidencing the liability of the Company under
SFAS 106, such excluded amount not to exceed the initial adjustment of
$16,916,167 to "Post-Retirement Benefit Obligation," (iii) the amount shown
on the balance sheet of the Company under the heading "Intangible Pension
Asset" shall not be deemed as an intangible asset for purposes of the
definition of "Tangible Net Worth," as such term is defined and used
herein, so long as there is a relate, offsetting figure of the same or
greater amount in the "Stockholder's Equity" section of the balance sheet
of the Company under the heading "Pension Liabilities Adjustment" and (iv)
in all other respects generally accepted accounting principles shall be
construed to include the charges to income and other accounting adjustments
required under SFAS 106 from and after the date of such initial one-time
SFAS 106 adjustment.
11. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the Bank that:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Michigan, and
is duly qualified to do business and is in good standing in each additional
jurisdiction where such qualification is necessary.
(b) The execution, delivery and performance of this Agreement
and by the Company and the issuance, delivery and performance of any Note
by the Company are within its corporate powers, have been duly authorized
by the Company, and are not in contravention of law or of the terms of its
Articles of Incorporation or By-laws, or of any undertaking to which the
Company is a party or by which it may be bound and do not result in any
Lien (other than Permitted Liens).
<PAGE>
Hastings Manufacturing Company
August 28, 1998
Page 24
(c) This Agreement is, and any Note when issued will be, valid,
binding and enforceable against the Company in accordance with the
respective terms thereof.
(d) No consent, approval or authorization of or declaration or
filing with any governmental authority or any other person on the part of
the Company is required in connection with the execution, delivery and
performance of this Agreement or any Note or the consummation of the
transactions contemplated by this Agreement.
(e) No litigation or governmental proceeding is pending or, to
the knowledge of the officers of the Company, threatened against the
Company which could have a Material Adverse Effect.
(f) All financial statements famished by the Company to the Bank
are complete and accurate in all material respects and present fairly the
financial condition of the Company as of the dates of such statements and
the results of its operations for the periods covered thereby, in
accordance with generally accepted accounting principles, and there has
been no material adverse change in the condition of the Company, financial
or otherwise, since the date of the latest of such statements for the
Company.
(g) The Company is solvent, able to pay its Indebtedness
(including Contingent Liabilities) as it matures, has capital sufficient to
carry on its business and all business in which it is about to engage, and
the present fair saleable value of its assets is greater than the amount of
its Indebtedness (including Contingent Liabilities).
(h) The Company is in compliance in all material respects with
all laws, rules, regulations, orders or similar requirements of any
federal, state or local governmental authority, including without
limitation those relating to environmental matters.
(i) Each of the representations and warranties in the Swap
Agreement is true and correct in all respects as if made on and as of the
date hereof
(j) There exists no default, Event of Default or event or
condition which, with notice or the lapse of time or both could become such
a default or Event of Default, under the Swap Agreement.
<PAGE>
Hastings Manufacturing Company
August 28, 1998
Page 25
12. FEES. The Company shall pay all fees and other expenses incurred
by the Bank in connection with this Agreement, including without limitation
the fees and expenses of Dickinson Wright PLLC, counsel for the Bank, in
connection with preparation of this Agreement and the documents required
hereunder, and any modification, amendment, waiver or consent under this
Agreement or any enforcement or protection of any of the Bank's rights
under this Agreement.
13. EVENTS OF DEFAULT. The Loans and all other indebtedness,
obligations and liabilities of the Company to the Bank hereunder are
payable upon demand, and the failure of the Company to make any payment
demanded by the Bank immediately upon demand shall be deemed an Event of
Default under this Agreement. In addition, each of the following shall
also be deemed an Event of Default under this Agreement, and upon the
occurrence of any of the following each Note and all accrued interest
thereon and all other indebtedness, obligations and liabilities of the
Company to the Bank shall be immediately due and payable, without notice or
demand:
(a) failure to make any payment when due (whether by demand or
otherwise) of principal or failure to pay make any payment of interest on
any Note or any other amount due under this Agreement within five days of
the due date; or
(b) any other default in the performance or observance of any
term, covenant or agreement of the Company contained in this Agreement or
any Note; or
(c) any representation or warranty made by the Company herein or
any statement or certificate furnished by the Company hereunder proves to
be untrue in any material respect; or
(d) failure to perform or observe any term, covenant or
agreement contained in paragraph 10 hereof; or
(e) the Company or any of its Subsidiaries shall fail to pay any
part of the principal of, the premium, if any, or the interest on, or any
other payment of money due under any other document, agreement or
instrument now or hereafter evidencing any indebtedness, obligation or
liability of any kind, beyond any period of grace provided with respect
thereto, if the effect of such failure is to cause, or permit the holders
of such indebtedness (or a trustee on behalf of such holders) to cause, any
payment in respect of such indebtedness to become due prior to its due
date; or
<PAGE>
Hastings Manufacturing Company
August 28, 1998
Page 26
(f) the Company or any of its Subsidiaries becomes insolvent or
bankrupt, or makes an assignment for the benefit of creditors or consents
to the appointment of a trustee or receiver for itself or for the greater
part of its properties; or a trustee or receiver is appointed for the
Company or any of its Subsidiaries without its consent; or bankruptcy,
reorganization or liquidation proceedings are instituted by or against the
Company or any of its Subsidiaries; or
(g) the Company or any of its Subsidiaries shall suffer any
money judgment not covered by insurance, writ or warrant of attachment or
similar process involving an amount in excess of $100,000 in the aggregate,
and shall not discharge, vacate, bond or stay the same within a period of
thirty (30) days or, in any event, within ten (10) days of the date of any
proposed sale thereunder; or
(h) any of the following events shall occur, if such event could
alone or in combination with any other such event or events have a Material
Adverse Effect: a Reportable Event that results in or could result in
material liability of the Company to the PBGC or to any Plan which could
constitute grounds for termination of any Plan by the PBGC or for the
appointment by the appropriate United States District Court of a trustee to
administer any Plan or the filing by the Company or any ERISA Affiliate of
a notice of intent to terminate a Plan or the institution of other
proceedings to terminate a Plan; or the Company or any ERISA Affiliate
shall fail to pay when due any material liability to the PBGC or to a Plan;
or the PBGC shall have instituted proceedings to terminate, or to cause a
trustee to be appointed to administer, any Plan; or any person engages in a
Prohibited Transaction with respect to any Plan which results in or could
result in material liability of the Company; or failure by the Company or
any ERISA Affiliate to make a required installment or other payment to any
Plan within the meaning of Section 302(f) of ERISA or Section 412(n) of the
Code that results in or could result in material liability of the Company
to the PBGC or any Plan; or the withdrawal of the Company or any ERISA
Affiliate from a Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001(a)(2) of ERISA; or the Company or any
ERISA Affiliate becomes an employer with respect to any Multiemployer Plan
without the prior written consent of the Bank; or
(i) any Change of Control; or
(j) any material adverse change in the business or financial
condition of the Company or any of its Subsidiaries.
14. SET-OFF. In addition to any rights and remedies of the Bank
provided by law, the Bank shall have the right, without prior written
notice to the Company, any such notice being expressly waived by the
<PAGE>
Hastings Manufacturing Company
August 28, 1998
Page 27
Company to the extent permitted by applicable law, upon the occurrence of
any Event of Default and so long as such Event of Default is continuing, to
set off and apply against any obligations, whether matured or unmatured, of
the Company to the Bank, any amount owing by the Bank to the Company, at or
at any time after the happening of any of the above-mentioned events, and
such right of set-off may be exercised by the Bank against the Company or
against any assignee for the benefit of creditors, receiver, or execution,
judgment or attachment creditor of Company, or against anyone else claiming
through or against the Company of such assignee for the benefit of
creditors, receiver, or execution, judgment or attachment creditor,
notwithstanding the fact that such right of set-off shall not have been
exercised by the Bank prior to the making, filing or issuance or service
upon the Bank of, or of notice of, assignment for the benefit of
creditors, appointment or application for the appointment of a receiver,
or issuance of execution, subpoena or order or warrant. The Bank agrees
promptly to notify the Company after any set-off and application made by
the Bank, provided that the failure to give such notice shall not affect
the validity of such set-off and application.
15. INTEREST LIMITATION. Notwithstanding any provision of this
Agreement or any Note, in no event shall the amount of interest paid or
agreed to be paid by the Company exceed an amount computed at the highest
rate of interest permissible under applicable law. If, from any
circumstances whatsoever, fulfillment of any provision of this Agreement or
any Note, at the time performance of such provision shall be due, shall
involve exceeding the interest rate limitation validly prescribed by law
which a court of competent jurisdiction may deem applicable hereto, then,
IPSO FACTO, the obligations to be fulfilled shall be reduced to an amount
computed at the highest rate of interest permissible under applicable law,
and if for any reason whatsoever the Bank shall ever receive as interest an
amount which would be deemed unlawful under such applicable law such
interest shall be automatically applied to the payment of principal of the
loans outstanding hereunder (whether or not then due and payable) and not
for the payment of interest, or shall be refunded to the Company if such
principal and all other obligations of the Company to the Bank have been
irrevocably paid in full.
16. NOTICES. All notices, demands, request and consents hereunder
shall be in writing and shall be effective when received, except that any
notice or demand which by any provision of this Agreement is required or
provided to be given or served to or upon the Company shall be deemed to
have been given or served for all purposes by being sent as registered
mail, postage prepaid, addressed as follows: Hastings Manufacturing
Company, 325 North Hanover, Hastings, Michigan 49058, Attention: Mr. Thomas
J. Bellgraph, Treasurer, or, if any other address shall at any time be
designated by the Company in writing to the Bank, to such other address.
<PAGE>
Hastings Manufacturing Company
August 28, 1998
Page 28
17. PAYMENTS. All payments to be made by the Company hereunder shall
be made in immediately available funds to the Bank at its banking office in
Detroit, Michigan not later than 11:00 a.m. Detroit time on the date on
which such payment shall become due, and all payments received after 11:00
a.m. shall be deemed received on the following Business Day.
18. MISCELLANEOUS. This Agreement embodies the entire agreement and
understanding between the Company and the Bank and supersedes all prior
agreements and understandings relating to the subject matter hereof. No
amendment, modification or waiver of any provision of this Agreement nor
any consent to a departure therefrom shall be effective unless the same
shall be in writing and signed by the Company and the Bank. No failure of
the Bank or of the holder of any Note in exercising any right, power or
privilege hereunder shall affect such right, power or privilege, nor shall
any single or partial exercise thereof preclude any further exercise
thereof or the exercise of any other right, power or privilege. The rights
and remedies of the Bank and those of the holder of any Note under this
Agreement are cumulative and not exclusive of any rights or remedies which
either of them may otherwise have. Except as set forth in paragraph 10
hereof, all financial terms used but not defined herein shall be
interpreted in accordance with generally accepted accounting principles.
All amounts due hereunder which are not paid when due (other than interest)
shall bear interest at the Overdue Rate.
19. EXPENSES, INDEMNIFICATION
(a) The Company agrees to pay, or reimburse the Bank for the
payment of, on demand, (i) the reasonable fees and expenses of counsel to
the Bank, including without limitation the fees and expenses of Dickinson
Wright PLLC, in connection with the preparation, execution, delivery and
administration of this Agreement and the Notes, and in connection with
advising the Bank as to its rights and responsibilities with respect
thereto, and in connection with any amendments, waivers or consents in
connection therewith, and (ii) all stamp and other taxes and fees payable
or determined to be payable in connection with the execution, delivery,
filing or recording of this Agreement or the Notes, or the consummation of
the transactions contemplated hereby, and any and all liabilities with
respect to or resulting from any delay in paying or omitting to pay such
taxes or fees, and (iii) all reasonable costs and expenses of the Bank
(including reasonable fees and expenses of counsel and whether incurred
through negotiations, legal proceedings or otherwise) in connection with
any Default or Event of Default or the enforcement of, or the exercise or
preservation of any rights under, this Agreement or the Notes or in
connection with any refinancing or restructuring of the credit arrangements
provided under this Agreement, and (iv) all reasonable costs and expenses
of the Bank (including reasonable fees and expenses of counsel) in
<PAGE>
Hastings Manufacturing Company
August 28, 1998
Page 29
connection with any action or proceeding relating to a court order,
injunction or other process or decree restraining or seeking to restrain
the Bank from paying any amount under, or otherwise relating in any way to,
any Letter of Credit and any and all costs and expenses which any of them
may incur relative to any payment under any Letter of Credit.
(b) The Company hereby indemnifies and agrees to hold harmless
the Bank, and its respective officers, directors, employees and agents,
harmless from and against any and all claims, damages, losses, liabilities,
costs or expenses of any kind or nature whatsoever which the Bank or any
such person may incur or which may be claimed against any of them by reason
of or in connection with any Letter of Credit, and neither the Bank or any
of its respective officers, directors, employees or agents shall be liable
or responsible for: (i) the use which may be made of any Letter of Credit
or for any acts or omissions of any beneficiary in connection therewith;
(ii) the validity, sufficiency or genuineness of documents or of any
endorsement thereon, even if such documents should in fact prove to be in
any or all respects invalid, insufficient, fraudulent or forged; (iii)
payment by the Bank to the beneficiary under any Letter of Credit against
presentation of documents which do not comply with the terms of any Letter
of Credit, including failure of any documents to bear any reference or
adequate reference to such Letter of Credit; (iv) any error, omission,
interruption or delay in transmission, dispatch or delivery of any message
or advice, however transmitted, in connection with any Letter of Credit; or
(v) any other event or circumstance whatsoever arising in connection with
any Letter of Credit; PROVIDED, HOWEVER, that the Company shall not be
required to indemnify the Bank and such other persons, and the Bank shall
be liable to the Company to the extent, but only to the extent, of any
direct, as opposed to consequential or incidental, damages suffered by the
Company which were caused by (A) the Bank's wrongful dishonor of any Letter
of Credit after the presentation to it by the beneficiary thereunder of a
draft or other demand for payment and other documentation strictly
complying with the terms and conditions of such Letter of Credit, or (B)
the Bank's payment by the Bank to the beneficiary under any Letter of
Credit against presentation of documents which do not comply with the terms
of the Letter of Credit to the extent, but only to the extent, that such
payment constitutes gross negligence of willful misconduct of the Bank. It
is understood that in making any payment under a Letter of Credit the Bank
will rely on documents presented to it under such Letter of Credit as to
any and all matters set forth therein without further investigation and
regardless of any notice or information to the contrary, and such reliance
and payment against documents presented under a Letter of Credit
substantially complying with the terms thereof shall not be deemed gross
negligence or willful misconduct of the Bank in connection with such
payment. It is further acknowledged and agreed that the Company may have
rights against the beneficiary or others in connection with any Letter of
<PAGE>
Hastings Manufacturing Company
August 28, 1998
Page 30
Credit with respect to which the Bank are alleged to be liable and it shall
be a precondition of the assertion of any liability of the Bank under this
paragraph 20 that the Company shall first have exhausted all remedies in
respect of the alleged loss against such beneficiary and any other parties
obligated or liable in connection with such Letter of Credit and any
related transactions.
20. WAIVER OF JURY TRIAL. The Bank and the Company, after consulting
or having had the opportunity to consult with counsel, knowingly,
voluntarily and intentionally waive any right either of them may have to a
trial by jury in any litigation based upon or arising out of this Agreement
or any related instrument or agreement or any of the transactions
contemplated by this Agreement or any course of conduct, dealing,
statements (whether oral or written) or actions of either of them. Neither
the Bank nor the Company shall seek to consolidate, by counterclaim or
otherwise, any such action in which a jury trial has been waived with any
other action in which a jury trial cannot be or has not been waived. These
provisions shall not be deemed to have been modified in any respect or
relinquished by either the Bank or the Company except by a written
instrument executed by both of them.
21. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Michigan applicable to
contracts made and to be performed entirely within such State, without
regard to the conflict of laws principles of such State.
22. BINDING EFFECT. This Agreement is, and the Notes to which the
Company is a party when delivered hereunder will be, legal, valid and
binding obligations of the Company enforceable against the Company in
accordance with their respective terms.
<PAGE>
Hastings Manufacturing Company
August 28, 1998
Page 31
Should the foregoing be agreeable to you, as it is to us, please
indicate your agreement and acceptance by executing and returning the
enclosed copy of this letter, whereupon this Agreement shall be effective
as of the date of this letter.
Very truly yours,
NBD BANK
By /S/ THOMAS GAMM
Its: Vice President-Corporate Banking
Agreed and accepted.
HASTINGS MANUFACTURING COMPANY
By /S/ THOMAS J. BELLGRAPH
Its: Vice President - Finance
Dated: August 28, 1998
<PAGE>
EXHIBIT 4(g)
(Local Currency-Single Jurisdiction)
ISDA[REGISTERED]
International Swap Dealers Association, Inc.
MASTER AGREEMENT
dated as of August 10, 1998
HASTINGS MANUFACTURING COMPANY and NBD BANK have entered and/or anticipate
entering into one or more transactions (each a "Transaction") that are or
will be governed by this Master Agreement, which includes the schedule (the
"Schedule"), and the documents and other confirming evidence (each a
"Confirmation") exchanged between the parties confirming those
Transactions.
Accordingly, the parties agree as follows:
1. INTERPRETATION
(a) DEFINITIONS. The terms defined in Section 12 and in the Schedule will
have the meanings therein specified for the purpose of this Master
Agreement.
(b) INCONSISTENCY. In the event of any inconsistency between the
provisions of the Schedule and the other provisions of this Master
Agreement, the Schedule will prevail. In the event of any inconsistency
between the provisions of any Confirmation and this Master Agreement
(including, the Schedule), such Confirmation will prevail for the purpose
of the relevant Transaction.
(c) SINGLE AGREEMENT. All Transactions are entered into in reliance on
the fact that this Master Agreement and all Confirmations form a single
agreement between the parties (collectively referred to as this
"Agreement"), and the parties would not otherwise enter into any
Transactions.
2. OBLIGATIONS
(a) GENERAL CONDITIONS.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by it, subject to the other provisions of this
Agreement.
Copyright <Copyright>1992 by International Swap Dealers Association, Inc.
<PAGE>
(ii) Payments under this Agreement will be made on the due date for
value on that date in the place of the account specified in the
relevant Confirmation or otherwise pursuant to this Agreement, in
freely transferable funds and in the manner customary for payments in
the required currency. Where settlement is by delivery (that is,
other than by payment), such delivery will be made for receipt on the
due date in the manner customary for the relevant obligation unless
otherwise specified in the relevant Confirmation or elsewhere in this
Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject
to (1) the condition precedent that no Event of Default or Potential
Event of Default with respect to the other party has occurred and is
continuing, (2) the condition precedent that no Early Termination Date
in respect of the relevant Transaction has occurred or been
effectively designated and (3) each other applicable condition
precedent specified in this Agreement.
(b) CHANGE OF ACCOUNT. Either party may change its account for receiving
a payment or delivery by giving notice to the other party at least five
Local Business Days prior to the scheduled date for the payment or delivery
to which such change applies unless such other party gives timely notice of
a reasonable objection to such change.
(c) NETTING. If on any date amounts would otherwise be payable:
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to
make payment of any such amount will be automatically satisfied and
discharged and, if the aggregate amount that would otherwise have been
payable by one party exceeds the aggregate amount that would otherwise have
been payable by the other party, replaced by an obligation upon the party
by whom the larger aggregate amount would have been payable to pay to the
other party the excess of the larger aggregate amount over the smaller
aggregate amount.
The parties may elect in respect of two or more Transactions that a net
amount will be determined in respect of all amounts payable on the same
date in the same currency in respect of such Transactions, regardless of
whether such amounts are payable in respect of the same Transaction. The
election may be made in the Schedule or a Confirmation by specifying that
subparagraph (ii) above will not apply to the Transactions identified as
being subject to the election, together with the starting date (in which
case subparagraph (ii) above will not, or will cease to, apply to such
2 ISDA[REGISTERED] 1992
<PAGE>
Transactions from such date). This election may be made separately for
different groups of Transactions and will apply separately to each pairing
of branches or offices through which the parties make and receive payments
or deliveries.
(d) DEFAULT INTEREST; OTHER AMOUNTS. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant
Transaction, a party that defaults in the performance of any payment
obligation will, to the extent permitted by law and subject to Section
6(c), be required to pay interest (before as well as after judgment) on the
overdue amount to the other party on demand in the same currency as such
overdue amount, for the period from (and including) the original due date
for payment to (but excluding) the date of actual payment, at the Default
Rate. Such interest will be calculated on the basis of daily compounding
and the actual number of days elapsed. If, prior to the occurrence or
effective designation of an Early Termination Date in respect of the
relevant Transaction, a party defaults in the performance of any obligation
required to be settled by delivery, it will compensate the other party on
demand if and to the extent provided for in the relevant Confirmation or
elsewhere in this Agreement.
3. REPRESENTATIONS
Each party represents to the other party (which representations will be
deemed to be repeated by each party on each date on which a Transaction is
entered into) that:
(a) BASIC REPRESENTATIONS.
(i) STATUS. It is duly organized and validly existing under the laws
of the jurisdiction of its organization or incorporation and, if
relevant under such laws, in good standing;
(ii) POWERS. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to
deliver this Agreement and any other documentation relating to this
Agreement that it is required by this Agreement to deliver and to
perform its obligations under this Agreement and any obligations it
has under any Credit Support Document to which it is a party and has
taken all necessary action to authorize such execution, delivery and
performance;
(iii) NO VIOLATION OR CONFLICT. Such execution, delivery and
performance do not violate or conflict with any law applicable to it,
any provision of its constitutional documents, any order or judgment
of any court or other agency of government applicable to it or any of
its assets or any contractual restriction binding on or affecting it
or any of its assets;
3 ISDA[REGISTERED] 1992
<PAGE>
(iv) CONSENTS. All governmental and other consents that are required
to have been obtained by it with respect to this Agreement or any
Credit Support Document to which it is a party have been obtained and
are in full force and effect and all conditions of any such consents
have been complied with; and
(v) OBLIGATIONS BINDING. Its obligations under this Agreement and
any Credit Support Document to which it is a party constitute its
legal, valid and binding obligations, enforceable in accordance with
their respective terms (subject to applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting
creditors' rights generally and subject, as to enforceability, to
equitable principles of general application (regardless of whether
enforcement is sought in a proceeding in equity or at law)).
(b) ABSENCE OF CERTAIN EVENTS. No Event of Default or Potential Event of
Default or, to its knowledge, Termination Event with respect to it has
occurred and is continuing and no such event or circumstance would occur as
a result of its entering into or performing its obligations under this
Agreement or any Credit Support Document to which it is a party.
(c) ABSENCE OF LITIGATION. There is not pending or, to its knowledge,
threatened against it or any of its Affiliates any action, suit or
proceeding at law or in equity or before any court, tribunal, governmental
body, agency or official or any arbitrator that is likely to affect the
legality, validity or enforceability against it of this Agreement or any
Credit Support Document to which it is a party or its ability to perform
its obligations under this Agreement or such Credit Support Document.
(d) ACCURACY OF SPECIFIED INFORMATION. All applicable information that is
furnished in writing by or on behalf of it to the other party and is
identified for the purpose of this Section 3(d) in the Schedule is, as of
the date of the information, true, accurate and complete in every material
respect.
4. AGREEMENTS
Each party agrees with the other that, so long as either party has or may
have any obligation under this Agreement or under any Credit Support
Document to which it is a party:
(a) FURNISH SPECIFIED INFORMATION. It will deliver to the other party any
forms, documents or certificates specified in the Schedule or any
Confirmation by the date specified in the Schedule or such Confirmation or,
if none is specified, as soon as reasonably practicable.
(b) MAINTAIN AUTHORIZATIONS. It will use all reasonable efforts to
maintain in full force and effect all consents of any governmental or other
4 ISDA[REGISTERED] 1992
<PAGE>
authority that are required to be obtained by it with respect to this
Agreement or any Credit Support Document to which it is a party and will
use all reasonable efforts to obtain any that may become necessary in the
future.
(c) COMPLY WITH LAWS. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to
comply would materially impair its ability to perform its obligations under
this Agreement or any Credit Support Document to which it is a party.
5. EVENTS OF DEFAULT AND TERMINATION EVENTS
(a) EVENTS OF DEFAULT. The occurrence at any time with respect to a party
or, if applicable, any Credit Support Provider of such party or any
Specified Entity of such party of any of the following events constitutes
an event of default (an "Event of Default") with respect to such party:-
(i) FAILURE TO PAY OR DELIVER. Failure by the party to make, when
due, any payment under this Agreement or delivery under Section
2(a)(i) or 2(d) required to be made by it if such failure is not
remedied on or before the third Local Business Day after notice of
such failure is given to the party;
(ii) BREACH OF AGREEMENT. Failure by the party to comply with or
perform any agreement or obligation (other than an obligation to make
any payment under this Agreement or delivery under Section 2(a)(i) or
2(d) or to give notice of a Termination Event or any agreement or
obligation under Section 4(a)) to be complied with or performed by the
party in accordance with this Agreement if such failure is not
remedied on or before the thirtieth day after notice of such failure
is given to the party;
(iii) CREDIT SUPPORT DEFAULT.
(1) Failure by the party or any Credit Support Provider of such
party to comply with or perform any agreement or obligation to be
complied with or performed by it in accordance with any Credit
Support Document if such failure is continuing after any
applicable grace period has elapsed;
(2) the expiration or termination of such Credit Support
Document or the failing or ceasing of such Credit Support
Document to be in full force and effect for the purpose of this
Agreement (in either case other than in accordance with its
terms) prior to the satisfaction of all obligations of such party
under each Transaction to which such Credit Support Document
relates without the written consent of the other party; or
5 ISDA[REGISTERED] 1992
<PAGE>
(3) the party or such Credit Support Provider disaffirms,
disclaims, repudiates or rejects, in whole or in part, or
challenges the validity of, such Credit Support Document;
(iv) MISREPRESENTATION. A representation made or repeated or deemed
to have been made or repeated by the party or any Credit Support
Provider of such party in this Agreement or any Credit Support
Document proves to have been incorrect or misleading in any material
respect when made or repeated or deemed to have been made or repeated;
(v) DEFAULT UNDER SPECIFIED TRANSACTION. The party, any Credit
Support Provider of such party or any applicable Specified Entity of
such party (1) defaults under a Specified Transaction and, after
giving effect to any applicable notice requirement or grace period,
there occurs a liquidation of, an acceleration of obligations under,
or an early termination of, that Specified Transaction, (2) defaults,
after giving effect to any applicable notice requirement or grace
period, in making any payment or delivery due on the last payment,
delivery or exchange date of, or any payment on early termination of,
a Specified Transaction (or such default continues for at least three
Local Business Days if there is no applicable notice requirement or
grace period) or (3) disaffirms, disclaims, repudiates or rejects, in
whole or in part, a Specified Transaction (or such action is taken by
any person or entity appointed or empowered to operate it or act on
its behalf);
(vi) CROSS DEFAULT. If "Cross Default" is specified in the Schedule
as applying to the party, the occurrence or existence of (1) a
default, event of default or other similar condition or event (however
described) in respect of such party, any Credit Support Provider of
such party or any applicable Specified Entity of such party under one
or more agreements or instruments relating to Specified Indebtedness
of any of them (individually or collectively) in an aggregate amount
of not less than the applicable Threshold Amount (as specified in the
Schedule) which has resulted in such Specified Indebtedness becoming,
or becoming capable at such time of being declared, due and payable
under such agreements or instruments, before it would otherwise have
been due and payable or (2) a default by such party, such Credit
Support Provider or such Specified Entity (individually or
collectively) in making one or more payments on the due date thereof
in an aggregate amount of not less than the applicable Threshold
Amount under such agreements or instruments (after giving effect to
any applicable notice requirement or grace period);
(vii) BANKRUPTCY. The party, any Credit Support Provider of such
party or any applicable Specified Entity of such party:-
6 ISDA[REGISTERED] 1992
<PAGE>
(1) is dissolved (other than pursuant to a consolidation,
amalgamation or merger); (2) becomes insolvent or is unable to
pay its debts or fails or admits in writing its inability
generally to pay its debts as they become due; (3) makes a
general assignment, arrangement or composition with or for the
benefit of its creditors; (4) institutes or has instituted
against it a proceeding seeking a judgment of insolvency or
bankruptcy or any other relief under any bankruptcy or insolvency
law or other similar law affecting creditors' rights, or a
petition is presented for its winding-up or liquidation, and, in
the case of any such proceeding, or petition instituted or
presented against it, such proceeding or petition (A) results in
a judgment of insolvency or bankruptcy or the entry of an order
for relief or the making, of an order for its winding-up or
liquidation or (B) is not dismissed, discharged, stayed or
restrained in each case within 30 days of the institution or
presentation thereof; (5) has a resolution passed for its
winding-up, official management or liquidation (other than
pursuant to a consolidation, amalgamation or merger); (6) seeks
or becomes subject to the appointment of an administrator,
provisional liquidator, conservator, receiver, trustee, custodian
or other similar official for it or for all or substantially all
its assets; (7) has a secured party take possession of all or
substantially all its assets or has a distress, execution,
attachment, sequestration or other legal process levied, enforced
or sued on or against all or substantially all its assets and
such secured party maintains possession, or any such process is
not dismissed, discharged, staved or restrained, in each case
within 30 days thereafter; (8) causes or is subject to any event
with respect to it which, under the applicable laws of any
jurisdiction, has an analogous effect to any of the events
specified in clauses (1) to (7) (inclusive); or (9) takes any
action in furtherance of, or indicating its consent to, approval
of, or acquiescence in, any of the foregoing acts; or
(viii) MERGER WITHOUT ASSUMPTION. The party or any Credit Support
Provider of such party consolidates or amalgamates with, or merges
with or into, or transfers all or substantially all its assets to,
another entity and, at the time of such consolidation, amalgamation,
merger or transfer:-
(1) the resulting, surviving or transferee entity fails to
assume all the obligations of such party or such Credit Support
Provider under this Agreement or any Credit Support Document to
which it or its predecessor was a party by operation of law or
pursuant to an agreement reasonably satisfactory to the other
party to this Agreement; or
7 ISDA[REGISTERED] 1992
<PAGE>
(2) the benefits of any Credit Support Document fail to extend
(without the consent of the other party) to the performance by
such resulting, surviving or transferee entity of its obligations
under this Agreement.
(b) TERMINATION EVENTS. The occurrence at any time with respect to a
party or, if applicable, any Credit Support Provider of such party or any
Specified Entity of such party of any event specified below constitutes an
Illegality if the event is specified in (i) below, and, if specified to be
applicable, a Credit Event Upon Merger if the event is specified pursuant
to (ii) below or an Additional Termination Event if the event is specified
pursuant to (iii) below:-
(i) ILLEGALITY. Due to the adoption of, or any change in, any
applicable law after the date on which a Transaction is entered into,
or due to the promulgation of, or any change in, the interpretation by
any court, tribunal or regulatory authority with competent
jurisdiction of any applicable law after such date, it becomes
unlawful (other than as a result of a breach by the party of Section
4(b)) for such party (which will be the Affected Party):-
(1) to perform any absolute or contingent obligation to make a
payment or delivery or to receive a payment or delivery in
respect of such Transaction or to comply with any other material
provision of this Agreement relating to such Transaction; or
(2) to perform, or for any Credit Support Provider of such party
to perform, any contingent or other obligation which the party
(or such Credit Support Provider) has under any Credit Support
Document relating to such Transaction;
(ii) CREDIT EVENT UPON MERGER. If "Credit Event Upon Merger" is
specified in the Schedule as applying to the party, such party ("X"),
any Credit Support Provider of X or any applicable Specified Entity of
X consolidates or amalgamates with, or merges with or into, or
transfers all or substantially all its assets to, another entity and
such action does not constitute an event described in
Section 5(a)(viii) but the creditworthiness of the resulting,
surviving or transferee entity is materially weaker than that of X,
such Credit Support Provider or such Specified Entity, as the case may
be, immediately prior to such action (and, in such event, X or its
successor or transferee, as appropriate, will be the Affected Party);
or
(iii) ADDITIONAL TERMINATION EVENT. If any "Additional Termination
Event" is specified in the Schedule or any Confirmation as applying,
the occurrence of such event (and, in such event, the Affected Party
8 ISDA[REGISTERED] 1992
<PAGE>
or Affected Parties shall be as specified for such Additional
Termination Event in the Schedule or such Confirmation).
(c) EVENT OF DEFAULT AND ILLEGALITY. If an event or circumstance which
would otherwise constitute or give rise to an Event of Default also
constitutes an Illegality, it will be treated as an Illegality and will not
constitute an Event of Default.
6. EARLY TERMINATION
(a) RIGHT TO TERMINATE FOLLOWING EVENT OF DEFAULT. If at any time an
Event of Default with respect to a party (the "Defaulting Party") has
occurred and is then continuing, the other party (the "Non-defaulting
Party") may, by not more than 20 days notice to the Defaulting Party
specifying the relevant Event of Default, designate a day not earlier than
the day such notice is effective as an Early Termination Date in respect of
all outstanding Transactions. If, however, "Automatic Early Termination"
is specified in the Schedule as applying to a party, then an Early
Termination Date in respect of all outstanding Transactions will occur
immediately upon the occurrence with respect to such party of an Event of
Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the extent
analogous thereto, (8), and as of the time immediately preceding the
institution of the relevant proceeding or the presentation of the relevant
petition upon the occurrence with respect to such party of an Event of
Default specified in Section 5(a)(vii)(4) or, to the extent analogous
thereto, (8).
(b) RIGHT TO TERMINATE FOLLOWING TERMINATION EVENT.
(i) NOTICE. If a Termination Event occurs, an Affected Party will,
promptly upon becoming aware of it, notify the other party, specifying
the nature of that Termination Event and each Affected Transaction and
will also give such other information about that Termination Event as
the other party may reasonably require.
(ii) TWO AFFECTED PARTIES. If an Illegality under Section 5(b)(1)
occurs and there are two Affected Parties, each party will use all
reasonable efforts to reach agreement within 30 days after notice
thereof is given under Section 6(b)(i) on action to avoid that
Termination Event.
(iii) RIGHT TO TERMINATE. If:-
(1) an agreement under Section 6(b)(ii) has not been effected
with respect to all Affected Transactions within 30 days after an
Affected Party gives notice under Section 6(b)(i); or
9 ISDA[REGISTERED] 1992
<PAGE>
(2) an Illegality other than that referred to in Section
6(b)(ii), a Credit Event Upon Merger or an Additional Termination
Event occurs,
either party in the case of an Illegality, any Affected Party in the
case of an Additional Termination Event if there is more than one
Affected Party, or the party which is not the Affected Party in the
case of a Credit Event Upon Merger or an Additional Termination Event
if there is only one Affected Party may, by not more than 20 days
notice to the other party and provided that the relevant Termination
Event is then continuing, designate a day not earlier than the day
such notice is effective as an Early Termination Date in respect of
all Affected Transactions.
(c) EFFECT OF DESIGNATION.
(i) If notice designating an Early Termination Date is given under
Section 6(a) or (b), the Early Termination Date will occur on the date
so designated, whether or not the relevant Event of Default or
Termination Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early
Termination Date, no further payments or deliveries under Section
2(a)(i) or 2(d) in respect of the Terminated Transactions will be
required to be made, but without prejudice to the other provisions of
this Agreement. The amount, if any, payable in respect of an Early
Termination Date shall be determined pursuant to Section 6(e).
(d) CALCULATIONS.
(i) STATEMENT. On or as soon as reasonably practicable following the
occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6(e) and
will provide to the other party a statement (1) showing, in reasonable
detail, such calculations (including all relevant quotations and
specifying any amount payable under Section 6(e)) and (2) giving
details of the relevant account to which any amount payable to it is
to be paid. In the absence of written confirmation from the source of
a quotation obtained in determining a Market Quotation, the records of
the party obtaining such quotation will be conclusive evidence of the
existence and accuracy of such quotation.
(ii) PAYMENT DATE. An amount calculated as being due in respect of
any Early Termination Date under Section 6(e) will be payable on the
day that notice of the amount payable is effective (in the case of an
Early Termination Date which is designated or occurs as a result of an
Event of Default) and on the day which is two Local Business Days
10 ISDA[REGISTERED] 1992
<PAGE>
after the day on which notice of the amount payable is effective (in
the case of an Early Termination Date which is designated as a result
of a Termination Event). Such amount will be paid together with (to
the extent permitted under applicable law) interest thereon (before as
well as after judgment), from (and including) the relevant Early
Termination Date to (but excluding) the date such amount is paid, at
the Applicable Rate. Such interest will be calculated on the basis of
daily compounding and the actual number of days elapsed.
(e) PAYMENTS ON EARLY TERMINATION. If an Early Termination Date occurs,
the following provisions shall apply based on the parties' election in the
Schedule of a payment measure, either "Market Quotation" or "Loss", and a
payment method, either the "First Method" or the "Second Method". If the
parties fail to designate a payment measure or payment method in the
Schedule, it will be deemed that "Market Quotation" or the "Second Method",
as the case may be, shall apply. The amount, if any, payable in respect of
an Early Termination Date and determined pursuant to this Section will be
subject to any Set-off.
(i) EVENTS OF DEFAULT. If the Early Termination Date results from an
Event of Default:-
(1) FIRST METHOD AND MARKET QUOTATION. If the First Method and
Market Quotation apply, the Defaulting Party will pay to the Non-
defaulting Party the excess, if a positive number, of (A) the sum
of the Settlement Amount (determined by the Non-defaulting Party)
in respect of the Terminated Transactions and the Unpaid Amounts
owing to the Non-defaulting Party over (B) the Unpaid Amounts
owing to the Defaulting Party.
(2) FIRST METHOD AND LOSS. If the First Method and Loss apply,
the Defaulting Party will pay to the Non-defaulting Party, if a
positive number, the Non-defaulting Party's Loss in respect of
this Agreement.
(3) SECOND METHOD AND MARKER QUOTATION. If the Second Method
and Market Quotation apply, an amount will be payable equal to
(A) the sum of the Settlement Amount (determined by the Non-
defaulting Party) in respect of the Terminated Transactions and
the Unpaid Amounts owing to the Non-defaulting Party less (B) the
Unpaid Amounts owing to the Defaulting Party. If that amount is
a positive number, the Defaulting Party will pay it to the Non-
defaulting Party; if it is a negative number, the Non-defaulting
Party will pay the absolute value of that amount to the
Defaulting Party.
(4) SECOND METHOD AND LOSS. If the Second Method and Loss
apply, an amount will be payable equal to the Non-defaulting
11 ISDA[REGISTERED] 1992
<PAGE>
Party's Loss in respect of this Agreement. If that amount is a
positive number, the Defaulting Party will pay it to the Non-
defaulting Party; if it is a negative number, the Non-defaulting
Party will pay the absolute value of that amount to the
Defaulting Party.
(ii) TERMINATION EVENTS. If the Early Termination Date results from a
Termination Event:-
(1) ONE AFFECTED PARTY. If there is one Affected Party, the
amount payable will be determined in accordance with Section
6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4),
if Loss applies, except that, in either case, references to the
Defaulting Party and to the Non-defaulting Party will be deemed
to be references to the Affected Party and the party which is not
the Affected Party, respectively, and, if Loss applies and fewer
than all the Transactions are being terminated, Loss shall be
calculated in respect of all Terminated Transactions.
(2) TWO AFFECTED PARTIES. If there are two Affected Parties:-
(A) if Market Quotation applies, each party will determine
a Settlement Amount in respect of the Terminated
Transactions, and an amount will be payable equal to (I) the
sum of (a) one-half of the difference between the Settlement
Amount of the party with the higher Settlement Amount ("X")
and the Settlement Amount of the party with the lower
Settlement Amount ("Y") and (b) the Unpaid Amounts owing to
X less (II) the Unpaid Amounts owing to Y; and
(B) if Loss applies, each party will determine its Loss in
respect of this Agreement (or, if fewer than all the
Transactions are being terminated, in respect of all
Terminated Transactions) and an amount will be payable equal
to one-half of the difference between the Loss of the party
with the higher Loss ("X") and the Loss of the party with
the lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X;
if it is a negative number, X will pay the absolute value of that
amount to Y.
(iii) ADJUSTMENT FOR BANKRUPTCY. In circumstances where an Early
Termination Date occurs because "Automatic Early Termination" applies
in respect of a party, the amount determined under this Section 6(e)
will be subject to such adjustments as are, appropriate and permitted
by law to reflect any payments or deliveries made by one party to the
12 ISDA[REGISTERED] 1992
<PAGE>
other under this Agreement (and retained by such other party) during
the period from the relevant Early Termination Date to the date for
payment determined under Section 6(d)(ii).
(iv) PRE-ESTIMATE. The parties agree that if Market Quotation applies
an amount recoverable under this Section 6(e) is a reasonable pre-
estimate of loss and not a penalty. Such amount is payable for the
loss of bargain and the loss of protection against future risks and
except as otherwise provided in this Agreement neither party will be
entitled to recover any additional damages as a consequence of such
losses.
7. TRANSFER
Neither this Agreement nor any interest or obligation in or under this
Agreement may be transferred (whether by way of security or otherwise) by
either party without the prior written consent of the other party, except
that:-
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of
all or substantially all its assets to, another entity (but without
prejudice to any other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in
any amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be
void.
8. MISCELLANEOUS
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and
supersedes all oral communication and prior writings with respect thereto.
(b) AMENDMENTS. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing
evidenced by a facsimile transmission) and executed by each of the parties
or confirmed by an exchange of telexes or electronic messages on an
electronic messaging system.
(c) SURVIVAL OF OBLIGATIONS. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive
the termination of any Transaction.
(d) REMEDIES CUMULATIVE. Except as provided in this Agreement, the
rights, powers, remedies and privileges provided in this Agreement are
13 ISDA[REGISTERED] 1992
<PAGE>
cumulative and not exclusive of any rights, powers, remedies and privileges
provided by law.
(e) COUNTERPARTS AND CONFIRMATIONS.
(i) This Agreement (and each amendment, modification and waiver in
respect of it) may be executed and delivered in counterparts
(including, by facsimile transmission), each of which will be deemed
an original.
(ii) The parties intend that they are legally bound by the terms of
each Transaction from the moment they agree to those terms (whether
orally or otherwise). A Confirmation shall be entered into as soon as
practicable and may be executed and delivered in counterparts
(including by facsimile transmission) or be created by an exchange of
telexes or by an exchange of electronic messages on an electronic
messaging system, which in each case will be sufficient for all
purposes to evidence a binding, supplement to this Agreement. The
parties will specify therein or through another effective means that
any such counterpart, telex or electronic message constitutes a
Confirmation.
(f) NO WAIVER OF RIGHTS. A failure or delay in exercising any right,
power or privilege in respect of this Agreement will not be presumed to
operate as a waiver, and a single or partial exercise of any right, power
or privilege will not be presumed to preclude any subsequent or further
exercise, of that right, power or privilege or the exercise of any other
right, power or privilege.
(g) HEADINGS. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken
into consideration in interpreting this Agreement.
9. EXPENSES
A Defaulting Party will, on demand, indemnify and hold harmless the other
party for and against all reasonable out-of-pocket expenses, including
legal fees, incurred by such other party by reason of the enforcement and
protection of its rights under this Agreement or any Credit Support
Document to which the Defaulting Party is a party or by reason of the early
termination of any Transaction, including, but not limited to, costs of
collection.
10. NOTICES
(a) EFFECTIVENESS. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice
14 ISDA[REGISTERED] 1992
<PAGE>
or other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:-
(i) if in writing and delivered in person or by courier, on the date
it is delivered;
(ii) if sent by telex, on the date the recipient's answer back is
received;
(iii) if sent by facsimile transmission, on the date that transmission
is received by a responsible employee of the recipient in legible form
(it being agreed that the burden of proving receipt will be on the
sender and will not be met by a transmission report generated by the
sender's facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas) or
the equivalent (return receipt requested), on the date that mail is
delivered or its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that
electronic message is received,
unless the date of that delivery (or attempted delivery) or that receipt,
as applicable, is not a Local Business Day or that communication is
delivered (or attempted) or received, as applicable, after the close of
business on a Local Business Day, in which case that communication shall be
deemed given and effective on the first following day that is a Local
Business Day.
(b) CHANGE OF ADDRESSES. Either party may by notice to the other change
the address, telex or facsimile number or electronic messaging system
details at which notices or other communications are to be given to it.
11. GOVERNING LAW AND JURISDICTION
(a) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) JURISDICTION. With respect to any suit, action or proceedings
relating to this Agreement ("Proceedings"), each party irrevocably:-
(i) submits to the jurisdiction of the English courts, if this
Agreement is expressed to be governed by English law, or to the non-
exclusive jurisdiction of the courts of the State of New York and the
United States District Court located in the Borough of Manhattan in
15 ISDA[REGISTERED] 1992
<PAGE>
New York City, if this Agreement is expressed to be governed by the
laws of the State of New York; and
(ii) waives any objection which it may have at any time to the laying
of venue of any Proceedings brought in any such court, waives any
claim that such Proceedings have been brought in an inconvenient forum
and further waives the right to object, with respect to such
Proceedings, that such court does not have any jurisdiction over such
party.
Nothing in this Agreement precludes either party from bringing Proceedings
in any other jurisdiction (outside, if this Agreement is expressed to be
governed by English law, the Contracting States, as defined in Section 1(3)
of the Civil Jurisdiction and Judgments Act 1982 or any modification,
extension or re-enactment thereof for the time being in force) nor will the
bringing of Proceedings in any one or more jurisdictions preclude the
bringing of Proceedings in any other jurisdiction.
(c) WAIVER OF IMMUNITIES. Each party irrevocably waives, to the fullest
extent permitted by applicable law, with respect to itself and its revenues
and assets (irrespective of their use or intended use), all immunity on the
grounds of sovereignty or other similar grounds from (i) suit,
(ii) jurisdiction of any court, (iii) relief by way of injunction, order
for specific performance or for recovery of property, (iv) attachment of
its assets (whether before or after judgment) and (v) execution or
enforcement of any judgment to which it or its revenues or assets might
otherwise be entitled in any Proceedings in the courts of any jurisdiction
and irrevocably agrees, to the extent permitted by applicable law, that it
will not claim any such immunity in any Proceedings.
12. DEFINITIONS
As used in this Agreement:-
"ADDITIONAL TERMINATION EVENT" has the meaning specified in Section 5(b).
"AFFECTED PARTY" has the meaning specified in Section 5(b).
"AFFECTED TRANSACTIONS" means (a) with respect to any Termination Event
consisting of an Illegality, all Transactions affected by the occurrence of
such Termination Event and (b) with respect to any other Termination Event,
all Transactions.
"AFFILIATE" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose,
16 ISDA[REGISTERED] 1992
<PAGE>
"control" of any entity or person means ownership of a majority of the
voting power of the entity or person.
"APPLICABLE RATE" means:-
(a) in respect of obligations payable or deliverable (or which would have
been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of
either party from and after the date (determined in accordance with Section
6(d)(ii)) on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which
would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the
Non-default Rate; and
(d) in all other cases, the Termination Rate.
"CONSENT" includes a consent, approval, action, authorization, exemption,
notice, filing, registration or exchange control consent.
"CREDIT EVENT UPON MERGER" has the meaning specified in Section 5(b).
"CREDIT SUPPORT DOCUMENT" means any agreement or instrument that is
specified as such in this Agreement.
"CREDIT SUPPORT PROVIDER" has the meaning specified in the Schedule.
"DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if
it were to fund or of funding the relevant amount plus 1% per annum.
"DEFAULTING PARTY" has the meaning specified in Section 6(a).
"EARLY TERMINATION DATE" means the date determined in accordance with
Section 6(a) or 6(b)(iii).
"EVENT OF DEFAULT" has the meaning specified in Section 5(a) and, if
applicable, in the Schedule.
"ILLEGALITY" has the meaning specified in Section 5(b).
"LAW" includes any treaty, law, rule or regulation and "LAWFUL" AND
"UNLAWFUL" will be construed accordingly.
"LOCAL BUSINESS DAY" means, subject to the Schedule, a day on which
commercial banks are open for business (including dealings in foreign
17 ISDA[REGISTERED] 1992
<PAGE>
exchange and foreign currency deposits) (a) in relation to any obligation
under Section 2(a)(i), in the place(s) specified in the relevant
Confirmation or, if not so specified, as otherwise agreed by the parties in
writing or determined pursuant to provisions contained, or incorporated by
reference, in this Agreement, (b) in relation to any other payment, in the
place where the relevant account is located, (c) in relation to any notice
or other communication, including notice contemplated under
Section 5(a)(i), in the city specified in the address for notice provided
by the recipient and, in the case of a notice contemplated by Section 2(b),
in the place where the relevant new account is to be located and (d) in
relation to Section 5(a)(v)(2), in the relevant locations for performance
with respect to such Specified Transaction.
"LOSS" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, an amount that party
reasonably determines in good faith to be its total losses and costs (or
gain, in which case expressed as a negative number) in connection with this
Agreement or that Terminated Transaction or group of Terminated
Transactions, as the case may be, including any loss of bargain, cost of
funding or, at the election of such party but without duplication, loss or
cost incurred as a result of its terminating, liquidating, obtaining, or
reestablishing any hedge or related trading position (or any gain resulting
from any of them). Loss includes losses and costs (or gains) in respect of
any payment or delivery required to have been made (assuming satisfaction
of each applicable condition precedent) on or before the relevant Early
Termination Date and not made, except, so as to avoid duplication, if
Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies. Loss does not include
a party's legal fees and out-of-pocket expenses referred to under
Section 9. A party will determine its Loss as of the relevant Early
Termination Date, or, if that is not reasonably practicable, as of the
earliest date thereafter as is reasonably practicable. A party may (but
need not) determine its Loss by reference to quotations of relevant rates
or prices from one or more leading dealers in the relevant markets.
"MARKET QUOTATION" means, with respect to one or more Terminated
Transactions and a party making the determination, an amount determined on
the basis of quotations from Reference Market-makers. Each quotation will
be for an amount, if any, that would be paid to such party (expressed as a
negative number) or by such party (expressed as a positive number) in
consideration of an agreement between such party (taking into account any
existing Credit Support Document with respect to the obligations of such
party) and the quoting Reference Market-maker to enter into a transaction
(the "Replacement Transaction") that would have the effect of preserving
for such party the economic equivalent of any payment or delivery (whether
the underlying obligation was absolute or contingent and assuming the
satisfaction of each applicable condition precedent) by the parties under
Section 2(a)(i) in respect of such Terminated Transaction or group of
18 ISDA[REGISTERED] 1992
<PAGE>
Terminated Transactions that would, but for the occurrence of the relevant
Early Termination Date, have been required after that date. For this
purpose, Unpaid Amounts in respect of the Terminated Transaction or group
of Terminated Transactions are to be excluded but, without limitation, any
payment or delivery that would, but for the relevant Early Termination
Date, have been required (assuming satisfaction of each applicable
condition precedent) after that Early Termination Date is to be included.
The Replacement Transaction would be subject to such documentation as such
party and the Reference Market-maker may, in good faith, agree. The party
making the determination (or its agent) will request each Reference Market-
maker to provide its quotation to the extent reasonably practicable as of
the same day and time (without regard to different time zones) on or as
soon as reasonably practicable after the relevant Early Termination Date.
The day and time as of which those quotations are to be obtained will be
selected in good faith by the party obliged to make a determination under
Section 6(e), and, if each party is so obliged, after consultation with the
other. If more than three quotations are provided, the Market Quotation
will be the arithmetic mean of the quotations, without regard to the
quotations having the biggest and lowest values. If exactly three such
quotations are provided, the Market Quotation will be the quotation
remaining after disregarding the highest and lowest quotations. For this
purpose, if more than one quotation has the same highest value or lowest
value, then one of such quotations shall be disregarded. If fewer than
three quotations are provided, it will be deemed that the Market Quotation
in respect of such Terminated Transaction or group of Terminated
Transactions cannot be determined.
"NON-DEFAULT RATE" means a rate per annum equal to the cost (without proof
or evidence of any actual cost) to the Non-defaulting Party (as certified
by it) if it were to fund the relevant amount.
"NON-DEFAULTING PARTY" has the meaning specified in Section 6(a).
"POTENTIAL EVENT OF DEFAULT" means any event which, with the giving of
notice or the lapse of time or both, would constitute an Event of Default.
"REFERENCE MARKET-MAKERS" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria
that such party applies generally at the time in deciding whether to offer
or to make an extension of credit and (b) to the extent practicable, from
among such dealers having an office in the same city.
"SCHEDULED PAYMENT DATE" means a date on which a payment or delivery is to
be made under Section 2(a)(i) with respect to a Transaction.
"SET-OFF" means set-off, offset, combination of accounts, right of
retention or withholding or similar right or requirement to which the payer
19 ISDA[REGISTERED] 1992
<PAGE>
of an amount under Section 6 is entitled or subject (whether arising under
this Agreement, another contract, applicable law or otherwise) that is
exercised by, or imposed on, such payer.
"SETTLEMENT AMOUNT" means, with respect to a party and any Early
Termination Date, the sum of:_______
(a) the Market Quotations (whether positive or negative) for each
Terminated Transaction or group of Terminated Transactions for which a
Market Quotation is determined; and
(b) such party's Loss (whether positive or negative and without reference
to any Unpaid Amounts) for each Terminated Transaction or group of
Terminated Transactions for which a Market Quotation cannot be determined
or would not (in the reasonable belief of the party making the
determination) produce a commercially reasonable result.
"SPECIFIED ENTITY" has the meaning specified in the Schedule.
"SPECIFIED INDEBTEDNESS" means, subject to the Schedule, any obligation
(whether present or future, contingent or otherwise, as principal or surety
or otherwise) in respect of borrowed money.
"SPECIFIED TRANSACTION" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter
entered into between one party to this Agreement (or any Credit Support
Provider of such party or any applicable Specified Entity of such party)
and the other party to this Agreement (or any Credit Support Provider of
such other party or any applicable Specified Entity of such other party)
which is a rate swap transaction, basis swap, forward rate transaction,
commodity swap, commodity option, equity or equity index swap, equity or
equity index option, bond option, interest rate option, foreign exchange
transaction, cap transaction, floor transaction, cellar transaction,
currency swap transaction, cross-currency rate swap transaction, currency
option or any other similar transaction (including any option with respect
to any of these transactions), (b) any combination of these transactions
and (c) any other transaction identified as a Specified Transaction in this
Agreement or the relevant confirmation.
"TERMINATED TRANSACTIONS" means with respect to any Early Termination Date
(a) if resulting from a Termination Event all Affected Transactions and (b)
if resulting from an Event of Default, all Transactions (in either case) in
effect immediately before the effectiveness of the notice designating that
Early Termination Date (or, if "Automatic Early Termination" applies,
immediately before that Early Termination Date).
"TERMINATION EVENT" means an Illegality or, if specified to be applicable,
a Credit Event Upon Merger or an Additional Termination Event.
20 ISDA[REGISTERED] 1992
<PAGE>
"TERMINATION RATE" means a rate per annum equal to the arithmetic mean of
the cost (without proof or evidence of any actual cost) to each party (as
certified by such party) if it were to fund or of funding such amounts.
"UNPAID AMOUNTS" owing to any party means, with respect to an Early
Termination Date, the aggregate of (a) in respect of all Terminated
Transactions, the amounts that became payable (or that would have become
payable but for Section 2(a)(iii)) to such party under Section 2(a)(i) on
or prior to such Early Termination Date and which remain unpaid as at such
Early Termination Date and (b) in respect of each Terminated Transaction,
for each obligation under Section 2(a)(i) which was (or would have been but
for Section 2(a)(iii)) required to be settled by delivery to such party on
or prior to such Early Termination Date and which has not been so settled
as at such Early Termination Date, an amount equal to the fair market value
of that which was (or would have been) required to be delivered as of the
originally scheduled date for delivery, in each case together with (to the
extent permitted under applicable law) interest, in the currency of such
amounts, from (and including) the date such amounts or obligations were or
would have been required to have been paid or performed to (but excluding)
such Early Termination Date, at the Applicable Rate. Such amounts of
interest will be calculated on the basis of daily compounding and the
actual number of days elapsed. The fair market value of any obligation
referred to in clause (b) above shall be reasonably determined by the party
obliged to make the determination under Section 6(e) or, if each party is
so obliged, it shall be the average of the fair market values reasonably
determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the
respective dates specified below with effect from the date specified on
the first page of this document.
HASTINGS MANUFACTURING COMPANY NBD BANK
- ----------------------------------- ------------------------------
(Name of Party) (Name of Party)
By: /S/ THOMAS J. BELLGRAPH /S/ DANIEL T. MUHLING
Name: Thomas J. Bellgraph Name: Daniel T. Muhling
Title: Vice President-Finance Title: V.P.
Date: 9/3/98 Date: 8/31/98
21 ISDA[REGISTERED] 1992
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE HASTINGS MANUFACTURING COMPANY AND SUBSIDIARIES
FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCES TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 339,854
<SECURITIES> 0
<RECEIVABLES> 6,110,314
<ALLOWANCES> 175,000
<INVENTORY> 10,224,762
<CURRENT-ASSETS> 19,155,919
<PP&E> 24,241,711
<DEPRECIATION> (16,151,160)
<TOTAL-ASSETS> 35,802,077
<CURRENT-LIABILITIES> 6,248,278
<BONDS> 6,600,000
<COMMON> 1,567,852
0
0
<OTHER-SE> 4,655,587
<TOTAL-LIABILITY-AND-EQUITY> 35,802,077
<SALES> 29,829,994
<TOTAL-REVENUES> 29,829,994
<CGS> 20,538,990
<TOTAL-COSTS> 20,538,990
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 152,200
<INTEREST-EXPENSE> 336,793
<INCOME-PRETAX> 2,077,829
<INCOME-TAX> 879,000
<INCOME-CONTINUING> 1,198,829
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,198,829
<EPS-PRIMARY> 1.55
<EPS-DILUTED> 1.55
</TABLE>
