<PAGE>
==================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JULY 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to ___________________
Commission file number: 1-5190
VARITY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 22-3091314
- - ------------------------------- -----------------------------
(State or other jurisdiction (IRS Employer
of Incorporation) Identification No.)
672 DELAWARE AVENUE, BUFFALO, NEW YORK 14209
- - -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Telephone number including area code: (716) 888-8000
- - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of 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 .
--- ---
THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF AUGUST 30, 1994 WAS
43,978,573 SHARES.
====================================================================
Exhibit index appears on page 17.
<PAGE>
VARITY CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION: PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Operations......................... 3
Consolidated Balance Sheets................................... 5
Consolidated Statements of Cash Flows......................... 6
Notes to Consolidated Financial Statements.................... 7
Item 2. Management's Discussion and Analysis.......................... 10
PART II. OTHER INFORMATION:
Item 1. - Legal Proceedings....................................... 15
Item 2. - Changes in Registered Securities........................ 15
Item 3. - Defaults upon Senior Securities......................... 15
Item 4. - Submission of Matters to a Vote of Security Holders..... 15
Item 5. - Other Information....................................... 15
Item 6.(a) - Exhibits................................................ 15
Item 6.(b) - Reports on Form 8-K..................................... 15
SIGNATURES............................................................ 16
</TABLE>
UNLESS OTHERWISE INDICATED REFERENCES TO "COMPANY" MEAN VARITY CORPORATION AND
ITS SUBSIDIARIES AND REFERENCES TO "FISCAL" MEAN THE COMPANY'S YEAR ENDED
JANUARY 31 (E.G. FISCAL 1994 REPRESENTS THE PERIOD FEBRUARY 1, 1994 TO JANUARY
31, 1995).
Page 2
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
VARITY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JULY 31,
(Unaudited)
(Dollars in millions except per share amounts)
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Total sales and revenues $ 517.4 $ 422.4
---------- ----------
Expenses:
Cost of goods sold 425.7 350.2
Marketing, general and administration 41.6 35.3
Engineering and product development 21.2 17.2
Interest, net 5.8 8.1
Exchange gains (0.9) (1.4)
Other (income) expense, net 0.8 (0.3)
---------- ----------
494.2 409.1
---------- ----------
Income before income taxes, earnings of associated
companies, discontinued operation and extraordinary loss 23.2 13.3
Income tax provision (3.8) (2.8)
---------- ----------
Income before earnings of associated companies,
discontinued operation and extraordinary loss 19.4 10.5
Equity in earnings of associated companies 3.4 2.6
---------- ----------
Income before discontinued operation and extraordinary loss 22.8 13.1
---------- ----------
Discontinued operation (Note 2):
Earnings from discontinued operation - 3.0
Gain on sale of discontinued operation 23.2 -
---------- ----------
23.2 3.0
---------- ----------
Income before extraordinary loss 46.0 16.1
Extraordinary loss - (1.7)
---------- ----------
Net income $ 46.0 $ 14.4
========== ==========
Income attributable to common stockholders $ 45.4 $ 9.8
Earnings (loss) per common share:
Before discontinued operation and extraordinary loss $ 0.50 $ 0.25
Discontinued operation 0.52 0.09
Extraordinary loss - (0.05)
---------- ----------
Net income $ 1.02 $ 0.29
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Page 3
<PAGE>
VARITY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JULY 31,
(Unaudited)
(Dollars in millions except per share amounts)
<TABLE>
<CAPTION>
1994 1993
------------ -----------
<S> <C> <C>
Total sales and revenues $ 1,023.2 $ 878.0
------------ -----------
Expenses:
Cost of goods sold 842.7 727.6
Marketing, general and administration 80.2 75.6
Engineering and product development 41.7 31.5
Interest, net 11.7 16.7
Exchange gains (2.5) (1.0)
Other income, net - (0.3)
------------ -----------
973.8 850.1
------------ -----------
Income before income taxes, earnings of associated
companies, discontinued operation, extraordinary loss and
cumulative effect of changes in accounting principles 49.4 27.9
Income tax provision (8.4) (5.1)
------------ -----------
Income before earnings of associated companies,
discontinued operation, extraordinary loss and cumulative
effect of changes in accounting principles 41.0 22.8
Equity in earnings of associated companies 6.8 5.4
------------ -----------
Income before discontinued operation, extraordinary loss and
cumulative effect of changes in accounting principles 47.8 28.2
------------ -----------
Discontinued operation (Note 2):
Earnings (loss) from discontinued operation 4.4 (1.1)
Gain on sale of discontinued operation 23.2 -
------------ -----------
27.6 (1.1)
------------ -----------
Income before extraordinary loss and cumulative effect of
changes in accounting principles 75.4 27.1
Extraordinary loss - (1.7)
Cumulative effect of changes in accounting principles - (146.1)
------------ -----------
Net income (loss) $ 75.4 $ (120.7)
============ ===========
Income (loss) attributable to common stockholders $ 74.2 $ (129.9)
Earnings (loss) per common share:
Before discontinued operation, extraordinary loss and
cumulative effect of changes in accounting principles $ 1.05 $ 0.58
Discontinued operation 0.62 (0.03)
Extraordinary loss - (0.05)
Cumulative effect of changes in accounting principles - (4.49)
------------ -----------
Net income (loss) $ 1.67 $ (3.99)
============ ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Page 4
<PAGE>
VARITY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in millions)
<TABLE>
<CAPTION>
July 31, January 31,
1994 1994
----------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 155.1 $ 51.2
Marketable securities 78.3 58.0
Receivables (Note 2) 384.0 329.3
Inventories (Note 3(a)) 170.1 127.8
Prepaid expenses and other 16.4 21.2
Net assets of discontinued operation (Note 2) - 197.0
----------- ------------
Total current assets 803.9 784.5
Investments in associated and other companies 100.8 116.3
Fixed assets, net (Note 3(b)) 602.3 522.2
Other assets and intangibles 361.6 336.6
----------- ------------
$ 1,868.6 $ 1,759.6
=========== ============
Liabilities
Current liabilities:
Notes payable $ 5.2 $ 68.0
Current portion of long-term debt 2.9 5.6
Accounts payable and accrued liabilities (Note 3(c)) 558.1 490.1
----------- ------------
Total current liabilities 566.2 563.7
----------- ------------
Non-current liabilities:
Long-term debt 162.9 185.5
Other long-term liabilities 353.4 379.7
----------- ------------
Total non-current liabilities 516.3 565.2
----------- ------------
Stockholders' equity (Note 4):
Preferred stock 6.8 6.8
Common stock 637.7 637.4
Contributed surplus 656.3 656.3
Deficit (487.1) (561.3)
Foreign currency translation adjustment (16.2) (79.8)
Pension liability adjustment (13.5) (30.5)
Unrealized gains on marketable securities 2.1 1.8
----------- ------------
Total stockholders' equity 786.1 630.7
----------- ------------
$ 1,868.6 $ 1,759.6
=========== ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Page 5
<PAGE>
VARITY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JULY 31,
(Unaudited)
(Dollars in millions)
<TABLE>
<CAPTION>
1994 1993
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 75.4 $ (120.7)
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation and amortization 37.3 34.3
Gain on sales of fixed assets (0.7) -
Deferred income taxes 1.7 1.5
Equity in earnings of associated companies in excess
of dividends received (6.6) (5.4)
Gain on sale of discontinued operation (23.2) -
Extraordinary loss - 1.7
Cumulative effect of changes in accounting principles - 146.1
Changes in:
Receivables 2.7 10.0
Inventories (17.3) (20.6)
Prepaid expenses and other 1.0 6.1
Accounts payable and accrued liabilities (42.2) (45.0)
Other long-term liabilities (19.0) (16.9)
Net assets of discontinued operation 26.9 34.3
----------------- -----------------
Cash provided by operating activities 36.0 25.4
----------------- -----------------
Cash flows from investing activities:
Purchases of marketable securities (14.0) (25.1)
Proceeds from sales of marketable securities 12.5 18.1
Additions to fixed assets (98.6) (50.9)
Proceeds from sales of fixed assets 8.9 10.6
Proceeds from sales of businesses 333.2 33.6
Acquisition of business, net of cash acquired (42.7) -
Increase in advances receivable (Note 2) (36.9) -
(Additions to) reductions in other assets and intangibles 0.3 (0.2)
Other (0.2) (1.9)
----------------- -----------------
Cash provided (used) by investing activities 162.5 (15.8)
----------------- -----------------
Cash flows from financing activities:
Proceeds from bank borrowings 26.3 38.5
Repayments of bank borrowings (92.4) (76.2)
Proceeds from long-term debt 86.9 13.5
Repayments of long-term debt (116.9) (170.0)
Proceeds from sale of common stock - 143.7
Exercise of stock options 0.3 2.1
Dividends paid (1.2) (9.2)
Other - (1.3)
----------------- -----------------
Cash used by financing activities (97.0) (58.9)
----------------- -----------------
Effect of foreign currency translation on
cash and cash equivalents 2.4 -
----------------- -----------------
Increase (decrease) in cash and cash equivalents
during the period 103.9 (49.3)
Cash and cash equivalents at beginning of period 51.2 111.4
----------------- -----------------
Cash and cash equivalents at end of period $ 155.1 $ 62.1
================= =================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Page 6
<PAGE>
VARITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and Six Months Ended July 31, 1994 and 1993
(Unaudited)
(Dollars in millions unless otherwise stated)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
by management and in the opinion of management contain all adjustments,
consisting of normal recurring adjustments, necessary to present fairly the
financial position of the Company as of July 31, 1994 and January 31, 1994, and
the results of its operations for the three and six months ended July 31, 1994
and 1993 and cash flows for each of the six month periods ended July 31, 1994
and 1993. Certain prior period amounts have been reclassified to conform with
the current period's presentation. The consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Form 10-K for the fiscal year ended January
31, 1994. Results for interim periods are not necessarily indicative of those
to be expected for the year.
2. DISCONTINUED OPERATION
Pursuant to a plan to dispose of its farm equipment segment, in June 1994 the
Company completed the sale of its worldwide Massey Ferguson farm machinery
business to AGCO Corporation for $310 million in cash and 500,000 shares of AGCO
common stock, resulting in a gain of $23.2 million. The gain is net of the
recognition of $55.0 million of deferred foreign exchange losses, previously
reported in the accompanying consolidated balance sheets as a reduction in
stockholders' equity. Apart from the sale proceeds received in June, under the
terms of the sale agreement the Company has a receivable of $36.9 million from
AGCO as of July 31, 1994 which was received subsequent to the end of the current
quarter.
The transaction excluded cash, indebtedness and certain liabilities, primarily
pertaining to pension and retiree medical benefits for all former North American
Massey Ferguson employees, for which the Company continues to be responsible.
As a result of the aforementioned plan, the farm equipment segment has been
presented as a discontinued operation in the accompanying financial statements.
Prior year financial statements have been reclassified to conform to the current
year presentation.
The operating results of the discontinued operation are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
-------------------- ------------------
1994(1) 1993 1994 1993
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales and revenues $ - $238.5 $253.1 $427.9
====== ====== ====== ======
Income (loss) before income taxes and
cumulative effect of changes in
accounting principles $ - $ 3.2 $ 5.0 $ (.7)
Income tax provision - (.2) (.6) (.4)
------ ------ ------ ------
Income (loss) before cumulative
effect of changes in accounting
principles $ - $ 3.0 $ 4.4 $ (1.1)
====== ====== ====== ======
</TABLE>
(1) Results for the three months ended July 31, 1994 are not included in the
consolidated statements of operations as the sale of the Company's farm
machinery business, although completed in June 1994, was effective as of
April 30, 1994.
Page 7
<PAGE>
A summary of the assets and liabilities of the discontinued operation is as
follows:
<TABLE>
<CAPTION>
January 31,
1994
------
<S> <C>
Current assets $356.5
Noncurrent assets 109.3
------
465.8
------
Current liabilities 262.1
Noncurrent liabilities 6.7
------
268.8
------
Net assets of discontinued operation $197.0
======
</TABLE>
3. OTHER INFORMATION
(a) Inventories
The major classes of inventory are as follows:
<TABLE>
<CAPTION>
July 31, January 31,
1994 1994
------ -----------
<S> <C> <C>
Raw materials and work in process $105.8 $ 66.0
Finished goods 64.3 61.8
------ -----------
$170.1 $127.8
====== ===========
</TABLE>
(b) Fixed assets, net
Fixed assets are stated net of accumulated depreciation and amortization (July
31, 1994 - $344.3 million and January 31, 1994 - $312.9 million).
(c) Accounts payable and accrued liabilities
A summary of accounts payable and accrued liabilities follows:
<TABLE>
<CAPTION>
July 31, January 31,
1994 1994
-------- -----------
<S> <C> <C>
Accounts payable $256.8 $279.4
Accrued liabilities 301.3 210.7
------ ------
$558.1 $490.1
====== ======
</TABLE>
Accrued liabilities at July 31, 1994 include approximately $60 million for North
American pension contributions which the Company intends to fund during the
balance of fiscal 1994.
(d) Supplementary Cash Flows Information
Cash payments by the Company for interest during the six months ended July 31,
1994 and 1993 were $12.1 million and $23.4 million, respectively.
Page 8
<PAGE>
Cash payments for income taxes during the six months ended July 31, 1994 and
1993 were $2.4 million and $2.2 million, respectively.
4. STOCKHOLDERS' EQUITY
The following table summarizes changes in stockholders' equity that occurred
during the six months ended July 31, 1994:
<TABLE>
<CAPTION>
Thousands of
shares
outstanding Equity (Dollars in millions)
------------------- ---------------------------------------------------------------------
Class II Class II Pension
preferred Common preferred Common Contributed Translation liability
stock stock stock stock surplus Deficit adjustment adjustment
--------- ------ --------- ------ ----------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1994 2,001 43,957 $6.8 $637.4 $656.3 $(561.3) $(79.8) $(30.5)
Exercise of stock options 13 0.3
Foreign currency
translation
adjustment 63.6
Dividends on Class II
preferred stock (1.2)
Pension liability
adjustment 17.0
Unrealized gains on
marketable securities
Net income 75.4
----- ------ ---- ------ ------ ------- ------ ------
Balance, July 31, 1994 2,001 43,970 $6.8 $637.7 $656.3 $(487.1) $(16.2) $(13.5)
===== ====== ==== ====== ====== ======= ====== ======
<CAPTION>
Equity (Dollars in millions)
----------------------------
Unrealized Total
gains on stock-
marketable holders'
securities equity
---------- --------
<S> <C> <C>
Balance, January 31, 1994 $1.8 $630.7
Exercise of stock options 0.3
Foreign currency
translation
adjustment 63.6
Dividends on Class II
preferred stock (1.2)
Pension liability
adjustment 17.0
Unrealized gains on
marketable securities 0.3 0.3
Net income 75.4
---- ------
Balance, July 31, 1994 $2.1 $786.1
==== ======
</TABLE>
As of July 31, 1994 options to purchase 2.2 million shares of common stock were
outstanding.
Earnings (loss) per common share are based upon weighted average shares of
common stock and common stock equivalents outstanding of 44,385,000 and
33,688,000 for the three months ended July 31, 1994 and 1993, respectively, and
44,447,000 and 32,541,000 for the six months ended July 31, 1994 and 1993,
respectively. Fully diluted per share amounts are not shown on the accompanying
consolidated statements of operations as no significant dilution exists.
The terms of the Company's Class II preferred stock and certain debt agreements
restrict the payment of dividends on certain of the Company's common stock, as
described in Note 12 to the consolidated financial statements for the fiscal
year ended January 31, 1994.
Page 9
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
In June 1994, the Company, pursuant to a plan to dispose of its farm equipment
segment, completed the sale of its worldwide Massey Ferguson farm machinery
business to AGCO Corporation for $310 million in cash and 500,000 shares of AGCO
common stock, resulting in a non-recurring gain of $23.2 million ($.52 per
share). As a result of the plan and subsequent sale, the farm equipment
segment, including the gain realized on sale, has been presented as a
discontinued operation in the accompanying financial statements.
For the three months ended July 31, 1994, the Company earned $22.8 million
($.50 per share) before the aforementioned discontinued operation on sales and
revenues of $517.4 million, compared with income of $13.1 million ($.25 per
share) on sales and revenues of $422.4 million for the comparable period in
fiscal 1993 before the prior year's $1.7 million extraordinary loss ($.05 per
share) on the early repayment of indebtedness. For the six months ended July
31, 1994 the Company earned $47.8 million ($1.05 per share) before the
aforementioned discontinued operation and related gain on disposition on sales
and revenues from continuing operations of $1,023.2 million, compared with
income of $28.2 million ($.58 per share), on sales and revenues of $878.0
million, for the comparable period in fiscal 1993 before the prior year's
cumulative effect of changes in accounting principles and an extraordinary loss
of $1.7 million on the early repayment of indebtedness. During the prior year's
first quarter, the Company recognized a one-time, non-cash $146.1 million charge
($4.49 per share) in connection with the adoption of new accounting standards
for postretirement and postemployment benefits as is further described in Note 1
of the Notes to Consolidated Financial Statements included in the Company's Form
10-K for the year ended January 31, 1994. Earnings of the discontinued farm
equipment segment were $4.4 million for the six months ended July 31, 1994 as
compared to a loss of $1.1 million in the comparable period for fiscal 1993.
SEGMENT OPERATING REVIEW
<TABLE>
<CAPTION>
(Dollars in millions) Three Months Ended Six Months Ended
July 31, July 31,
-------------------------- -------------------------
% %
1994 1993 Change 1994 1993 Change
----- ----- ------- ------ ----- --------
<S> <C> <C> <C> <C> <C> <C>
Sales and revenues (1):
Automotive products (Kelsey-Hayes) $ 307 $ 256 20 $ 642 $ 558 15
Engines (Perkins) 197 172 15 377 330 14
Other (Pacoma) 13 13 - 25 26 (4)
Intercompany sales to discontinued
operation - (19) - (21) (36) (42)
----- ----- -- ------ ----- ---
Total $ 517 $ 422 23 $1,023 $ 878 17
===== ===== == ====== ===== ===
Operating income (loss) (1):
Automotive products (Kelsey-Hayes) $ 22 $ 19 16 $ 49 $ 44 11
Engines (Perkins) 16 11 45 29 19 53
Other (Pacoma) - - - - (2) -
----- ----- -- ------ ----- ---
Total $ 38 $ 30 27 $ 78 $ 61 28
===== ===== == ====== ===== ===
</TABLE>
(1) All periods prior to the sale of Massey Ferguson, effective April 30, 1994,
reflect the Company's former farm equipment segment as a discontinued
operation.
Page 10
<PAGE>
AUTOMOTIVE PRODUCTS
United States automobile and light truck demand during the second quarter of
fiscal 1994 continued to improve, as measured by a 2% increase in vehicle sales
over the comparable fiscal 1993 period, reflecting increased consumer confidence
and a generally stronger overall business environment. Correspondingly, North
American production of these vehicles, which incorporates Kelsey-Hayes' products
and influences the Company's automotive products segment, increased 9% during
the same period. Varity's automotive products segment continued to benefit from
its strategic position as a major supplier of anti-lock braking systems (ABS)
and foundation (conventional) brakes for light trucks, vans and sport utility
vehicles. The Company's sales of ABS (and related products) and foundation
brakes for these specific vehicles comprise approximately 90% and 60%,
respectively, of the Company's total ABS and foundation brakes sales for all
vehicles. North American industry production of these vehicles increased 18%
during the second quarter of fiscal 1994. As a result, the Company's automotive
products segment recorded sales of $307 million in the current quarter,
reflecting an increase of 20% over the prior year's second quarter.
In addition to increased North American light vehicle production, higher sales
also resulted from expanded ABS installation rates in new vehicles and
replacement of two-wheel ABS with higher value four-wheel systems.
The automotive products segment also includes sales of products for the heavy
duty truck and trailer market, which are produced by the Dayton Walther heavy
duty brake group.
Year to date, the Company's automotive products segment sales have increased
15% to $642 million principally due to an increase in North American production
of light trucks, vans and sport utility vehicles of approximately 17% from the
prior year's first half and higher four-wheel ABS installation rates.
Segment operating income in the current quarter for the automotive products
segment was $22 million, up 16% from 1993 results of $19 million. Year to date,
such earnings improved 11% to $49 million from the same period in the prior
year. Earnings improved over the prior year for the current quarter and the
first half as a direct result of the aforementioned increased sales and the
continued focus on implementing cost reductions and productivity improvements.
The current periods' results were tempered, however, by expenses associated with
expanding capacity and pursuing new brake systems business. These expenditures
included costs for establishment of the European brake systems marketing and
technical center in Wiesbaden, Germany and the initial start-up activities at
the Heerlen, Netherlands and Fowlerville, Michigan ABS manufacturing facilities,
which are scheduled to commence production in the second half of 1994. The
majority of these expenditures were associated with product engineering and
vehicle testing activities to support customer programs. In addition, during
the current quarter capacity constraints and costs of outsourcing and overtime
negatively affected operating margins in the heavy duty brakes business pending
implementation of manufacturing process improvements. Similar constraints and
related penalties which negatively impacted foundation brakes operating margins
in recent quarters are being addressed with some improvements being realized in
the second quarter.
ENGINES
Total engines segment sales increased by 15% to $197 million in the second
quarter and by 14% to $377 million in the first half of fiscal 1994 as compared
with the same periods in the prior year, primarily due to increased demand in
the agricultural sector in Europe, especially the United Kingdom, in addition to
improvements in the United Kingdom and United States construction sectors. In
the power generation sector, the high levels of industry growth that were
experienced throughout 1993 have started to slow and the market is experiencing
some softening in demand. Perkins, however, has benefitted from a shift in
demand towards the larger, higher value and higher margin engines, partially
offsetting the slowdown being experienced in this market. The comparative
strength of the agricultural and construction sectors against fiscal 1993 has
more than offset the continuing difficult economic conditions being experienced
in significant continental European markets where the prolonged economic
downturn is only slowly turning around.
Page 11
<PAGE>
Operating income for the engines segment increased 45% to $16 million in the
second quarter and 53% to $29 million in the first half of fiscal 1994 from the
comparable periods in the prior year as a result of higher sales, productivity
improvements, continuing efforts to control costs and to a lesser extent the
benefit of a higher-margin, non-recurring military contract.
NON-SEGMENT OPERATING REVIEW
In June 1994, the Company, pursuant to a plan to dispose of its farm equipment
segment, completed the sale of its worldwide Massey Ferguson farm machinery
business to AGCO Corporation for $310 million in cash and 500,000 shares of AGCO
common stock, resulting in a non-recurring gain of $23.2 million. The
transaction excluded cash, indebtedness and certain liabilities, primarily
pertaining to pension and retiree medical benefits for all former North American
Massey Ferguson employees, for which the Company continues to be responsible.
As a result of the aforementioned plan, the farm equipment segment has been
presented as a discontinued operation. Prior year financial statements have
been reclassified to conform to the current year presentation.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
During the second quarter, the Company utilized a portion of the proceeds
received from the sale of its Massey Ferguson farm machinery business to reduce
indebtedness and to fund the approximately $50 million acquisition of Dorman
Diesels Limited. During the second half of fiscal 1994, the Company intends to
utilize approximately $60 million to make contributions to its unfunded North
American pension liabilities and to implement its plan to purchase insurance
contracts to annuitize vested benefits under retained Massey Ferguson pension
plans which would serve to eliminate the Company's ongoing liability for such
benefits. The Company further intends to commence the periodic re-purchase of
up to 4.5 million shares of its common stock as market conditions warrant.
Notwithstanding the foregoing initiatives, the Company's financial liquidity and
flexibility will permit investment in what it believes are high-return, high-
growth products and opportunities if and when such opportunities become
available.
Cash provided from operations during the first six months of fiscal 1994
amounted to $36.0 million as compared to $25.4 million during the same period
last year. This improvement in cash provided was mainly attributable to
improved working capital management and increased earnings from continuing
operations.
Short-term notes payable decreased $62.8 million to $5.2 million at July 31,
1994 as a result of the aforementioned reduction of indebtedness and normal
operational funding activity.
Long-term debt outstanding at July 31, 1994 (including current maturities)
decreased to $165.8 million from $191.1 million at January 31, 1994, due to the
aforementioned long-term and short-term indebtedness reductions.
Unused long-term and short-term lines of credit at July 31, 1994 were $123.8
million and $92.8 million, respectively. Management believes that Varity will
have improved access to credit markets as a result of the sale of Massey
Ferguson and improvements in its operations and that its credit facilities and
cash flow from operations will continue to be sufficient to meet its operating
needs.
Certain of the Company's loan agreements provide for financial covenants
relating to such matters as the maintenance of specified financial ratios and
minimum net worth. Certain loan agreements also contain cross-default
provisions. At July 31, 1994 the Company and each of its subsidiaries were in
compliance with their financial covenants. Management expects that the Company
and each of its subsidiaries will remain in compliance during the period ending
July 31, 1995.
Receivables increased $54.7 million to $384.0 million at July 31, 1994 from
$329.3 million at January 31, 1994, primarily due to $36.9 million due from AGCO
in connection with the sale of Massey Ferguson, which was received subsequent to
July 31, 1994, increased sales in the current quarter and to a lesser extent the
Dorman Diesels Limited acquisition.
Page 12
<PAGE>
Inventories of raw materials, work-in-process and finished products increased
to $170.1 million at July 31, 1994 from $127.8 million at January 31, 1994,
primarily due to the Dorman Diesels Limited acquisition and routine adjustments
in manufacturing schedules in response to improved customer demand.
Accounts payable and accrued liabilities increased $68.0 million during the
first six months of fiscal 1994 due to the reclassification of approximately $60
million from other long-term liabilities in anticipation of North American
pension contributions to be funded during the second half of fiscal 1994 and to
a lesser extent the Dorman Diesels Limited acquisition and the effect of higher
throughput and normal disbursement activity.
Net fixed assets increased $80.1 million to $602.3 million at July 31, 1994
due to capital additions exceeding depreciation and disposals and to a lesser
extent the Dorman Diesels Limited acquisition. Capital expenditures for the
first six months of fiscal 1994 were $98.6 million compared to $50.9 million
last year, and depreciation and amortization were $37.3 million and $34.3
million, respectively, for the same periods. Capital expenditures for fiscal
1994 should approximate $190.0 million. These expenditures will be mainly for
the completion of construction of new ABS plants in the United States and the
Netherlands, in addition to normal equipment replacements and operating
improvements related to reducing costs and increasing output.
Other assets and intangibles increased by $25.0 million to $361.6 million at
July 31, 1994 from $336.6 million at January 31, 1994, primarily due to goodwill
additions resulting from Perkins' acquisition of Dorman Diesels Limited.
Other long-term liabilities decreased by $26.3 million to $353.4 million at
July 31, 1994 from $379.7 million at January 31, 1994, primarily due to a
decrease in certain pension and benefit liabilities as a result of amounts
reclassified to current liabilities in anticipation of funding contributions to
be made in fiscal 1994, partially offset by additional liabilities recorded in
connection with the aforementioned Massey Ferguson sale.
Stockholders' equity increased by $155.4 million to $786.1 million at July 31,
1994. This net increase primarily resulted from year to date net income of
$75.4 million and a favorable change in the cumulative foreign currency
translation adjustment of $63.6 million, of which $55.0 million was due to the
recognition of previously deferred foreign exchange losses on the Company's sale
of its foreign investment in Massey Ferguson, partially offset by preferred
dividends paid of $1.2 million.
Varity is primarily dependent on its subsidiaries to meet its cash
requirements. Varity's ability to obtain cash from its subsidiaries or to
transfer cash between subsidiaries is governed by the financial condition and
operating requirements of these subsidiaries, and in certain instances the terms
of loan agreements or similar agreements to which its subsidiaries are parties.
The Company has ongoing short-term cash requirements for working capital,
capital expenditures, dividends, interest and debt payments. The Company
believes that its cash requirements will be met through internally and
externally generated sources, existing cash balances and utilization of
available borrowing facilities.
As a result of the Company's actions over the past few years to reduce debt
and increase operating efficiencies, the Company's financial position and
liquidity have improved markedly. The Company believes these actions have
improved its access to capital markets and will better posture the Company to
finance investment in and expansion of the growth areas of its businesses.
During the next five years the Company believes that its cash requirements for
working capital, capital expenditures, dividends, interest and debt repayments
will continue to be met through internally and externally generated sources and
utilization of available borrowing sources.
Page 13
<PAGE>
The Company, primarily through its automotive products segment, is involved in
a limited number of remedial actions under various federal and state laws and
regulations relating to the environment which impose liability on parties to
clean up, or contribute to the cost of cleaning up, sites on which their
hazardous wastes or materials were disposed or released. The Company believes
that it has made adequate provision for costs associated with known remediation
efforts in accordance with generally accepted accounting principles and does not
anticipate the future cash requirements of such efforts to be significant. The
Company has made no provision for any unasserted claims as it is not possible to
estimate the potential size of such future claims, if any.
OUTLOOK
The Company believes that its automotive products segment is positioned to
benefit in fiscal 1994 from the ongoing upturn in the North American automotive
industry. The Company is also addressing the incremental cost burdens it is
experiencing as a result of increased production schedules. Continued
management actions and cost reduction efforts have positioned the engines
segment to benefit as the European economy improves, although the Company does
not expect a major upturn in Europe during fiscal 1994.
Page 14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN REGISTERED SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 2, 1994 at the Annual Meeting of Stockholders the following matters
were voted on:
1. Election of Directors. A total of 36,990,368 votes were cast in the
election of directors. The following persons received the number of
votes indicated below and were all elected to be directors of Varity
Corporation.
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
--------------------- ---------- --------------
<S> <C> <C>
William A. Corbett 36,888,524 101,844
Thomas N. Davidson 36,889,064 101,304
Robert M. Gates 36,887,943 102,425
Luiz F. Kahl 36,890,787 99,581
Vincent D. Laurenzo 36,890,145 100,223
W. Darcy McKeough 36,839,925 150,443
Sir Bryan Nicholson 36,890,346 100,022
Victor A. Rice 36,888,546 101,822
Warren S. Rustand 36,890,183 100,185
William R. Teschke 36,888,263 102,105
Robin H. Warrender 36,811,838 178,530
</TABLE>
2. Ratification of Auditors. A total of 36,905,764 votes were cast for,
26,956 votes were cast against, and 57,648 votes abstained from voting on
the ratification of KPMG Peat Marwick as the Company's independent
auditors. Accordingly, the appointment of the auditors was approved.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 10 - Material contracts
Exhibit 11 - Earnings per share computations
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
On July 13, 1994 the Company filed a report on Form 8-K reporting on items
2 and 7.
Page 15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VARITY CORPORATION
/s/ N.D. Arnold /s/ Kevin C. Shanahan
___________________________________ ________________________________
N.D. Arnold Kevin C. Shanahan
Senior Vice President and Vice President, Controller
Chief Financial Officer (Principal Accounting Officer)
(Principal Financial Officer)
September 7, 1994
Page 16
<PAGE>
VARITY CORPORATION
INDEX TO EXHIBITS
Exhibit
Number
- - ------
10.0 MATERIAL CONTRACTS
10.1 LOAN AGREEMENTS
(k) - Loan Agreement dated as of January 21, 1994 between Heerlen ABS
Manufacturing C.V. and Cooperatieve Centrale Raiffeisen -
Boerenleenbank B.A. and De Nationale Investeringsbank N.V.
(l) - Overdraft Facility Agreement dated as of January 21, 1994 between
Heerlen ABS Manufacturing C.V. and Cooperatieve Centrale Raiffeisen -
Boerenleenbank B.A.
(m) - Continuing Guarantee dated as of January 21, 1994 between Varity
Corporation and Cooperatieve Centrale Raiffeisen - Boerenleenbank
B.A. and De Nationale Investeringsbank N.V., reference (k) and (l).
(n) - Pledge Agreement dated as of April 12, 1994 between Heerlen ABS
Manufacturing C.V., Heerlen ABS Manufacturing B.V., and Cooperatieve
Centrale Raiffeisen - Boerenleenbank B.A. and De Nationale
Investeringsbank N.V., reference (k) and (l).
(o) - Continuing Guaranty dated as of April 12, 1994 between Heerlen ABS
Manufacturing B.V. and Cooperatieve Centrale Raiffeisen -
Boerenleenbank B.A. and De Nationale Investeringsbank N.V., reference
(k) and (l).
11.0 EARNINGS PER SHARE COMPUTATIONS
11.1 Primary Earnings Per Share Computations for Three Months Ended July
31, 1994 and 1993.
11.2 Primary Earnings Per Share Computations for Six Months Ended July
31, 1994 and 1993.
27 FINANCIAL DATA SCHEDULE
Page 17
<PAGE>
EXHIBIT 10.1(K)
LOAN AGREEMENT
--------------
THE UNDERSIGNED:
I. a. COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.,
established at Amsterdam, the Netherlands,
hereinafter referred to as: Rabobank Nederland,
b. DE NATIONALE INVESTERINGSBANK N.V.,
established at Den Haag, the Netherlands,
hereinafter referred to as: DNIB,
Rabobank Nederland and DNIB hereinafter jointly as well as severally
also referred to as: the Banks,
II. HEERLEN ABS MANUFACTURING C.V., a commanditaire vennootschap established
under the laws of the Netherlands, having its registered address at
Schouwburgplein 30-34 Rotterdam, the Netherlands and having its offices
at 1209 Orange Street, 19801 Wilmington, Delaware, USA,
hereinafter -also- referred to as: the Borrower;
WHEREAS:
-With its offering letter dated September 17, 1993 the Banks have offered
to the Borrower a loan, who has accepted the same;
-Parties wish to specify the conditions that will apply to said offer;
HAVE AGREED AS FOLLOWS:
Rabobank Nederland herewith grants to the Borrower, who declares to accept from
Rabobank Nederland, a loan in the amount of NLG 23,000,000.-- (twenty three
million Netherlands Guilders).
DNIB herewith grants to the Borrower, who declares to accept from DNIB, a loan
in the amount of NLG 25,000,000.-- (twenty five million Netherlands Guilders),
(said loans hereinafter collectively referred to as the "Loan"), subject to and
on the following terms and conditions.
ARTICLE 1 PURPOSE
- - --------- -------
The Borrower shall use the proceeds of the Loan exclusively for the construction
of a new production plant, production equipment and starting costs for and
related to ABS manufacturing in Heerlen, the Netherlands.
<PAGE>
2
ARTICLE 2 AVAILABILITY
- - --------- ------------
1. The Loan will, in accordance with the drawdown scheme attached to this Loan
Agreement, be made available by Rabobank Nederland to the Borrower in one
or more tranches, each tranche to be in the minimum amount of NLG
5,000,000.-- (five million Netherlands Guilders).
2. The Borrower shall provide Rabobank Nederland with a signed receipt or
payment order not less than 2 Business Days prior to the proposed date on
which such tranche is to be disbursed. Together with this Loan Agreement
such receipt or payment order shall constitute full evidence of payment by
Rabobank Nederland to the Borrower of the amount as specified therein.
3. The Loan shall be available for drawdown up to and including June 30, 1996
after which date the undrawn amount of the Loan shall no longer be
available to the Borrower.
4. For the purpose of this agreement "Business Day" means any day on which
dealings and exchange between banks in the currency in which the Loan is
available may be carried on in Amsterdam and such other place where any
payment is required to be made or any act is required to be performed
hereunder.
5. The obligations of the Banks hereunder are several and not joint.
ARTICLE 3 INTEREST
- - --------- --------
1. The Borrower shall pay to the Banks interest over each tranche of the
principal outstanding amount of the Loan, which shall be calculated over
the periods selected thereto by the Borrower in accordance with provisions
a. or b. hereunder (each such period being an "Interest Period"):
a. (i) at a fixed rate starting at the successive date(s) of the
drawdown(s) and ending on June 30, 1996, to be based on each of the
Bank's cost of funding (as determined by Rabobank Nederland on behalf
of the Banks) increased with a margin of 1,25% (one and one quarter of
one per cent.) per annum and, if so selected by the Borrower and (ii)
at a similar fixed rate for the period starting on July 1, 1996 for the
remaining term of the Loan, or
b. at a floating rate, which floating rate will be based on the Amsterdam
Interbank Offered Rate (AIBOR) as
<PAGE>
3
fixed by De Nederlandsche Bank N.V. appearing on Reuter-screen on 12.00
hrs. for Interest Periods of 1 month, 3, 6 or 12 months increased with
a margin of 1,25% (one and one quarter of one per cent.) per annum.
c. Notwithstanding anything to the contrary in this Agreement, if prior to
the commencement of any Interest Period the Banks shall determine in
good faith that:
1. By reason of circumstances affecting the Amsterdam interbank market
adequate and fair means do not exist for ascertaining the interest
rate as meant in Article 3.1 (b) during such Interest Period; or
2. Deposits in Netherlands Guilders of equal duration to such Interest
Period will not be available to them in the Amsterdam interbank
market in sufficient amounts to fund the Loan during such Interest
Period,
then the Banks shall promptly give a notice to the Borrower (being
a Suspension Notice), containing full particulars thereof.
(a) If such a Suspension Notice is given by the Banks before
drawdown of a tranche in accordance with Article 2, then the Banks
shall not be obliged to make such tranche available. During a
period of thirty Business Days from the giving of such Suspension
Notice, the Banks shall consult in good faith with the Borrower in
order to agree to an alternative basis for the availability of the
tranche and/or further tranches.
(b) If a certain tranche has been drawn down before a Suspension
Notice is given by the Banks, the Banks shall within thirty
Business Days following the date of the Suspension Notice, certify
in good faith to the Borrower an alternative basis for maintaining
the Loan. Such alternative basis may be retro-active to the
beginning of the then current Interest Periods, and may include an
alternative method of fixing the interest rate (which shall reflect
the cost of each Bank of funding the Loan plus the margin as
mentioned in Article 3.1. (b)) or alternative Interest Periods for
the Loan, provided always that as far as practicable any such
alternative basis shall be determined by the Banks in a manner and
for periods as similar as possible to those provided in Article
3.3.
<PAGE>
4
2. The Borrower shall inform the Banks two Business Days prior to the last
Business Day of each Interest Period (the "Interest Adjustment Date")
whether it wishes to continue the fixed and/or floating rate or to convert
such rate in another rate as set forth above for the next Interest Period.
If the Borrower does not timely inform the Banks of its choice, the
applicable rate shall be a floating rate at 3 months AIBOR.
3a. Interest on loans bearing interest at a fixed rate shall be due and payable
semi annually in arrears, commencing six months after the date of drawdown
and will be calculated on the basis of a month of 30 days and a year of 360
days.
3b. Interest on loans bearing interest at a floating rate shall be due and
payable at the end of each interest period as well as on the maturity date
of the Loan but at least semi annually and will be calculated on the basis
of the actual number of days elapsed and a year of 360 days.
ARTICLE 4 FEES
- - --------- ----
1. The Borrower shall pay to the Banks a front end fee of NLG 125,000.-- (one
hundred twenty five thousand Netherlands Guilders), which will be paid on
the earlier of (i) disbursement of the first tranche of the Loan (in which
case it shall be withheld from such tranche), or (ii) June 30, 1994.
2. The Borrower shall pay to the Banks a commitment fee of 0,35% (zero point
three five per cent.) per annum to be calculated over the undrawn amount of
the Loan from the date of signing of this Loan Agreement, such fee being
due and payable monthly in arrears, commencing on March 1, 1994.
ARTICLE 5 REPAYMENT
- - --------- ---------
The Borrower shall repay the Loan in 8 semi annual and equal tranches of NLG
6,000,000.-, or if the total outstanding amount of the Loan is less than NLG
48,000,000, a pro rata part of the amount then outstanding, unless agreed upon
otherwise, on June 30 and December 31 of each year, commencing on December 31,
1996, the final tranche to be repaid on June 31, 2000.
ARTICLE 6 PREPAYMENT
- - --------- ----------
1. The Borrower is allowed to prepay - without any penalty - the relevant
outstanding principal amount in whole or in part, on each Interest
Adjustment Date relative to the
amount prepaid, provided that (i) each amount prepaid is in
<PAGE>
5
a minimum amount of NLG 1,000,000.--, and (ii) the Borrower has informed
the Banks of its intention to make such prepayment at least ten Business
Days before the Interest Adjustment Date.
2. Prepayment of any amount on any other date than on the Interest Adjustment
Date is conditional upon the payment by the Borrower to the Banks of all
funding losses incurred by the Banks in connection with such prepayment,
provided, however, that any amount prepaid may not be reborrowed by the
Borrower.
For the purpose of this provision, "funding losses" shall mean the costs
and expenses incurred by the Banks arising from or relating to the payment
by the Borrower of any amount prior to the due date therefor, in each case
including without limitation (i) any loss arising from the re-employment of
funds through the next original Interest Adjustment Date at rates lower
than the rate of interest on such amount pursuant to article 3 and (ii) any
loss or charge from the prepayment of any amount incurred by the Banks to
fund its advances prior to their maturity.
3. The amounts prepaid pursuant to paragraph 2 will be applied to reduce the
outstanding amounts of all tranches under the Loan made available to the
Borrower by the Banks on a pro rata basis.
4. The Borrower may notify the Banks within ten Business Days of the receipt
of a certificate as mentioned in Article 3.1 (c) that it wishes to prepay
the outstanding amount of the Loan, in which event the Borrower shall
forthwith prepay the outstanding amount of the Loan together with interest
accrued and other charges due, increased with the funding losses as defined
in Article 6.2.
ARTICLE 7 JOINT AND SEVERAL CLAIM
- - --------- -----------------------
Each of Rabobank Nederland and DNIB may, jointly as well as severally, claim any
and all remaining indebtedness of the Borrower, incurred under this Agreement.
ARTICLE 8 REPAYMENT/DEFAULT INTEREST
- - --------- --------------------------
1. In the event that this Loan has become due and payable, the Borrower shall
repay to the Banks the remaining outstanding principal amount of the Loan
together with accrued interest, default interest and any other charges due
by the Borrower to the Banks under this Loan Agreement.
2. In the event the Borrower fails to pay any amount on its due date, the
Borrower shall pay to the Banks default
<PAGE>
6
interest at a rate of 1% (one per cent) per annum above the rate as
mentioned in Article 3.1. This default interest will be calculated over the
period commencing on the date said amount was due and ending on the date of
actual payment of this amount.
ARTICLE 9 PAYMENTS/NO SET OFF
- - --------- -------------------
All payments to be made by the Borrower under this Loan Agreement shall be made
in the currency in which the Loan is outstanding by paying the amounts at the
counter of the Banks or at such a place as the Banks will inform the Borrower,
and without set-off or counterclaim and free and clear of and without deduction
for or on account of any present or future taxes of any nature.
If a day on which a payment under this Loan is due is not a Business Day, the
payment will be due and payable on the next Business Day. Interest will be
calculated over these extra days as well.
ARTICLE 10 ORDER OF PAYMENT
- - ---------- ----------------
All payments received by the Banks from the Borrower under this Loan Agreement
shall be used to reduce the amount which is due hereunder, and are considered to
be first for costs, then for fees, interest and principal sums, in that order.
ARTICLE 11 PLEDGE
- - ---------- ------
All of the Borrower's goods, rights and title now or in the future in the
possession of the Banks or of a third party on the Banks' behalf are and will be
pledged to the Banks to secure any present and/or future obligations of the
Borrower under this Loan Agreement, whether or not (conditionally as the case
may be) due and payable. The Borrower herewith unconditionally and irrevocably
authorizes the Banks to exercise all rights they may have under applicable law
with regard to said collateral, including the right to sell the collateral
and/or to collect claims thus pledged to the Banks.
ARTICLE 12 EVENTS OF DEFAULT
- - ---------- -----------------
1. The total outstanding principal amount of the Loan together with accrued
interest and any other charges due by the Borrower to the Banks under this
Loan Agreement will be immediately due and payable and any undrawn portion
of the Loan is immediately cancelled, without giving notice or observing
any other formality, except as expressly provided for hereinafter, upon
occurrence of any of the events as set forth in paragraph 2 of this
article.
<PAGE>
7
2. a. if the Borrower shall default in the due payment of any amount
payable under this Loan Agreement or any other agreement with any of
the Banks on the due date thereof, and has not remedied this default
within five Business Days after receipt of a notice by the Banks to
that effect.
b. if the Borrower shall default in the due performance or observance of
any other provision contained in this Loan Agreement or of any other
document relating to this Loan Agreement or the Borrower fails to pay
any amount exceeding NLG 5,000,000.-- in aggregate due under any
agreement relating to borrowed money made with another lender and such
default exists for more than 8 business days after a notice by the
Banks.
c. (i) if the Guarantor or any of its direct or indirect subsidiaries
fails to make any principal payment or payments in an amount of $ 10
million or more individually or $ 20,000,000 or more in the aggregate,
in respect of Indebtedness of the Guarantor or any of its subsidiaries
within five days of such payment becoming due and payable (after giving
effect to any applicable grace period set forth in the documents
governing such indebtedness) or any event that results in the
acceleration of any Indebtedness as defined hereinafter of the
Guarantor or any of its subsidiaries that has an outstanding principal
amount of $ 10 million or more individually, or $ 20 million or more in
the aggregate occurs;
(ii) if the Guarantor or any of its subsidiaries fails to make any
interest or other payment or payments (other than a principal payment)
in excess of $ 2 million (individually or in the aggregate) in respect
of any Indebtedness of the Guarantor or any of its subsidiaries, within
five days of such interest or other payment becoming due and payable
(after giving effect to any applicable grace period set forth in the
documents governing such Indebtedness).
"Indebtedness" shall mean in regard to any person or entity all
indebtedness (including guarantees and other contingent obligations)
with respect to borrowed money whatsoever nature or for the deferred
purchase price of property or services, whether or not the indebtedness
of such person or entity has become due and payable.
(iii) if a final judgment that exceeds $ 5 million individually, or
final judgments that exceed $ 10 million in the aggregate, for the
payment of money (but except for claims which are adequately insured)
are
<PAGE>
8
entered by a court or courts of competent jurisdiction against the
Guarantor or any of its subsidiaries and such judgment or judgments
shall not be discharged, satisfied, stayed, annulled or rescinded
within 60 days of being entered.
d. if any security given to the Banks including, without limitation, the
guarantee, mortgage and pledges as described in Article 20 becomes
unenforceable, is contested or repudiated or if the value thereof
decreases substantially;
e. if the contractual arrangements of the Borrower with General Motors or
Volkswagen, as mentioned in Article 20 under (c) shall be terminated or
amended if such amendment would, in the opinion of the Banks, have a
material adverse effect on the Borrower's financial position;
f. if the Borrower or the Guarantor requests suspension of payment in
general in court or demands a declaration of bankruptcy or party makes
a request to declare bankruptcy;
g. if the Borrower sells, trades or otherwise disposes of its assets other
than in the normal course of business;
h. if the Borrower or the Guarantor offers any composition with regard to
unpaid debts to its creditors;
i. if the Borrower or the Guarantor ceases to do business;
j. if the Borrower or the Guarantor decides to dissolve, or has lost its
corporate capacity;
k. if a notice as meant in Article 36 of the Dutch "Invorderingswet" or
Article 16 of the Dutch "Coordinatiewet Sociale Verzekeringen" with
regard to the Borrower has been filed;
l. if an attachment ("conservatoir beslag") on any substantial asset of
the Borrower or the Guarantor has not been terminated within thirty
days after the day on which the attachment was effected;
m. if an attachment ("executoriaal beslag") is made on any substantial
asset of the Borrower or the Guarantor;
<PAGE>
9
n. if the Borrower fails to inform the Banks about any occurrence which
would have material adverse effect on the ability of the Borrower to
perform its obligations under the Loan Agreement or the ability of the
Guaran-tor to perform its obligations under the Guarantee.
ARTICLE 13 CHANGES IN BUSINESS
- - ---------- -------------------
1. The Borrower hereby undertakes towards the Banks that it shall, without the
prior written consent of the Banks, not (i) materially change the conduct
of its business, or (ii) amend its contract constituting the "Commanditaire
Vennootschap".
2. The Borrower herewith undertakes to the Banks that it will timely inform
the Banks of any intended action as set forth in paragraph 1. hereof and of
an intended decision which will result in a major change in the control
over the activities of its business.
3. At the request of the Banks the Borrower shall not effectuate its intention
mentioned under paragraph 2 until after the parties shall have (i)
considered the consequences of such event for the repayment of the
outstanding amount and interest payable under the Loan and (ii) rearranged
the conditions of this Loan Agreement.
4. In connection with any intended event mentioned in this article the Banks
are entitled to stipulate additional conditions which are in the opinion of
the Banks necessary to protect its reasonable interests with regard to the
obligations of the Borrower under this Loan.
In case the Borrower does not comply with these conditions within thirty
Business Days, all amounts due by the Borrower of whatever nature under
this Loan will become immediately due and payable without giving notice or
observing any other formality.
ARTICLE 14 FINANCIAL INFORMATION
- - ---------- ---------------------
The Borrower undertakes as long as any obligation of the Borrower under this
Loan Agreement is outstanding to provide the Banks with its annual financial
statements, audited by an independent auditor, as soon as they have become
available and in any event no later than six months after closing the accounts
for the relevant year. Furthermore, the Borrower shall provide the Banks with
such other financial information which the Banks may reasonably request from
time to time.
<PAGE>
10
The first annual financial statements to be provided hereunder will relate to
the year ending January 31, 1995.
ARTICLE 15 TAXES/COSTS
- - ---------- -----------
1. All payments due from the Borrower hereunder shall be made free and clear,
and without any deduction in respect of taxes, levies, fees, duties,
imposts, charges or withholdings of any nature now or hereafter imposed. In
the event that the Borrower is compelled to make any such deduction, as
aforesaid, it will pay each of the Banks in the same manner and by the same
time such additional amounts received by each of such Banks shall equal the
amounts which would have been received if no deduction had been made. In
such event the Borrower shall provide each of the Banks within thirty days
of the date of such payment with a certificate evidencing the payment of
such tax or other deduction.
2. If the Borrower makes a payment under article 15.1 for the account of a
Bank and such Bank, in its sole opinion, determines in good faith that it
has received or been granted a credit against or relief or remission for,
or repayment of, any tax paid or payable by it in respect of or calculated
with reference to the deduction or withholding or other matter giving rise
to such payment and such Bank shall, in its sole opinion, have determined
such amount to be attributable to the deduction or withholding or other
matter which will leave such Bank (after such payment) in no better or
worse position than it would have been in if the Borrower had not been
required to make such deduction or withholding, then such Bank shall
reimburse the Borrower as far as the foregoing is not to the detriment of
such Bank.
Nothing herein contained shall interfere with the right of each of the
Banks to arrange each of its tax affairs in whatever manner each of it
thinks fit or oblige any Bank to disclose any information relating to its
tax affairs or any computations in respect thereof or require any Bank to
do anything that would prejudice its ability to benefit from any tax
credits, or reliefs or remissions for, or repay-ments to which it may be
entitled.
3. Furthermore the Borrower shall pay all costs in connection with the
enforcement of this Loan Agreement. Costs of enforcement include the
reasonable costs of legal assistance incurred. The Borrower shall
furthermore pay any and all stamp and other taxes and charges payable in
connection with this Agreement or any document hereunder.
<PAGE>
11
ARTICLE 16 EVIDENTIAL FORCE
- - ---------- ----------------
The accounts of the Banks shall be prima facie evidence of any amount which the
Borrower may owe from time to time to the Banks pursuant to this Loan Agreement,
except in case of manifest error.
ARTICLE 17 COVENANTS
- - ---------- ---------
1. The Borrower hereby undertakes towards the Banks that its equity shall at
all times be at least 35% of its total balance sheet.
For the purpose hereof, "equity" shall mean: the paid-up share capital of
Heerlen ABS Manufacturing B.V. and Kelsey-Hayes GmbH., plus the
contribution paid by Kelsey-Hayes Company and Kelsey-Hayes Holding Inc. as
silent partners to the capital of the Borrower, plus intercompany
subordinated debts.
For determining compliance with the above ratio, the consolidated annual
audited financial statements of the Borrower, Kelsey-Hayes Netherlands Inc.
and Kelsey-Hayes Heerlen Inc., consistently applied and prepared in
accordance with generally accepted accounting principles in the Netherlands
or such generally accepted accounting principles as may otherwise be
applicable.
2. The Borrower represents and warrants to the Banks that at all times not
more than 40% of the total amount spent on the project as mentioned in
Article 1. will be financed by the Loan plus the overdraft facility up to a
maximum amount of NLG 14,400,000.-- granted to the Borrower by Rabobank
Nederland (the "Overdraft Facility").
ARTICLE 18 NEGATIVE PLEDGE
- - ---------- ---------------
1. The Borrower hereby undertakes towards the Banks that as long as the Loan
or any part thereof remains outstanding or any other sum is payable under
this Loan Agreement, it shall not without the prior written consent of the
Banks, which consent will not be unreasonably withheld, unless the
interests of the Banks will (in the opinion of the Banks) be damaged, and
except as contemplated by this Loan Agreement or the agreement relating to
the Overdraft Facility:
a. create or permit to subsist any charge, mortgage, pledge or other
collateral in respect of any of its property, present and/or future,
nor sell, barter or otherwise alienate (including, without limitation,
through any sale and leaseback- and other off-balance transactions) any
of its property;
<PAGE>
12
b. lien its present and/or future assets in any way, or to make such asset
subject to any third party rights or sell, barter or otherwise alienate
(including, without limitation, through any sale and leaseback- and
other off-balance transactions) any of its assets, other than the sale
or transfer for the full value in the normal course of business.
2. The Borrower represents and warrants vis-a-vis the Banks that none of its
present or future subsidiaries or companies in which the Borrower holds or
will hold the majority of the shares, will create any security interest as
described in paragraph 1. hereof.
3. In the event that the Borrower will, after having obtained the written
consent of the Banks thereto, grant security to any other creditors for any
present and/or future obligations arising from any agreements, the Borrower
shall at the same time grant security to the Banks for present and/or
future indebtedness of the Borrower to the Banks, whether for principal,
interest or otherwise, which security will at least rank equally with the
security granted to such other creditors and which will provide for at
least the same coverage as obtained by such other creditors.
ARTICLE 19 PARI PASSU
- - ---------- ----------
The Borrower represents and warrants to the Banks that the obligations arising
from this Loan Agreement, rank, and will rank, at least pari passu with all
other present and/or future unsubordinated obligations arising from any other
agreements, of whatever nature, in connection with borrowed money.
ARTICLE 20 CONDITIONS PRECEDENT
- - ---------- --------------------
The commitment of the Banks to make available any amount hereunder is subject to
the prior receipt by it of all of the following documents and compliance with
the following conditions:
(a) To secure the due performance of the Borrower's present and future
obligations under this Loan Agreement and the Overdraft Facility, the
Borrower shall create, or shall cause to be created, in favour of the
Banks:
(1) A guarantee, duly executed by Varity Corporation (the 'Guarantor'), in
the form as attached hereto as Exhibit A (the 'Guarantee'), together
with a satisfactory opinion (in the opinion of the Banks) of the legal
counsel to the Guarantor in connection therewith and
<PAGE>
13
all such other documents the Banks may request in connection with the
power and authority of the Guarantor;
(2) A first mortgage on the premises of Heerlen ABS Manufacturing B.V.,
established at Heerlen, in an amount of NLG 50,000,000.--;
(3) A pledge of all accounts receivable, inventory and goods of the
Borrower as set forth in a pledge agreement in the form attached hereto
as Exhibit B as well as a pledge, or similar security interest under
German law, of all accounts receivable, inventory and goods by Kelsey-
Hayes GmbH;
(4) The Co-Debtorship Agreement between the Banks and Heerlen ABS
Manufacturing B.V. and Kelsey-Hayes GmbH or such other document
acceptable to the Banks providing at least the same security, in the
sole discretion of the Banks, as the Co-Debtorship Agreement;
all such deeds on terms and conditions as may be required by the Banks;
(b) Opinions, satisfactory to the Banks, confirming -inter alia-that (i) the
obligations of the Borrower under this Loan Agreement and the Overdraft
Facility are valid, binding and enforceable against it and (ii) that all
security interests as mentioned in (a) under (1), (2) and (3) are valid,
binding and enforceable instruments;
(c) Documents evidencing the contractual arrangements of the Borrower and/or
Kelsey-Hayes Company and/or Kelsey Hayes Holdings Inc. with General Motors
or Volkswagen, stating that the Borrower is nominated as supplier for ABS-
systems;
(d) A specimen of the persons authorized to sign or dispatch all notices,
certificates and other documents on behalf of the Borrower in connection
with this Loan Agreement;
(e) All such documents the Banks may require to evidence that Kelsey-Hayes
Company and/or Kelsey-Hayes Holdings Inc. has supplied an amount of at
least NLG 35,000,000.-- for the development of the project as mentioned in
Article 1. hereof;
(f) Documents containing the terms and conditions which apply to the NFIA-
subsidy granted by the "Minister van Economische Zaken" and issued in
connection with the project mentioned in Article 1 of this Agreement;
(g) The contract between the limited and general partners of the Borrower
constituting the "Commanditaire Vennootschap";
<PAGE>
14
(h) Such other documents as the Banks may reasonably request, which apply to -
inter alia- the subsidy grant under the 1993 subsidy scheme for regional
investment projects, issued in connection with the project mentioned in
Article 1. of this Agreement.
Each of the above documents shall be in form and substance satisfactory to
the Banks.
ARTICLE 21 COMMUNICATIONS
- - ---------- --------------
All notices and communications made hereunder, unless otherwise agreed upon,
shall be served at the following addresses:
to the Banks addressed to:
Rabobank Nederland
P.O. Box 17100
3500 HG Utrecht
to the Borrower addressed to:
Heerlen ABS Manufacturing C.V.
p/a Kelsey-Hayes Netherlands Inc.
1209 Orange Street, 19801 Wilmington, Delaware, USA
and
p/a Kelsey-Hayes Heerlen Inc.
1209 Orange Street, 19801 Wilmington, Delaware, USA
with copies to:
Kelsey-Hayes Group
William R. Schorenburg,
Treasurer of the Kelsey-Hayes Group
fax 09-1-313-9418340
and to
Henry T. Pollock, Assistant Treasurer Varity Corporation
fax 09-1-716-8888010
or to such other addresses as may from time to time be notified in writing by
either party to the other.
ARTICLE 22 CHANGES IN CIRCUMSTANCES
- - ---------- ------------------------
1. In the event that at any time any change should be made in any applicable
law or regulation of the Netherlands or in the interpretation thereof by
any governmental or other authority of the Netherlands charged with the
administration thereof or in the requirements of any monetary agency of the
Netherlands - in particular (but without prejudice to the generality of the
foregoing) in respect of any assets, advances made and/or deposits taken
<PAGE>
15
by the Banks - such change increasing the direct cost to the Banks (in
order to meet its obligations in connection with) of the Loan made
hereunder, then the Borrower shall on demand and from time to time pay to
the Banks such amounts as will fully compensate the Banks for such
additional costs, upon receipt of a proper invoice for said additional
costs.
The Banks shall endeavor to notify the Borrower promptly of the occurrence
of any such event as aforesaid and forward to the Borrower a certificate
setting out the details as to any such increase in cost. The Banks shall
negotiate in good faith this new situation with the Borrower, without any
responsibility for the Banks.
If the Borrower is required to pay to the Banks any additional amounts as
aforesaid for the amounts drawn hereunder, the Borrower shall be entitled
to prepay the outstanding amounts without any penalty, provided such
prepayment occurs on an Interest Adjustment Date or, in case of a fixed
rate advance, the last date of the fixed interest period.
2. Notwithstanding any other provision herein, the commitment of the Banks
hereunder shall terminate in the event that any change in applicable law or
regulation of the Netherlands or in the interpretation thereof by any
governmental authority and/or De Nederlandsche Bank N.V. therein or thereof
charged with the administration of any applicable law or regulation shall
make it unlawful for the Banks to maintain or give effect to its
obligations under this Loan Agreement.
In such event the Borrower shall immediately repay to the Banks all sums
outstanding including accrued interest thereon and any other unpaid charges
due.
ARTICLE 23 MISCELLANEOUS
- - ---------- -------------
1. For the purpose of this Loan Agreement the Banks choose domicile at the
office of Rabobank Nederland in Utrecht, the Netherlands, 18 Croeselaan,
and the Borrower accepts that for process-serving purposes only, notices
served upon it at its registered address will be to deemed to have been
properly communicated and served.
2. This Loan Agreement and the interpretation thereof shall be governed by the
laws of the Netherlands.
3. Any suit, action or proceeding with respect to this Loan Agreement shall be
brought before the competent courts in the Arrondissement of Amsterdam in
the Netherlands or such other courts in the Netherlands as the Banks in
their sole discretion may decide.
<PAGE>
16
4. The Borrower herewith unconditionally and irrevocably authorizes Rabobank
Nederland to debit its account with Rabobank Nederland account number
3000.61.048 for all the interest and principal it is due to Rabobank
Nederland and/DNIB under this Loan Agreement, notwithstanding its
obligation to pay any amount payable under this Loan Agreement in full.
Debit balances on said account will not be permitted.
5. The Borrower represents that no agreement to which the Borrower is a party
or by which it is bound will be contravened by the entrance into this Loan
Agreement.
6. As far as not contradictory to any provisions in this Loan Agreement, the
offering letter dated September 17, 1993, with reference UC-
P316/WH/ms/O300462 is fully applicable. In the event that any conflict
occurs between this Loan Agreement and said offering letter, the Loan
Agreement shall prevail.
7. As far as not contradictory to any provisions in this Loan Agreement, the
General Conditions applicable to the relations between Rabobank Nederland
or its memberbanks and its customers, as filed at the Registrar's Office of
the District Court of Amsterdam on November 6, 1987 are fully applicable,
provided that DNIB in principle enjoys the same legal position therefrom as
Rabobank Nederland. The Borrower herewith declares to have taken due notice
of these General Conditions.
SIGNED in Utrecht, The Hague and Wilmington respectively on the dates appearing
hereafter.
I. COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.
/s/ K. Wever /s/ J.W. Slooten
---------------------- -----------------------
date: January 21, 1994
DE NATIONALE INVESTERINGSBANK N.V.
/s/ E. Ven Der Berg /s/ A. Waaijen
---------------------- -----------------------
date: January 21, 1994
<PAGE>
17
II. HEERLEN ABS MANUFACTURING C.V.,
duly represented by
KELSEY-HAYES NETHERLANDS INC.
/s/ W. Schnorenberg
---------------------- -----------------------
and
KELSEY-HAYES HEERLEN INC.
/s/ W. Schnorenberg
---------------------- -----------------------
date: January 21, 1994
<PAGE>
EXHIBIT 10.1(L)
OVERDRAFT FACILITY AGREEMENT
----------------------------
THE UNDERSIGNED:
I. COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.,
established at AMSTERDAM, the Netherlands,
hereinafter referred to as: Rabobank Nederland;
II. HEERLEN ABS MANUFACTURING C.V., a commanditaire vennootschap established
under the laws of the Netherlands, having its registered address at
Schouwburgplein 30-34 Rotterdam, the Netherlands and having its offices at
1209 Orange Street, 19801 Wilmington, Delaware, USA,
hereinafter (also) referred to as: the Borrower;
HAVE AGREED AS FOLLOWS:
Rabobank Nederland herewith grants to the Borrower, who declares to accept from
Rabobank Nederland, an overdraft facility in the maximum aggregate amount of NLG
14,400,000.-- (fourteen million four hundred thousand Netherlands Guilders) or
the countervalue thereof in freely convertible currency subject to availability
thereof to Rabobank Nederland, subject to the following terms and conditions,
said overdraft facility hereinafter referred to as: the Facility.
ARTICLE 1 PURPOSE
- - --------- -------
The Borrower shall exclusively use the proceeds of the Facility for (i) the
construction of a new production plant, production equipment and starting costs
for and related to ABS manufacturing in Heerlen, the Netherlands and (ii)
furthermore general corporate purposes.
ARTICLE 2 AVAILABILITY
- - --------- ------------
1. Subject to the contents of Articles 12 and 13 hereof, the Facility will be
available to the Borrower until further notice.
2. The Facility is only available to the Borrower up to a maximum amount which
is less than or equal to the following borrowing base (the "Borrowing
Base"):
a. 70% of the total value of the accounts receivable (including arising
from insurance policies, but disregarding accounts receivable
outstanding for more than ninety days, intercompany claims and claims
which are apparently unrecoverable) pledged to Rabobank Nederland by
the Borrower, Heerlen ABS Manufacturing B.V. established at Heerlen,
the Netherlands and Kelsey-Hayes GmbH established at Mainz-Kastel,
Germany; plus
<PAGE>
b. 50% of the total value of the raw materials, semi-finished products and
finished products owned by the Borrower or Heerlen ABS Manufacturing
B.V. or Kelsey-Hayes GmbH and pledged to Rabobank Nederland. Rabobank
Nederland shall determine the Borrowing Base in its sole discretion and
the Borrower undertakes to provide Rabobank Nederland with all such
lists and documents, duly signed on its behalf, as Rabobank Nederland
may request in connection therewith.
ARTICLE 3 USE
- - --------- ---
1. The Facility will be administrated in one or more accounts in the books of
Rabobank Nederland.
2. The Facility is available for:
(i) carrying out of payment instructions in the relevant currency to be
debited on the above mentioned account(s), and,
(ii) discounting of drafts, opening of letters of credit and issuance of
guarantees or other obligations to be undertaken by Rabobank
Nederland for the account of the Borrower, in the relevant
currency, on such conditions as will be agreed upon, and
(iii) drawing down of cash advances in multiples of NLG 1,000,000.--(one
million Netherlands guilders) for periods of 1 month, 2, 3, 6 and
12 months in Netherlands Guilders and/or other freely available
currencies subject to the availability thereof to Rabobank
Nederland (hereinafter referred to as: the Advance(s)),
provided that the aggregate amount of the debit balance of the account(s)
and the amounts of guarantees issued by Rabobank Nederland or other
obligations entered into by Rabobank Nederland at the request of the
Borrower and outstanding Advances shall never exceed the amount of the
Facility.
The amount available under the Facility at any time will be reduced by the
total amount of the obligations of the Borrower outstanding at any such
time.
3. Rabobank Nederland shall debit all dispositions as mentioned under
paragraph 2 (i), amounts paid by Rabobank Nederland by virtue of any
guarantees issued by Rabobank Nederland or other obligations entered into
by Rabobank Nederland at the request of the Borrower (2 ii), amounts
payable in connection with Advances as mentioned under paragraph 2 (iii),
as well as interest, costs and fees on the account(s) of the Borrower,
notwithstanding the obligation of the Borrower to pay each amount thus owed
to Rabobank Nederland in full.
4. For the purpose of determining the amount available under the Facility
<PAGE>
at any time, the countervalue of amounts outstanding in currencies other
than Netherlands Guilders shall be calculated according to the exchange
rates at which Rabobank Nederland offers these amounts to clients such as
the Borrower.
5. The Borrower shall notify Rabobank Nederland by telephone before 12.00 hrs.
on any Business Day of its intention to draw down an Advance on such
Business Day, indicating the amount, the selected currency and the tenor
thereof which notice, once given, shall be irrevocable.
Before 12.00 hrs. on the maturity date of each Advance the Borrower shall
inform Rabobank Nederland by telephone whether it wishes to continue such
Advance for another period as then to be selected by the Borrower or to
convert such Advance in another currency for another period as then to be
selected by it.
In the event that the Borrower does not notify Rabobank Nederland as
aforesaid, Rabobank Nederland shall debit the Borrower's account on the
relevant maturity date for the amount of the relevant Advance.
6. The terms and conditions (as agreed upon by telephone between Rabobank
Nederland and the Borrower) applicable to an Advance shall be confirmed in
writing to the Borrower by Rabobank Nederland. The relevant confirmation
letter shall in any event specify the agreed principal amount, the currency
selected by the Borrower and the period of such Advance, as well as the
applicable interest rate.
The Borrower shall within 3 (three) Business Days after the date of each
confirmation letter, return a copy thereof to Rabobank Nederland, such copy
being duly signed by the Borrower in evidence of its agreement with the
contents of the same. The contents of said letter are, in the absence
thereof (but without prejudice to the foregoing), deemed to have been
accepted by the Borrower, unless formally objected by the Borrower within
such period.
7. Disbursement of Advances shall be effected by Rabobank Nederland by
crediting the Borrower's current-account with value the date of
disbursement of such Advance.
8. Advances shall be repaid at maturity together with interest and costs in
connection with the Advance so to be repaid.
9. The Borrower irrevocably authorizes Rabobank Nederland to debit the
account(s) of the Borrower with Rabobank Nederland in the relevant currency
for aforesaid amounts.
10. The Borrower is not allowed to prepay the outstanding principal amount of
an Advance, except that the Borrower is allowed to prepay the total amount
of such Advance, provided that the Borrower has informed the Banks of its
intention to make such prepayment at least ten Business Days before the
proposed date of prepayment and on the condition that the Borrower shall
reimburse the Banks for all funding losses incurred by the Banks in
connection with such prepayment.
<PAGE>
For the purpose of this provision, "funding losses" shall mean the costs
and expenses incurred by the Banks arising from or relating to the payment
by the Borrower of any amount prior to the due date therefor, in each case
including without limitation (i) any loss arising from the re-employment of
funds through the original repayment date of an advance at rates lower than
the rate of interest applicable to such advance and (ii) any loss or charge
from the prepayment of any amount incurred by the Banks to fund its
advances prior to their maturity.
11. For the purpose of this Facility Agreement "Business Day" means any day on
which dealings and exchange in the currency in which the Facility is
available between banks may be carried on in Amsterdam and London or such
other place where any payment is to be made or any act is required to be
performed hereunder.
ARTICLE 4 INTEREST
- - --------- --------
1. The rate of interest applicable to debit balances in the current account in
Netherlands Guilders from time to time outstanding under the Facility shall
be 1% (one per cent.) per annum above the promissory note discount rate of
De Nederlandsche Bank N.V. at Amsterdam, to be increased by bankers
surcharges, if any, provided however that such interest shall never be less
than 5 % (five per cent.) per annum.
2. The rate of interest applicable to credit balances in the current account
in Netherlands Guilders shall be the promissory note discount rate of De
Nederlandsche Bank N.V. at Amsterdam minus 1 1/2 % ( one and one half of
one per cent.) per annum.
3. The rate of interest on debit and/or credit balances in the current account
in freely convertible currencies shall be Rabobank Nederland's rate for
customers such as the Borrower as will be determined by Rabobank Nederland.
4. The interest rate applicable to Advances shall be 0,75% (three quarters of
one per cent.) per annum above the Amsterdam Interbank Offered Rate (AIBOR)
as fixed by De Nederlandsche Bank N.V. appearing on Reuter-screen at 12.00
hrs. for periods similar to the interest period of the requested Advance.
Interest on Advances outstanding in Netherlands Guilders will be calculated
on the basis of the actual number of days elapsed in a year of 360 days.
Interest on Advances outstanding in freely convertible currencies will be
calculated as is customary for Rabobank Nederland.
Interest shall be payable on the maturity date of the respective Advance,
but at least semi annually.
5. Interest on credit and/or debit balances in the current account will be
calculated as is customary for Rabobank Nederland and will be debited, or
credited as the case may be, into the relevant account of the Borrower
quarterly in arrears as well as on the day on which the Facility has become
due and payable.
<PAGE>
6. In case the aggregate balance in the current account of the Borrower is a
greater debit position than the Facility allows by virtue of debited
interest or costs or whatever cause, Rabobank Nederland is entitled to
charge interest of 2% (two per cent.) per annum above the interest rate
mentioned in article 4, paragraph 1, calculated on the amount of such
excess and computed over the period starting on the day on which the amount
of the Facility was exceeded until and including the day on which such
excess is remedied.
This provision does not relieve the Borrower from its obligation to pay
such amounts as may be necessary to reduce the debit position to a level
which is less than or equal to the amount of the Facility.
ARTICLE 5 FEES
- - --------------
1. With regard to guarantees issued by Rabobank Nederland or other obligations
entered into by Rabobank Nederland at the request of the Borrower as
mentioned in Article 3, paragraph 2 (ii), the Borrower shall pay to
Rabobank Nederland all such fees as are customarily charged by Rabobank
Nederland with respect to such transactions.
2. Fees shall be due and payable quarterly in arrears.
ARTICLE 6 REPAYMENT/DEFAULT INTEREST
- - --------- --------------------------
1. In the event that this Facility has become due and payable, the Borrower
shall repay to Rabobank Nederland the remaining outstanding principal
amount of the Facility together with accrued interest, default interest and
any other charges due by the Borrower to Rabobank Nederland under this
Facility Agreement.
2. In the event the Borrower fails to pay any amount on its due date, the
Borrower shall pay to Rabobank Nederland default interest at a rate of 2%
(two per cent) per annum above the rate as mentioned in Article 4,
commencing on the date said amount was due and ending on the date of actual
payment of this amount.
ARTICLE 7 PAYMENTS
- - --------- --------
All payments to be made by the Borrower under this Facility Agreement shall be
made in the currency in which the amounts due are outstanding by paying the
amounts at the counters of Rabobank Nederland or at such a place as Rabobank
Nederland will inform the Borrower, and without set-off or counterclaim and free
and clear of and without deduction for or on account of any present or future
taxes of any nature.
If a day on which a payment under this Facility is due is a day on which banks
in the Netherlands are closed for business, the payment will be due and payable
on the next day these banks are open for business. Interest will be calculated
over these extra days as well.
<PAGE>
ARTICLE 8 ORDER OF PAYMENT
- - --------- ----------------
All payments received by Rabobank Nederland from the Borrower under this
Agreement shall be used to reduce the amount which is due hereunder, and are
considered to be first for costs, then for fees, interest and principal, in that
order.
ARTICLE 9 ONE ACCOUNT AND SET OFF
- - --------- -----------------------
1. For set-off purposes, all accounts in the name of the Borrower,
irrespective of their nature or the currency in which they are denominated,
are considered to be one and the same account.
2. In case this Facility is administrated on more than one account Rabobank
Nederland is entitled to set-off any credit balance with any debit balance
outstanding on any account, irrespective of whether they are due and
payable or the currency in which they are outstanding.
3. Rabobank Nederland shall have the right to set-off or to apply amounts on
deposit or account with it or any of its affiliates in reduction of amounts
due hereunder, regardless of the currency of such amounts. The Borrower
hereby authorizes Rabobank Nederland in the name of the Borrower to do all
such acts and to execute all such documents and instruments as may be
necessary or expedient to effect any such set-off or application.
ARTICLE 10 PLEDGE
- - ---------- ------
All of the Borrower's goods, rights and title now or in the future in the
possession of Rabobank Nederland or of a third party on Rabobank Nederland's
behalf are and will be pledged to Rabobank Nederland to secure any present or
future obligations of the Borrower under this Facility Agreement, whether or not
(conditionally as the case may be) due and payable. The Borrower herewith
unconditionally and irrevocably authorizes Rabobank Nederland to exercise all
rights with regard to the said collateral, including the right to sell the
collateral and/or to collect claims thus pledged to Rabobank Nederland after a
failure by the Borrower to satisfy a demand for payment by Rabobank Nederland.
ARTICLE 11 EVENTS OF DEFAULT
- - ---------- -----------------
1. Rabobank Nederland, as well as the Borrower, is at all times entitled to
cancel this Facility Agreement, provided that a three months' prior notice
has been given. During this three month's notice period the Borrower is no
longer entitled to use the Facility, and all amounts outstanding under the
Facility will be due and payable immediately after the lapse of said period
by the mere lapse of time.
<PAGE>
2. Rabobank Nederland is at all times entitled to terminate this Facility
Agreement in the event that the amount outstanding under the Facility is in
excess of the maximum aggregate amount of the Facility. In that case the
Borrower is no longer entitled to use the Facility and the outstanding
principal amount of the Facility together with accrued interest and any
other charges due by the Borrower to Rabobank Nederland under this Facility
Agreement will be due and payable without any formality, if such excess is
not remedied within eight Business Days after receipt by the Borrower of a
notice from Rabobank Nederland.
3. The total outstanding principal amount of the Facility together with
accrued interest and any other charges due by the Borrower to the Banks
under this Facility Agreement will be immediately due and payable and any
undrawn portion of the Facility is immediately cancelled, without giving
notice or observing any other formality, except as expressly provided for
hereinafter, upon occurrence of any of the events as set forth hereinafter:
a. if the Borrower shall default in the due payment of any amount payable
under this Facility Agreement or any other agreement with any of the
Banks on the due date thereof, and has not remedied this default within
five Business Days after receipt of a notice by the Banks to that
effect.
b. if the Borrower shall default in the due performance or observance of
any other provision contained in this Facility Agreement or relating or
of any other document relating to this Facility Agreement or the
Borrower fails to pay any amount exceeding NLG 5,000,000.-- in
aggregate due under any agreement relating to borrowed money made with
another lender and such default exists for more than 8 business days
after a notice by the Banks.
c. (i) if the Guarantor or any of its direct or indirect subsidiaries
fails to make any principal payment or payments in an amount of $ 10
million or more individually or $ 20,000,000 or more in the aggregate,
in respect of Indebtedness of the Guarantor or any of its subsidiaries
within five days of such payment becoming due and payable (after giving
effect to any applicable grace period set forth in the documents
governing such indebtedness) or any event that results in the
acceleration of any Indebtedness of the Guarantor or any of its
subsidiaries that has an outstanding principal amount of $ 10 million
or more individually, or $ 20 million or more in the aggregate occurs;
<PAGE>
(ii) if the Guarantor or any of its subsidiaries fails to make any
interest or other payment or payments (other than a principal payment)
in excess of $ 2 million (individually or in the aggregate) in respect
of any Indebtedness as defined hereinafter of the Guarantor or any of
its subsidiaries, within five days of such interest or other payment
becoming due and payable (after giving effect to any applicable grace
period set forth in the documents governing such Indebtedness).
"Indebtedness" shall mean in regard to any person or entity all
indebtedness (including guarantees and other contingent obligations)
with respect to borrowed money whatsoever nature or for the deferred
purchase price of property or services, whether or not the indebtedness
of such person or entity has become due and payable.
(iii) if a final judgment that exceeds $ 5 million individually, or
final judgments that exceed $ 10 million in the aggregate, for the
payment of money (but except for claims which are adequately insured)
are entered by a court or courts of competent jurisdiction against the
Guarantor or any of its subsidiaries and such judgment or judgments
shall not be discharged, satisfied, stayed, annulled or rescinded
within 60 days of being entered.
d. if any security given to the Banks including, without limitation, the
guarantee, mortgage and pledges as described in Article 20 becomes
unenforceable, is contested or repudiated or if the value thereof
decreases substantially;
e. if the contractual arrangements of the Borrower with General Motors or
Volkswagen, as mentioned in Article 20 under (c) shall be terminated or
amended if such amendment would, in the opinion of the Banks, have a
material adverse effect on the Borrower's financial position;
f. if the Borrower or the Guarantor requests suspension of payment in
general in court or demands a declaration of bankruptcy or party makes
a request to declare bankruptcy;
g. if the Borrower sells, trades or otherwise disposes of its assets other
than in the normal course of business;
h. if the Borrower or the Guarantor offers any composition with regard to
unpaid debts to its creditors;
i. if the Borrower or the Guarantor ceases to do business;
j. if the Borrower or the Guarantor decides to dissolve, or has lost its
corporate capacity;
k. if a notice as meant in Article 36 of the Dutch "Invorderingswet" or
Article 16 of the Dutch "Coordinatiewet Sociale Verzekeringen" with
regard to the Borrower has been filed;
l. if an attachment ("conservatoir beslag") on any substantial asset of
the Borrower or the Guarantor has not been terminated within thirty
days after the day on which the attachment was effected;
<PAGE>
m. if an attachment ("executoriaal beslag") is made on any substantial
asset of the Borrower or the Guarantor;
n. if the Borrower fails to inform the Banks about any occurrence which
would have material adverse effect for the implementation of the
Facility Agreement.
ARTICLE 12 CHANGES IN BUSINESS
- - ---------- -------------------
1. The Borrower hereby undertakes towards the Banks that it shall, without the
prior written consent of the Banks, not (i) materially change the
conduct of its business, or (ii) amend its contract constituting the
"Commanditaire Vennootschap".
2. The Borrower herewith undertakes to the Banks that it will timely inform
the Banks of any intended action as set forth in paragraph 1. hereof and of
an intended decision which will result in a major change in the control
over the activities of its business.
3. At the request of Rabobank Nederland the Borrower shall not effectuate its
intention mentioned under paragraph 2 than after parties shall have (i)
considered the consequences of such event for the repayment of the
outstanding amount and interests payable under the Facility and (ii)
rearranged the conditions of this Facility.
4. In connection with any intended event mentioned in this article Rabobank
Nederland is entitled to stipulate additional conditions which are in the
opinion of Rabobank Nederland necessary to protect its reasonable interests
with regard to the obligations of the Borrower under this Facility.
In case the Borrower does not comply with these conditions within thirty
Business Days, all amounts due by the Borrower of whatever nature under
this Facility will become immediately due and payable without giving notice
or observing any other formality.
ARTICLE 13 FINANCIAL INFORMATION
- - ---------- ---------------------
The Borrower undertakes as long as any obligation of the Borrower under this
Facility Agreement is outstanding to provide the Banks with its annual financial
statements, audited by an independent auditor, as soon as they have become
available and in any event no later than six months after closing the accounts
for the relevant year. Furthermore, the Borrower shall provide the Banks with
such other financial information which the Banks may reasonably request from
time to time.
The first annual financial statements to be provided hereunder will relate to
the year ending January 31, 1995.
<PAGE>
ARTICLE 14 TAXES/COSTS
- - ---------- -----------
1. All payments due from the Borrower hereunder shall be made free and clear,
and without any deduction in respect or taxes, levies, fees, duties,
imposts, charges or withholdings of any nature now or hereafter imposed. In
the event that the Borrower is compelled to make any such deduction, as
aforesaid, it will pay each of the Banks in the same manner and by the same
time such additional amounts received by each of such Banks shall equal the
amounts which would have been received if no deduction had been made. In
such event the Borrower shall provide each of the Banks within thirty days
of the date of such payment with a certificate evidencing the payment of
such tax or other deduction.
2. If the Borrower makes a payment under Clause 15.1 for the account of a Bank
and such Bank, in its sole opinion, determines in good faith that it has
received or been granted a credit against or relief or remission
for, or repayment of, any tax paid or payable by it in respect of or
calculated with reference to the deduction or withholding or other
matter giving rise to such payment, the Banks shall, in its sole opinion,
have determined such amount to be attributable to the deduction or
withholding or other matter which will leave the Banks (after such payment)
in no better or worse position than it would have been in if such Borrower
had not been required to make such deduction or withholding, then such Bank
shall reimburse the Borrower as far as the foregoing is not to the
detriment of such Bank.
Nothing herein contained shall interfere with the right of each of the
Banks to arrange each of its tax affairs in whatever manner each of it
thinks fit or oblige any Bank to disclose any information relating to its
tax affairs or any computations in respect thereof or require any Bank to
do anything that would prejudice its ability to benefit from any other
credits, or reliefs or remissions for, or repayments to which is may be
entitled.
3. Furthermore the Borrower shall pay all withholding taxes and other taxes,
as well as the reasonable costs of the enforcement of this Facility
Agreement. Costs of enforcement include the costs of legal assistance
incurred. The Borrower shall further more pay any and all stamp and other
taxes and charges payable in connection with this Facility Agreement or any
document hereunder.
ARTICLE 15 EVIDENTIAL FORCE
- - ---------- ----------------
The accounts of Rabobank Nederland shall be prima facie evidence of any amount
which the Borrower may owe from time to time to Rabobank Nederland pursuant to
this Facility Agreement, except in case of manifest error.
<PAGE>
ARTICLE 16 COVENANTS
- - ---------- ---------
1. The Borrower hereby undertakes towards the Banks that its equity shall at
all times be at least 35% of its total balance sheet.
For the purpose hereof, "equity" shall mean: the paid-up share capital of
Heerlen ABS Manufacturing B.V. and Kelsey-Hayes GmbH., plus the
contribution paid by Kelsey-Hayes Company Inc. and Kelsey-Hayes Holding
Inc. as silent partners to the capital of the Borrower, plus intercompany
subordinated debts.
For determining compliance with the above ratio, the consolidated annual
audited financial statements of the Borrower, Kelsey-Hayes Netherlands Inc.
and Kelsey-Hayes Heerlen Inc., consistently applied and prepared in
accordance with generally accepted accounting principles in the Netherlands
or such generally accepted accounting principles as may otherwise be
applicable.
2. The Borrower represents and warrants towards Rabobank Nederland that at all
times not more than 40% of the total amount spent on the project as
mentioned in Article 1. will be financed by the Facility plus the loan in
the amount of NLG 48,000,000.-- to be made to the Borrower by Rabobank
Nederland and De Nationale Investeringsbank N.V.
ARTICLE 17 NEGATIVE PLEDGE
- - ---------- ---------------
1. The Borrower hereby undertakes towards the Banks that as long as the
Facility or any part thereof remains outstanding or any other sum is
payable under this Facility Agreement, it shall not without the prior
written consent of the Banks, which consent will not be unreasonably
withheld, unless the interests of the Banks will (in the opinion of the
Banks) be damaged, and except as contemplated by this Facility Agreement or
the agreement relating to the loan agreement of even date hereof between
the Borrower, De Nationale Investeringsbank N.V. and Rabobank Nederland:
a. create or permit to subsist any charge, mortgage, pledge or other
collateral in respect of any of its property, present and/or future,
nor sell, barter or otherwise alienate (including, without limitation,
through any sale and leaseback- and other off-balance transactions) any
of its property;
b. lien its present and/or future assets in any way, or to make such asset
subject to any third party rights or sell, barter or otherwise alienate
(including, without limitation, through any sale and leaseback- and
other off-balance transactions) any of its assets, other than the sale
or transfer for the full value in the normal course of business.
2. The Borrower represents and warrants vis-a-vis Rabobank Nederland that none
of its present or future subsidiaries or companies in which the Borrower
holds or will hold the majority of the shares, will create any security
interest as described in paragraph 1. hereof.
<PAGE>
3. In the event that the Borrower will, after having obtained the written
consent of Rabobank Nederland thereto, grant security to any other
creditors for any present and/or future obligations arising from any
agreements, the Borrower shall at the same time grant security to Rabobank
Nederland for present and/or future indebtedness of the Borrower to
Rabobank Nederland on account of whatsoever, whether for principal,
interest or otherwise, which security will at least rank equally with the
security granted to such other creditors and which will provide for at
least the same coverage as obtained by such other creditors.
ARTICLE 18 PARI PASSU
- - ---------- ----------
The Borrower represents and warrants to the Banks that the obligations arising
from this Facility Agreement, rank and will rank, at least pari passu with all
other present and/or future unsubordinated obligations arising from any other
agreements, of whatever nature, in connection with borrowed money.
ARTICLE 19 CONDITIONS PRECEDENT
- - ---------- --------------------
The commitment of the Banks to make available any amount hereunder is subject to
the prior receipt by it of all of the following documents and compliance with
the following conditions:
(a) To secure the due performance of the Borrower's present and future
obligations under this Agreement and the loan agreement, as well as any
other present or future obligation of the Borrower on any account
whatsoever, the Borrower shall create, or shall cause to be created, in
favour of Rabobank Nederland and/or De Nationale Investeringsbank N.V.
established at Den Haag, the Netherlands:
(1) A guarantee, duly executed by Varity Corporation (the 'Guaran-tor'), in
the form as attached hereto as Exhibit A (the 'Guarantee'), together
with a satisfactory opinion (in the opinion of Rabobank Nederland) of
the legal counsel to the Guarantor in connection therewith and all such
other documents the Banks may request in connection with the power and
authority of the Guarantor;
(2) A first mortgage on the premises of Heerlen ABS Manufacturing B.V. in
an amount of NLG 50,000,000.--;
(3) A pledge of all accounts receivables, inventory and goods of the
Borrower as set forth in a pledge agreement in the form attached hereto
as Exhibit B well as a pledge, or similar security interest German law,
of all accounts receivable, inventory goods by Kelsey-Hayes GmbH;
(4) Co-Debtorship Agreement between the Banks and Heerlen ABS Manufacturing
B.V. and Kelsey-Hayes GmbH or such other document acceptable to the
Banks providing at least the same security, in the sole discretion of
the Banks, as the Co-Debtorship Agreement;
<PAGE>
all such deeds on terms and conditions as may bebinding and required by
the Banks;
(b) Opinions, satisfactory to Rabobank Nederland, confirming -inter alia- that
(i) the obligations of the Borrower under this Loan Agreement and the
Overdraft Facility are valid, binding and enforceable against it and (ii)
that all security interests as mentioned in (a) under (1), (2) and (3) are
valid, binding and enforceable instruments;
(c) Documents evidencing that the contractual arrangements of the Borrower
and/or Kelsey-Hayes Company and/or Kelsey Hayes Holdings Inc. with General
Motors or Volkswagen, stating that the Borrower is nominated as supplier
for ABS-systems;
(d) A specimen of the persons authorized to sign or dispatch all notices,
certificates and other documents on behalf of the Borrower in connection
with this Loan Agreement;
(e) All such documents Rabobank Nederland may require to evidence that Kelsey-
Hayes Company and/or Kelsey-Hayes Holdings Inc. has supplied an amount of
at least NLG 35,000,000.-- for the development of the project as mentioned
in Article 1. hereof;
(f) Documents containing the terms and conditions which apply to the NFIA-
subsidy granted by the "Minister van Economische Zaken" and issued in
connection with the project mentioned in article 1 of this Agreement;
(g) The contract between the limited and general partners of the Borrower
constituting the "Commanditaire Vennootschap";
(h) Such other documents as the Banks may reasonably request, which apply to -
inter alia- the subsidy grant under the 1993 subsidy scheme for regional
investment projects, issued in connection with the project mentioned in
Article 1. of this Agreement.
Each of the above documents shall have to be in form and substance
satisfactory to Rabobank Nederland.
ARTICLE 20 CHANGES IN CIRCUMSTANCES
- - ---------- ------------------------
1. In the event that at any time any change should be made in any applicable
law or regulation of the Netherlands or in the interpretation thereof by
any governmental or other authority of the Netherlands charged with the
administration thereof or in the requirements of any monetary agency of the
Netherlands - in particular (but without prejudice to the generality of the
foregoing) in respect of any assets, advances made and/or deposits taken by
Rabobank Nederland - such change increasing the cost to Rabobank Nederland
(in order to meet its obligations in connection with) of the Facility made
hereunder, then the Borrower shall on demand and from time to time pay to
Rabobank Nederland by way of additional interest, such amounts as will
fully compensate Rabobank Nederland for such additional costs, upon receipt
of a proper invoice for said additional costs.
Rabobank Nederland shall endeavor to notify the Borrower promptly of the
<PAGE>
occurrence of any such event as aforesaid and forward to the Borrower a
certificate setting out the details as to any such increase in cost.
Rabobank Nederland shall negotiate in good faith this new situation with
the Borrower, without any responsibility for Rabobank Nederland.
2. Notwithstanding any other provision herein, the commitment of Rabobank
Nederland hereunder shall terminate in the event that any change in
applicable law or regulation of the Netherlands or in the interpretation
thereof by any governmental authority and/or De Nederlandsche Bank N.V.
therein or thereof charged with the administration of any applicable law or
regulation shall make it unlawful for Rabobank Nederland to maintain or
give effect to its obligations under this Facility Agreement. In such event
the Borrower shall immediately repay to Rabobank Nederland all sums
outstanding including accrued interest thereon and any other unpaid charges
due.
ARTICLE 21 COMMUNICATIONS
- - ---------- --------------
All notices and communications made hereunder, unless otherwise agreed upon,
shall be at the following addresses:
to Rabobank Nederland addressed to:
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
P.O. Box 17100
3500 HG Utrecht
to the Borrower addressed to:
Heerlen ABS Manufacturing C.V.
p/a Kelsey-Hayes Netherlands Inc.
1209 Orange Street, 19801 Wilmington, Delaware, USA
and
p/a Kelsey-Hayes Heerlen Inc.
1209 Orange Street, 19801 Wilmington, Delaware, USA
with copies to:
Kelsey-Hayes Group
William R. Schorenburg,
Treasurer of the Kelsey-Hayes Group
fax 09-1-313-9418340
and to
Henry T. Pollock, Assistant Treasurer Varity Corporation
fax 09-1-716-8888010
or to such other addresses as may from time to time be notified in writing by
either party to the other.
ARTICLE 22 MISCELLANEOUS
- - ---------- -------------
1. Rabobank Nederland is, subject to mutual agreement with the Borrower
(and, in the absence thereof, without prejudice to article 11,
<PAGE>
paragraph 1), at all times entitled to amend the provisions with regard to
interest and fee.
2. For the purpose of this Facility Agreement Rabobank Nederland hereto
chooses domicile at its office in Utrecht the Netherlands, 18, Croeselaan,
and the Borrower accepts that for process-serving purposes only, notices
served upon it at its registered address will be to deemed to have been
properly communicated and served.
3. This Facility Agreement and the interpretation thereof shall be governed by
the laws of the Netherlands.
4. Any suit, action or proceeding with respect to this Facility Agreement
shall be brought before the competent courts in the Arrondissement of
Amsterdam or such other courts in the Netherlands as Rabobank Nederland in
its sole discretion may decide.
5. The Borrower represents that no agreement to which the Borrower is a party
or by which it is bound will be contravened by the entrance into this
Facility Agreement.
6. After execution of this Facility Agreement one or more subsidiaries of the
Guarantor may enter into this Facility Agreement, provided that such
subsidiary is acceptable to Rabobank Nederland and provided that the
Guarantor will issue an unconditional and irrevocable guarantee in favour
of Rabobank Nederland with respect to that subsidiary. Such entry will be
effected through the execution of an accession agreement on such terms and
conditions as Rabobank Nederland may approve.
7. As far as not contradictory to any provisions in this Facility Agreement,
the offering letter dated September 17, 1993, with reference UC-
P317/WH/ms/O300462 is fully applicable.
8. As far as not contradictory to any provisions in this Facility Agreement,
the General Conditions applicable to the relations between Rabobank
Nederland or its memberbanks and its customers, as filed at the Registrar's
Office of the District Court of Amsterdam on November 6, 1987 are fully
applicable.
The Borrower herewith declares that it has received these General
Conditions and to have taken due notice thereof.
<PAGE>
SIGNED in Utrecht, The Hague and Wilmington respectively on the dates appearing
hereafter.
I. COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.
/s/ K. Wever /s/ J.W. Slooten
------------------------------ -------------------------------
date Jan 21, 1994
II. HEERLEN ABS MANUFACTURING C.V.
duly represented by
KELSEY-HAYES NETHERLANDS INC.
/s/ W. Schnorenberg
------------------------------ -------------------------------
date: Jan 21, 1994
and
duly represented by
KELSEY-HAYES HEERLEN INC.
/s/ W. Schnorenberg
------------------------------ -------------------------------
date: Jan 21, 1994
<PAGE>
EXHIBIT 10.1(M)
CONTINUING GUARANTEE
--------------------
The undersigned:
I. COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.,
established at Amsterdam, the Netherlands,
hereinafter referred to as: Rabobank Nederland;
DE NATIONALE INVESTERINGSBANK N.V.,
established at Den Haag, the Netherlands,
hereinafter referred to as: DNIB,
Rabobank Nederland and DNIB, hereinafter jointly as well as severally also
referred to as: the Banks
II. VARITY CORPORATION,
a Delaware corporation, having its offices at 672 Delaware Avenue, Buffalo,
New York 14209, USA,
hereinafter referred to as: the Guarantor
WHEREAS:
- - - Rabobank Nederland will grant to Heerlen ABS Manufacturing C.V.,
hereinafter referred to as: the Debtor, an overdraft facility up to a
maximum amount of NLG 14,400,000.-- (fourteen million four hundred thousand
Netherlands Guilders), and
- - - Rabobank Nederland will grant to the Debtor a loan facility up to a maximum
amount of NLG 23,000,000.-- (twenty three million Netherlands Guilders),
and
- - - DNIB will grant to the Debtor a loan facility up to a maximum amount of NLG
25,000,000.-- (twenty five million Netherlands Guilders), the aforesaid
overdraft facility and loan facilities collectively as well as separately
referred to as: the Facilities;
- - - It is a condition precedent for the availability of the Facilities that the
Guarantor has issued an unconditional and irrevocable guarantee in favour
of Rabobank Nederland and DNIB, to pay on first demand and without further
proof of indebtedness (as defined in article 1 of this Agreement), in the
same currency as the indebtedness of Debtor, any and all indebtedness of
Debtor under the respective terms and conditions of the Facilities;
- - - The Guarantor indirectly owns 100% of the share capital of Kelsey-Hayes
Netherlands Inc. and Kelsey-Hayes Heerlen Inc., being the general partners
of the Debtor and will benefit from the availability of the Facilities to
the Debtor.
<PAGE>
HAVE AGREED AS FOLLOWS:
1. The Guarantor, as if it were itself the principal debtor, hereby
unconditionally and irrevocably guarantees and promises to pay to the
Banks, on first demand and without further proof of indebtedness by the
Banks, in the same currency, any and all outstanding indebtedness of Debtor
under the respective terms and conditions of the Facilities or as they may
be modified or amended from time to time, as such indebtedness becomes due
and payable thereunder.
The word "indebtedness" is used herein in its most comprehensive sense and
includes any and all advances, interest, costs or other charges, debts,
obligations and liabilities of Debtor, heretofore, now, or hereafter made,
direct, incurred or created, whether voluntary or involuntary and however
arising, now or at any time in the future, and whether recovery upon such
indebtedness may be or hereafter become barred by any statute of
limitations, or whether such indebtedness may be or hereafter become
otherwise unenforceable.
The accounts of the Banks shall be prima facie evidence of any amount which
the Debtor may owe to the Banks pursuant to the Facilities.
2. This is a continuing guaranty relating to any indebtedness under the
Facilities, including that arising under successive transactions which
shall either continue or succeed the indebtedness or from time to time
renew it after it has been satisfied.
3. The obligations hereunder are independent of the obligations of Debtor and
a separate action or actions may be brought and prosecuted against
Guarantor whether action is brought against the Debtor or whether Debtor be
joined in any such action or actions, it being understood that the Banks
may collect on the same obligation only once.
4. (1) The Guarantor hereby waives all rights, pleas, privileges and
benefits of any statute of limitations affecting its liability
hereunder or the enforcement hereof.
(2) The Guarantor waives any right to require Banks to
a. proceed against Debtor;
b. proceed against or exhaust any security held from Debtor;
c. pursue any other remedy in Banks's power whatsoever.
(3) The Guarantor waives any defense arising by reason of any disability
or other defense of Debtor or by reason of the cessation from any
cause whatsoever of the liability of Debtor (other than by reason of
payment).
As long as any indebtedness exists, the Guarantor shall have no right
of subrogation, and waives any right to enforce any remedy which Banks
now has or may hereafter have against Debtor, and waives any benefit
of, and any right to participate in any security now or hereafter held
by Banks.
<PAGE>
(4) The Guarantor waives all presentments, demands for performance,
notices of nonperformances, protests, notices of protest, notices of
dishonour, and notices of acceptance of this Guarantee and of the
existence, creation, or incurrence of new or additional indebtedness.
(5) The Guarantor agrees that its obligations hereunder shall be binding
and remain in force and effect, irrespective of the validity,
regularity and enforceability of the Facilities, the absence of any
action to enforce the same, the recovery of any judgement against
Debtor or any action to enforce the same, or any other circumstance
that might otherwise constitute a legal or equitable discharge or
defence to the Guarantor.
5. The Guarantor agrees that each of the Banks may, without notice or demand
and without affecting its liability hereunder, agree with the Borrower from
time to time to:
a. renew, compromise, extend, accelerate or otherwise change the time of
payment of the indebtedness, including increase or decrease of the
rate of the interest thereon;
b. take and hold security for the payment of the indebtedness guaranteed,
and exchange, enforce, waive and release any such security;
c. apply such security and direct the order or manner of sale thereof as
Banks in their discretion may determine.
6. All payments made hereunder shall be made free, without set-off, and clear
of, and without deduction for or on account of any present or future stamp
or other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings of any nature now or hereafter applicable.
In the event that the Guarantor is prohibited by law from making such
payments free of such deductions or withholdings, the Guarantor shall pay
such additional amounts to the Banks as may be necessary in order that the
actual amount received by the Banks after all deductions or withholdings
(and after payment of such additional amounts) shall equal the amount that
would have been received by the Banks if no deduction or withholding were
required.
7. Guarantor represents and warrants that:
(1) It is a corporation duly organized and validly existing under the laws
of the state of Delaware and has full power to issue this Guarantee
and it has all requisite corporate power to issue this Guarantee and
to perform its obligations hereunder. The issuance of this Guarantee
by the Guarantor and performance of its obligations hereunder have
been authorised by appropriate corporate action.
<PAGE>
The execution, delivery and performance of this Guarantee do not and
will not violate or contravene any provision of law, will not conflict
with the articles of incorporation or by-laws or other corporate
documents, if any, of the Guarantor and do not and will not conflict
with or result in the breach of any provision of any agreement to
which the Guarantor or any of its subsidiaries is a party.
(2) Its obligations hereunder constitute direct and general obligations,
legally valid and binding and enforceable against the Guarantor
according to its terms which, now and at any time in the future, shall
at least rank pari passu with all other unsubordinated obligations of
the Guarantor, present and future.
(3) There is no withholding, income or other tax or charge of the state of
Delaware or the USA or any political subdivision or taxing authority
thereof or therein or of any taxing authority, federation or
association of which the state of Delaware or the USA is a member,
applicable to any payment to be made by the Guarantor pursuant to the
terms of this Guarantee or any document provided for hereunder or to
be imposed on or by virtue of the execution, delivery, performance or
enforcement of this Guarantee or any document provided for hereunder.
(4) The audited financial statements (including the notes thereto) of the
Guarantor for the period ending January 31, 1993 which have been
delivered to the Banks are complete and correct and fairly present the
financial position and the results of operations of the Guarantor and
each of its subsidiaries at the date thereof and for the period then
ended in conformity with generally accepted accounting principles in
the state of Delaware or the USA, as the case may be, consistently
applied.
Since the date of such financial statements there has been no material
adverse change in the financial position, results of or operations of
the Guarantor or any of its subsidiaries.
(5) The representations and warranties set out in this Article 7 shall
survive the execution of this Guarantee and shall be deemed to be
repeated at the time of each drawdown by the Debtor under the
Facilities. This Guarantee shall immediately be enforceable if any
representation or warranty made in this Guarantee shall at any time
prove to be incorrect in any material respect.
8. This Guarantee shall remain in force and not be discharged until all
amounts due under the Facilities have been paid in full in accordance with
respective terms and conditions thereof.
<PAGE>
9. The Guarantor undertakes to provide the Banks with its annual financial
statements, audited by an independent auditor, as soon as they have become
available and in any event no later than six months after closing the
accounts for the relevant year and furthermore the Guarantor shall provide
the Banks with its quaterly reports on FORM 10Q, filed with the United
States Securities and Exchange Commission for the relevant quarter as soon
as they have become available.
10. Each of the Banks shall have the right to set-off or to apply amounts on
deposit or account with it or any of its affiliates in reduction of amounts
due hereunder, regardless of the currency of such amounts. The Guarantor
hereby authorizes the Banks in the name of the Guarantor to perform all
such acts and to execute all such documents and instruments as may be
necessary or expedient to effect any such set-off or application.
11. All notices, requests, demands or other communications to or upon Guarantor
shall be deemed to have been duly given when sent by Banks to the following
address:
Varity Corporation
672 Delaware Avenue
Buffalo, New York 14209, U.S.A.
for the attention of the Treasurer
with copy by fax to
Mr. Henry T. Pollock
- Assistant Treasurer -
Telefax (1) 716-888\8010
12. In respect of this Guarantee and its implementation, Guarantor irrevocably
waives any claim it may now or at any time have to immunity of any kind as
to court or arbitration proceedings and the enforcement of any awards,
sentences, judgements, injunctions, decrees or court orders legally given
or made in connection with such proceedings.
13. This Guarantee and the interpretation thereof shall be governed by and
construed in accordance with the laws of the Netherlands.
14. (a) Any suit, action or proceeding against Guarantor with respect to this
Guarantee may be brought in the courts of the Netherlands, the United
States District Court for the Southern District of New York, or such
other courts as the Banks in their sole discretion may decide and
Guarantor hereby submits to the non-exclusive jurisdiction of such
courts for the purpose of any suit, action or proceeding and by
execution and delivery of this Guarantee, the Guarantor hereby submits
to and accepts with regard to any such action or proceeding for itself
and in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts.
<PAGE>
(b) The Guarantor hereby irrevocably agrees not to present any objection
which it may now or hereafter have to the laying of the venue of any
suit, action or proceeding arising out of or relating to this
Guarantee in the Netherlands and hereby further irrevocably agrees not
to claim that the Netherlands is an inconvenient forum for any such
suit, action or proceeding.
15. For the purpose of this Guarantee, also in respect of juridical execution,
the parties hereto choose domicile, as far as the Banks are concerned at
Utrecht, 18 Croeselaan, The Netherlands and as far as the Guarantor is
concerned at the following address:
Heerlen ABS Manufacturing B.V.
Postbus 1637
6201 BP Maastricht
(All communications copy by telefax to faxno. 043-821599)
IN WITNESS WHEREOF the parties hereto, acting through their duly authorized
representatives, have executed this Guarantee.
I. COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.
/s/ K. Wever /s/ J.W. Slooten
------------------------------ ------------------------------
date: 21 January 1994
DE NATIONALE INVESTERINGSBANK N.V.
/s/ E. Ven Der Berg /s/ A. Waaijen
------------------------------ ------------------------------
II. VARITY CORPORATION
/s/ F.J. Chapman /s/ H.T. Pollock
------------------------------ ------------------------------
date: 21 January 1994
<PAGE>
1
EXHIBIT 10.1(N)
PLEDGE AGREEMENT
----------------
The Undersigned:
Ia. COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.,
established at Amsterdam, the Netherlands,
hereinafter referred to as: Rabobank Nederland;
Ib. DE NATIONALE INVESTERINGSBANK N.V.,
established at Den Haag, the Netherlands,
hereinafter referred to as: DNIB,
Rabobank Nederland and DNIB, hereinafter jointly as well as severally also
referred to as: the Banks
IIa. HEERLEN ABS MANUFACTURING C.V.,
established at Rotterdam, the Netherlands,
b. HEERLEN ABS MANUFACTURING B.V.,
established at HEERLEN, the Netherlands,
unless expressly stipulated otherwise hereinafter jointly as well as
severally referred to as: the Pledgor
Whereas:
- - - Rabobank Nederland will grant to the Heerlen ABS Manufacturing C.V. an
overdraft facility up to a maximum amount of NLG 14,400,000.-- (fourteen
million four hundred thousand Netherlands Guilders), and - Rabobank
Nederland will grant to the Pledgor a loan facility up to a maximum amount
of NLG 23,000,000.-- (twenty three million Netherlands Guilders), and- DNIB
will grant to the Pledgor a loan facility up to a maximum amount of NLG
25,000,000.-- (twenty five million Netherlands Guilders), all such
facilities, as they may hereafter be amended or otherwise modified from
time to time, including any other present or future obligation of the
Pledgor towards the Banks, separately, as well as jointly, being referred
to as the "Facilities");
- - - Varity Corporation, Heerlen ABS Manufacturing B.V. and Kelsey-Hayes
GmbH (the "Guarantors") unconditionally and irrevocably accept liability
for all obligations of the Pledgor under the Facilities, whether by a
guarantee or a "Burgschaft" (the "Guarantees");
- - - It is a condition precedent for the availability of the Facilities
that the Pledgor has executed and delivered this pledge agreement (the
"Pledge Agreement") securing all its present and future obligations under
the Facilities, respectively, the obligations of the Guarantors under the
Guarantees.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Banks to make and continue to make extensions of credit under the Facilities,
the Pledgor hereby agrees as follows:
<PAGE>
2
Article 1
- - ---------
As security for the payment of all amounts, presently or in the future owed (i)
to the Banks by the Pledgor under Facilities and (ii) to the Banks by the
Guarantors on account of the Guarantees, as appears from the records of the
Banks which shall be conclusive, the Pledgor pledges to the Banks all of the
Pledgor's right, title and interest in and to the following, whether now owned
or hereafter acquired (the "Collateral"):
a. All inventory and goods in all of its forms, wherever located, now or
hereafter existing (including, but not limited to, (i) products and raw
materials and work in process therefor, finished goods thereof, and
materials used or consumed in the manufacture or production thereof, (ii)
goods in which the Pledgor has an interest in mass or a joint or other
interest or right of any kind, and (iii) goods which are returned to or
repossessed by the Pledgor, and all accessions thereto and products thereof
and documents therefor (any and all such inventory, accessions, products,
vehicles and documents being the "Inventory");
b. All of its equipment of any kind whatsoever, now or in the future existing
and wherever located (the "Equipment"); and
c. All its present and future accounts receivable, intercompany receivables
and other claims (of whatever nature) it may have or require on any third
party, whether arising from any sales contract, any other agreement or
arising from any provision of law (all such claims hereinafter referred to
as the "Claims").
Article 2
- - ---------
(1) Pledgor herewith unconditionally and irrevocably undertakes towards the
Bank:
(i) to deliver on demand to the Banks all such documents, duly executed
by the Pledgor and in form and substance satisfactory to the Banks,
specifying the Inventory and Equipment pledged to the Bank hereunder,
giving all such details as the Banks may require;
(ii) to deliver on demand to the Banks all such lists, substantially in
form of Exhibit B.1 hereto, duly executed by the Pledgor and in form
and substance satisfactory to the Banks, specifying the Claims
pledged and to be pledged to the Banks hereunder.
(2) The Banks may give notice of the pledge contained herein or contemplated
hereby to the debtor of any Claim, if such notice is in the opinion of the
Banks necessary or desirable.
(3) Heerlen ABS Manufacturing C.V. irrevocably and unconditionally authorises
Heerlen ABS Manufacturing B.V. to execute and deliver in the name and on
behalf of the Pledgor all documents as set forth in (1) above and all such
other documents required by the Banks in connection with this Agreement.
<PAGE>
3
Article 3
- - ---------
The Pledgor represents and warrants that it has taken all corporate action in
order to have this Pledge Agreement authorized, and this pledge does not and
will not contravene any applicable law, its Articles of Association or any other
agreement to which the Pledgor or any of its assets is bound.
Furthermore the Pledgor represents and warrants that this Pledge Agreement, and
the security created through this Pledge Agreement, constitute legal valid and
binding obligations of the Pledgor, enforceable against the Pledgor in
accordance with its terms, and that the Collateral has not been nor will be
subject to any type of security agreement -however named- or any third party's
right other than this Pledge Agreement.
Article 4
- - ---------
The Pledgor herewith irrevocably authorizes the Banks, if the Pledgor or the
Guarantors defaults under any of their obligations under the Facility or the
Guarantees or any document in connection therewith, as far as such default
creates a ground for acceleration:
(i) to, without further notice or other formality, exercise all rights arising
from the pledge of the Inventory and the Equipment as constituted hereunder to
discharge the debt of the Pledgor and/or the Guarantors and in general to do all
acts and things which are necessary or desirable at its sole discretion to
foreclose such Inventory and Equipment;
(i) to, without further notice or other formality, exercise and collect all
Claims to discharge the debt of the Pledgor and/or the Guarantors and in general
to do all acts and things which are necessary or desirable at its sole
discretion to foreclose such Claims.
Article 5
- - ---------
If and when the debts of the Pledgor and the Guarantors under the Facilities
and/or the Guarantees have been paid in full, the Banks may release the rights
and claims pledged to them by a simple notice in writing from the Banks to the
Pledgor and the Guarantors, stating that the pledge has been terminated as a
result of the full payment of all such obligations.
Article 6
- - ---------
All irrevocable authorizations from the Pledgor to the Banks to exercise any
right, collect any claim and to foreclose the Collateral, are deemed to be an
integral part of this pledge.
Article 7
- - ---------
All costs in connection with this Pledge Agreement and the enforcement of the
terms and provisions thereof are for the account of the Pledgor.
Article 8
- - ---------
This agreement is subject to the laws of The Netherlands. The competent court at
Amsterdam, The Netherlands, will have exclusive jurisdiction with regard to any
dispute in relation to this agreement.
<PAGE>
4
Article 9
- - ---------
Furthermore, the General Banking Conditions, currently in force between
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., established at Amsterdam,
and/or the affiliated banks and its clients, a copy of which the Pledgor
declares to have taken due notice of, are applicable, provided that DNIB in
principle enjoys the same legal position therefrom as Rabobank Nederland. The
Borrower herewith declares to have taken due notice of these General Conditions.
IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be
executed by their respective duly authorized representatives.
Ia. COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.
/s/ K. Wever
-------------------------- ----------------------------
date: 12 April, 1994
Ib. DE NATIONALE INVESTERINGSBANK N.V.
/s/ E. Ven Der Berg /s/ A. Waaijen
-------------------------- ----------------------------
date: 15 April, 1994
IIa. HEERLEN ABS MANUFACTURING C.V.
duly represented by
KELSEY-HAYES NETHERLANDS INC.
/s/ W. Schnorenberg
--------------------------
date: 12 April, 1994
and
duly represented by
KELSEY-HAYES HEERLEN INC.
/s/ W. Schnorenberg
--------------------------
date: 12 April, 1994
IIb. HEERLEN ABS MANUFACTURING B.V.
/s/ M. Simoncini
--------------------------
date: 12 April, 1994
<PAGE>
5
EXHIBIT B.1
FORM OF LIST
To: The Banks
Re: pledge of Claims
Undersigned:
We, Heerlen ABS Manufacturing C.V. established at Rotterdam, and Heerlen ABS
Manufacturing B.V., established at Heerlen, the Netherlands (the "Pledgor")
refer to the Pledge Agreement between ourselves, Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A. and De Nationale Investeringsbank N.V. (jointly
and severally referred to as the "Banks") and hereby in accordance with the
provisions of the Pledge Agreement pledge to the Banks and specify our rights
and title to the Claims (as defined in the Pledge Agreement).
We represent and warrant that:
a. We have full power and authority to pledge the Claims specified in the
attached list; and
b. None of the Claims specified in this list were previously pledged,
encumbered or in any way made subject to third party's rights.
____ day,_________ 199.
Heerlen ABS Manufacturing C.V.
Heerlen ABS Manufacturing B.V.
<PAGE>
6
A. Claims are specified on the following (computer)lists attached hereto:
- - --------------------------------------------------------------------------------
date, number, and name first debtor name last debtor
particulars of on each list on each list
each list
- - --------------------------------------------------------------------------------
<PAGE>
7
FORM OF (COMPUTER)LIST
B. (Computer)list of Claims
- - --------------------------------------------------------------------------------
Date invoice Full name and address debtor Amount of Claim
<PAGE>
EXHIBIT 10.1(O)
CONTINUING GUARANTY
-------------------
THE UNDERSIGNED:
I. Heerlen ABS Manufacturing B.V.,
established at Heerlen, The Netherlands
hereinafter referred to as: "Guarantor"
and
II. a. Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., established at
Amsterdam, having its principle place of business in Utrecht,
hereinafter referred to as: "Rabobank Nederland"
b. De Nationale Investeringsbank N.V.,
established at Den Haag, the Netherlands,
hereinafter referred to as: DNIB,
Rabobank Nederland and DNIB hereinafter jointly as well as severally
also referred to as: the Banks
WHEREAS:
- - - Rabobank Nederland will grant to Heerlen ABS Manufac-turing C.V., a
commanditaire vennootschap established under the laws of the Netherlands,
having its registered address at Schouwburgplein 30-34 Rotterdam, the
Netherlands and having its offices at 1209 Orange Street, 19801 Wilmington,
Delaware (the "Borrower") an overdraft facility up to a maximum amount of
NLG 14,400,000.-- (fourteen million four hundred thousand Netherlands
Guilders); and
- - - Rabobank Nederland will grant to the Borrower a loan facility up to a
maximum amount of NLG 23,000,000.-- (twenty three million Netherlands
Guilders); and
- - - DNIB will grant to the Borrower a loan facility up to a maximum amount of
NLG 25,000,000.-- (twenty five million Netherlands Guilders);
all such facilities, as they may hereafter be amended or otherwise modified
from time to time, including any other present or future obligation of the
Borrower towards the Banks, separately, as well as jointly, being referred
to as the "Facilities";
- - - It is -inter alia- a condition precedent for the availability of the
Facilities that the Guarantor has executed and delivered this Guarantee
("Guarantee"), whereby the Guarantor irrevocably and unconditionally
guarantees the due performance of all obligations by the Borrower under the
Facilities.
<PAGE>
2
- - - The Guarantor belongs to the same group of companies as the Borrower and
has an interest in the availability of the Facilities to the Borrower.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Banks to make the Facilities available, the Guarantor hereby agrees as follows:
1. The Guarantor, as if it were itself the principal debtor, hereby
unconditionally and irrevocably guarantees and promises to pay to the
Banks, on first demand and without further proof of indebtedness by the
Banks, in the same currency, any and all outstanding indebtedness of
Borrower under the respective terms and conditions of the Facilities or as
they may be modified or amended from time to time, as such indebtedness
becomes due and payable thereunder.
The word "indebtedness" is used herein in its most comprehensive sense and
includes any and all advances, interest, costs or other charges, debts,
obligations and liabilities of Borrower, heretofore, now, or hereafter
made, direct, incurred or created, whether voluntary or involuntary and
however arising, now or at any time in the future, and whether recovery
upon such indebtedness may be or hereafter become barred by any statute of
limitations, or whether such indebtedness may be or hereafter become
otherwise unenforceable.
The accounts of the Banks shall be prima facie evidence of any amount which
the Borrower may owe to the Banks pursuant to the Facilities.
2. This is a continuing guaranty relating to any indebted-ness under the
Facilities, including that arising under successive transactions which
shall either continue or succeed the indebtedness or from time to time
renew it after it has been satisfied.
3. The obligations hereunder are independent of the obligations of Borrower
and a separate action or actions may be brought and prosecuted against
Guarantor whether action is brought against the Borrower or whether
Borrower be joined in any such action or actions, it being understood that
the Banks may collect on the same obligation only once.
4. (1) The Guarantor hereby waives all rights, pleas, privileges and
benefits of any statute of limitations affecting its liability
hereunder or the enforcement hereof.
(2) The Guarantor waives any right to require Banks to
a. proceed against Borrower;
b. proceed against or exhaust any security held from Borrower;
c. pursue any other remedy in Banks's power whatsoever.
<PAGE>
3
(3) The Guarantor waives any defense arising by reason of any disability
or other defense of Borrower or by reason of the cessation from any
cause whatsoever of the liability of Borrower (other than by reason of
payment).
As long as any indebtedness exists, the Guarantor shall have no right
of subrogation, and waives any right to enforce any remedy which Banks
now has or may hereafter have against Borrower, and waives any benefit
of, and any right to participate in any security now or hereafter held
by Banks.
(4) The Guarantor waives all presentments, demands for performance,
notices of nonperformances, protests, notices of protest, notices of
dishonour, and notices of acceptance of this Guarantee and of the
existence, creation, or incurrence of new or additional indebtedness.
(5) The Guarantor agrees that its obligations hereunder shall be binding
and remain in force and effect, irrespective of the validity,
regularity and enforceability of the Facilities, the absence of any
action to enforce the same, the recovery of any judgement against
Borrower or any action to enforce the same, or any other circumstance
that might otherwise constitute a legal or equitable discharge or
defence to the Guarantor.
5. The Guarantor agrees that each of the Banks may, without notice or demand
and without affecting its liability hereunder, agree with the Borrower from
time to time to:
a. renew, compromise, extend, accelerate or otherwise change the time of
payment of the indebtedness, including increase or decrease of the
rate of the interest thereon;
b. take and hold security for the payment of the indebtedness guaranteed,
and exchange, enforce, waive and release any such security;
c. apply such security and direct the order or manner of sale thereof as
Banks in their discretion may determine.
6. All payments made hereunder shall be made free, without set-off, and clear
of, and without deduction for or on account of any present or future stamp
or other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings of any nature now or hereafter applicable.
In the event that the Guarantor is prohibited by law from making such
payments free of such deductions or withholdings, the Guarantor shall pay
such additional amounts to the Banks as may be necessary in order that the
actual amount received by the Banks after all deductions or
<PAGE>
4
withholdings (and after payment of such additional amounts) shall equal the
amount that would have been received by the Banks if no deduction or
withholding were required.
7. Guarantor represents and warrants that:
(1) It is a corporation duly organized and validly existing under the laws
of the Netherlands and has full power to issue this Guarantee and it
has all requisite corporate power to issue this Guarantee and to
perform its obligations hereunder. The issuance of this Guarantee by
the Guarantor and performance of its obligations hereunder have been
authorised by appropriate corporate action.
The execution, delivery and performance of this Guarantee do not and
will not violate or contravene any provision of law, will not conflict
with the articles of incorporation or by-laws or other corporate
documents, if any, of the Guarantor and do not and will not conflict
with or result in the breach of any provision of any agreement to
which the Guarantor or any of its subsidiaries is a party.
(2) Its obligations hereunder constitute direct and general obligations,
legally valid and binding and enforceable against the Guarantor
according to its terms which, now and at any time in the future, shall
at least rank pari passu with all other unsubordinated obligations of
the Guarantor, present and future.
8. This Guarantee shall remain in force and not be discharged until all
amounts due under the Facilities have been paid in full in accordance with
respective terms and conditions thereof.
9. Each of the Banks shall have the right to set-off or to apply amounts on
deposit or account with it or any of its affiliates in reduction of amounts
due hereunder, regardless of the currency of such amounts. The Guarantor
hereby authorizes the Banks in the name of the Guarantor to perform all
such acts and to execute all such documents and instruments as may be
necessary or expedient to effect any such set-off or application.
10. All notices, requests, demands or other communications to or upon Guarantor
shall be deemed to have been duly given when sent by Banks to the following
address:
Heerlen ABS Manufacturing B.V.
Postbus 1637
6201 BP Maastricht
(All communications copy by telefax to faxno. 043-821599)
<PAGE>
5
11. This Guarantee and the interpretation thereof shall be governed by and
construed in accordance with the laws of the Netherlands and any suit,
action or proceeding against Guarantor with respect to this Guarantee may
be brought in the courts of the Netherlands or such other courts as the
Banks may select.
12. For the purpose of this Guarantee, also in respect of juridical execution,
the parties hereto choose domicile, as far as the Banks are concerned at
Utrecht, 18 Croeselaan, The Netherlands and as far as the Guarantor is
concerned at the address set forth in article 10.
IN WITNESS WHEREOF the parties hereto, acting through their duly authorized
representatives, have executed this Guarantee.
I. HEERLEN ABS MANUFACTURING B.V.
/s/ W. Schnorenberg
------------------------------
date: 12 April, 1994
II. COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.
/s/ K. Wever
------------------------------
date: 12 April, 1994
DE NATIONALE INVESTERINGSBANK N.V.
/s/ E. Ven Der Berg /s/ A. Waaijen
------------------------------ ------------------------------
date: 15 April, 1994
<PAGE>
EXHIBIT 11.1
VARITY CORPORATION
PRIMARY EARNINGS PER SHARE COMPUTATIONS
(Dollars in millions except per share amounts)
<TABLE>
<CAPTION>
Three months ended July 31,
-----------------------------
1994 1993
-------------- -------------
<S> <C> <C>
Income before discontinued operation and
extraordinary loss.......................................... $ 22.8 $ 13.1
Preferred stock dividend entitlements......................... (.6) (4.6)
------- -------
Income attributable to common stockholders before
discontinued operation and extraordinary loss (A)........... 22.2 8.5
Earnings from discontinued operation (B)...................... 23.2 3.0
Extraordinary loss (C)........................................ - (1.7)
------- -------
Net income attributable to common stockholders (D)............ $ 45.4 $ 9.8
======= =======
Weighted average shares of common stock outstanding
during the period (in thousands)............................ 43,971 33,351
Common stock equivalents:
Common stock options........................................ 407 309
Long-term incentive plans................................... 7 28
------- -------
Primary weighted average shares of common stock
outstanding during the period (E)........................... 44,385 33,688
======= =======
Primary income (loss) per share of common stock:
Before discontinued operation and extraordinary loss (A/E).. $ .50 $ .25
Discontinued operation (B/E)................................ .52 .09
Extraordinary loss (C/E).................................... - (.05)
------- -------
Net income (D/E)............................................ $ 1.02 $ .29
======= =======
</TABLE>
Note: Fully diluted earnings per share computations are not presented as no
significant dilution exists.
<PAGE>
EXHIBIT 11.2
VARITY CORPORATION
PRIMARY EARNINGS PER SHARE COMPUTATIONS
(Dollars in millions except per share amounts)
<TABLE>
<CAPTION>
Six months ended July 31,
---------------------------
1994 1993
------------ -------------
<S> <C> <C>
Income before discontinued operation, extraordinary
loss and cumulative effect of changes in accounting principles.. $ 47.8 $ 28.2
Preferred stock dividend entitlements............................. (1.2) (9.2)
------- -------
Income attributable to common stockholders before
discontinued operation, extraordinary loss and
cumulative effect of changes in accounting principles (A)....... 46.6 19.0
Earnings (loss) from discontinued operation (B)................... 27.6 (1.1)
Extraordinary loss (C)............................................ - (1.7)
Cumulative effect of changes in accounting principles (D)......... - (146.1)
------- -------
Net income (loss) attributable to common stockholders (E)......... $ 74.2 $(129.9)
======= =======
Weighted average shares of common stock outstanding
during the period (in thousands)................................ 43,967 32,198
Common stock equivalents:
Common stock options............................................ 471 312
Long-term incentive plans....................................... 9 31
------- -------
Primary weighted average shares of common stock
outstanding during the period (F)............................... 44,447 32,541
======= =======
Primary income (loss) per share of common stock:
Before discontinued operation, extraordinary loss and
cumulative effect of changes in accounting principles (A/F)... $ 1.05 $ .58
Discontinued operation (B/F).................................... .62 (.03)
Extraordinary loss (C/F)........................................ - (.05)
Cumulative effect of changes in accounting principles (D/F)..... - (4.49)
------- -------
Net income (loss) (E/F)......................................... $ 1.67 $ (3.99)
======= =======
</TABLE>
Note: Fully diluted earnings per share computations are not presented as no
significant dilution exists.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-START> FEB-01-1994
<PERIOD-END> JUL-31-1994
<CASH> 155
<SECURITIES> 78
<RECEIVABLES> 384
<ALLOWANCES> 0
<INVENTORY> 170
<CURRENT-ASSETS> 804
<PP&E> 947
<DEPRECIATION> 344
<TOTAL-ASSETS> 1869
<CURRENT-LIABILITIES> 566
<BONDS> 163
<COMMON> 638
0
7
<OTHER-SE> 141
<TOTAL-LIABILITY-AND-EQUITY> 1869
<SALES> 1023
<TOTAL-REVENUES> 1023
<CGS> 843
<TOTAL-COSTS> 843
<OTHER-EXPENSES> 119
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> 49
<INCOME-TAX> 8
<INCOME-CONTINUING> 48
<DISCONTINUED> 28
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75
<EPS-PRIMARY> 1.67
<EPS-DILUTED> 0
</TABLE>
