<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, 1995
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 16, 1995 WAS
40,971,759 SHARES.
================================================================================
Exhibit index appears on page 16.
<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 Condensed Statements of Operations................ 3
Consolidated Condensed Balance Sheets.......................... 4
Consolidated Condensed Statements of Cash Flows................ 5
Notes to Consolidated Condensed Financial Statements........... 6
Item 2. Management's Discussion and Analysis........................... 9
<CAPTION>
PART II. OTHER INFORMATION:
<S> <C>
Item 1. - Legal Proceedings....................................... 14
Item 2. - Changes in Registered Securities........................ 14
Item 3. - Defaults upon Senior Securities......................... 14
Item 4. - Submission of Matters to a Vote of Security Holders..... 14
Item 5. - Other Information....................................... 14
Item 6.(a) - Exhibits................................................ 14
Item 6.(b) - Reports on Form 8-K..................................... 14
SIGNATURES............................................................ 15
</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 1995 REPRESENTS THE PERIOD FEBRUARY 1, 1995 TO JANUARY
31, 1996).
Page 2
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
VARITY CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JULY 31,
(Unaudited)
(Dollars in millions except per share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended July 31, Ended July 31,
------------------ -------------------
1995 1994 1995 1994
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Sales $ 572.4 $ 504.3 $1,167.7 $ 998.4
-------- -------- --------- --------
Expenses:
Cost of goods sold 463.4 414.7 949.4 821.5
Marketing, general and administration 44.2 39.9 86.6 76.7
Engineering and product development 23.1 21.0 46.5 41.3
Interest, net 4.6 5.7 9.6 11.5
Other income, net (1.2) (0.1) (1.5) (2.4)
-------- -------- --------- -------
534.1 481.2 1,090.6 948.6
-------- -------- --------- -------
Income before income taxes, earnings of associated
companies and discontinued operations 38.3 23.1 77.1 49.8
Income tax provision (8.8) (3.8) (17.7) (8.4)
-------- -------- --------- -------
Income before earnings of associated companies and
discontinued operations 29.5 19.3 59.4 41.4
Equity in earnings of associated companies 3.2 3.4 7.0 6.8
-------- -------- --------- -------
Income before discontinued operations 32.7 22.7 66.4 48.2
-------- -------- --------- -------
Discontinued operations (Note 2):
Earnings from discontinued operations - 0.1 0.5 4.0
Gain on sale of discontinued operation - 23.2 - 23.2
-------- -------- --------- --------
- 23.3 0.5 27.2
-------- -------- --------- --------
Net income $ 32.7 $ 46.0 $ 66.9 $ 75.4
======== ======== ========= ========
Income attributable to common stockholders $ 32.1 $ 45.4 $ 65.7 $ 74.2
Earnings per common share:
Before discontinued operations $ 0.78 $ 0.50 $ 1.58 $ 1.06
Discontinued operations - 0.52 0.01 0.61
-------- -------- --------- --------
Net income $ 0.78 $ 1.02 $ 1.59 $ 1.67
======== ======== ========= ========
Weighted average shares of common stock
and equivalents (in thousands) 41,392 44,385 41,387 44,447
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
Page 3
<PAGE>
VARITY CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(Dollars in millions)
<TABLE>
<CAPTION>
July 31, January 31,
1995 1995
--------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 108.0 $ 147.0
Marketable securities 42.8 42.7
Receivables 347.1 358.7
Inventories (Note 3) 158.1 146.0
Prepaid expenses and other 19.5 19.9
Net assets of discontinued operation (Note 2) 22.0 20.2
----------- ----------
Total current assets 697.5 734.5
Investments in associated and other companies 112.5 103.1
Fixed assets, net 644.0 613.2
Other assets and intangibles 359.8 361.7
----------- ----------
$ 1,813.8 $ 1,812.5
=========== ==========
Liabilities
Current liabilities:
Current portion of long-term debt and notes payable $ 5.0 $ 5.3
Accounts payable 262.5 286.2
Accrued liabilities 230.9 255.1
----------- ----------
Total current liabilities 498.4 546.6
----------- ----------
Non-current liabilities:
Long-term debt 163.6 163.4
Other long-term liabilities 321.8 318.8
----------- ----------
Total non-current liabilities 485.4 482.2
----------- ----------
Stockholders' equity (Note 4):
Preferred stock 6.8 6.8
Common stock 641.8 638.4
Contributed surplus 656.3 656.3
Deficit (353.3) (419.0)
Other (6.8) (14.1)
Less treasury stock at cost (114.8) (84.7)
----------- ----------
Total stockholders' equity 830.0 783.7
----------- ----------
$ 1,813.8 $ 1,812.5
=========== ==========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
Page 4
<PAGE>
VARITY CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JULY 31,
(Unaudited)
(Dollars in millions)
1995 1994
--------- ----------
Cash flows from operating activities:
Net income $ 66.9 $ 75.4
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 41.7 35.5
Other (52.3) (75.5)
--------- ----------
Cash provided by operating activities 56.3 35.4
--------- ----------
Cash flows from investing activities:
Purchases of marketable securities (18.5) (14.0)
Proceeds from sales of marketable securities 20.1 12.5
Additions to fixed assets (68.2) (98.0)
Proceeds from sales of businesses - 333.2
Increase in advances receivable - (36.9)
Acquisition of business, net of cash acquired - (42.7)
Other (1.5) 9.0
--------- ----------
Cash provided (used) by investing activities (68.1) 163.1
--------- ----------
Cash flows from financing activities:
Proceeds from bank borrowings 14.6 26.3
Repayments of bank borrowings (14.8) (92.4)
Proceeds from long-term debt 0.4 86.9
Repayments of long-term debt (1.8) (116.9)
Repurchases of common stock (30.1) -
Other 2.2 (0.9)
--------- ----------
Cash used by financing activities (29.5) (97.0)
--------- ----------
Effect of foreign currency translation on
cash and cash equivalents 2.3 2.4
--------- ----------
Increase (decrease) in cash and cash equivalents
during the period (39.0) 103.9
Cash and cash equivalents at beginning of period 147.0 51.2
--------- ----------
Cash and cash equivalents at end of period $ 108.0 $ 155.1
========= ==========
Cash paid for:
Interest $ 10.1 $ 11.9
Income taxes $ 4.3 $ 2.4
See accompanying Notes to Consolidated Condensed Financial Statements.
Page 5
<PAGE>
VARITY CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Three and Six Months Ended July 31, 1995 and 1994
(Unaudited)
(Dollars in millions unless otherwise stated)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed 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, 1995 and January 31, 1995, the
results of its operations for the three and six months ended July 31, 1995 and
1994 and its cash flows for each of the six month periods ended July 31, 1995
and 1994. The consolidated condensed 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, 1995.
Results for interim periods are not necessarily indicative of those to be
expected for the year.
2. DISCONTINUED OPERATIONS
During the first quarter of fiscal 1995, the Company discontinued its Pacoma
components operations (Pacoma). Pacoma manufactures hydraulic cylinders and
hydraulic valves and to a lesser degree allied equipment, primarily for
producers of construction machines. Such operations had historically been
referred to as the Company's 'other' segment. The Company's plan is to sell
Pacoma and is working actively to effect such a sale. Although the ultimate
gain or loss on disposal cannot be quantified currently, the Company estimates
that the disposal, including the results of Pacoma's operations until the sale
is completed, will not result in a loss.
As a result of the aforementioned plan, the 'other' segment has been presented
as a discontinued operation in the accompanying financial statements. Prior
year financial statements have been restated to conform to the current year
presentation.
The operating results of the discontinued Pacoma operation are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
------------------ ----------------
1995 1994 1995 1994
-------- -------- ------ ------
<S> <C> <C> <C> <C>
Sales $16.4 $13.1 $34.2 $24.8
======== ===== ===== =====
Income (loss) before income taxes $ - $ .1 $ .5 $ (.4)
Income tax provision - - - -
-------- ----- ----- -----
Net income (loss) $ - $ .1 $ .5 $ (.4)
======== ===== ===== =====
</TABLE>
Page 6
<PAGE>
A summary of the assets and liabilities of the discontinued Pacoma operation is
as follows:
<TABLE>
<CAPTION>
July 31, January 31,
1995 1995
-------- -----------
<S> <C> <C>
Current assets $21.9 $19.4
Noncurrent assets 12.1 11.8
----- -----
34.0 31.2
----- -----
Current liabilities 10.2 9.2
Noncurrent liabilities 1.8 1.8
----- -----
12.0 11.0
----- -----
Net assets of discontinued operation $22.0 $20.2
===== =====
</TABLE>
Additionally, pursuant to a plan to dispose of its farm equipment segment,
during the second quarter of fiscal 1994, the Company completed the sale of its
worldwide Massey Ferguson farm machinery business resulting in a 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 continued to be
responsible. Subsequent to the sale, the Company settled its pension benefit
obligation related to former Massey Ferguson employees in North America through
the purchase of annuity contracts. As a result of the aforementioned plan, the
farm equipment segment has been presented as a discontinued operation in the
accompanying financial statements.
The operating results of the discontinued Massey Ferguson operation are as
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, 1994 /(1)/ July 31, 1994
------------------------ ----------------
<S> <C> <C>
Sales $ - $253.1
====== ======
Income before income taxes $ - $ 5.0
Income tax provision - (.6)
------ ------
Net income $ - $ 4.4
====== ======
</TABLE>
/(1)/Results for the three months ended July 31, 1994 are not included in the
consolidated condensed 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.
3. INVENTORIES
The major classes of inventory are as follows:
<TABLE>
<CAPTION>
July 31, January 31,
1995 1995
-------- -----------
<S> <C> <C>
Raw material $ 53.3 $ 52.3
Work in process 41.3 36.5
Finished goods 63.5 57.2
------ ------
$158.1 $146.0
====== ======
</TABLE>
Page 7
<PAGE>
4. STOCKHOLDERS' EQUITY
The following table summarizes changes in stockholders' equity that occurred
during the six months ended July 31, 1995:
<TABLE>
<CAPTION>
Thousands of
shares
outstanding Equity (Dollars in millions)
------------------------- ---------------------------------------------------------------------
Total
Class II Class II Contri- stock-
preferred Common preferred Common buted Treasury holders'
stock stock stock stock surplus Deficit Other stock equity
----------- ------- ---------- ------ ------- --------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1995 2,001 41,661 $ 6.8 $638.4 $656.3 $(419.0) $(14.1) $ (84.7) $783.7
Exercise of stock options 182 3.4 3.4
Repurchases of common stock (871) (30.1) (30.1)
Foreign currency translation
adjustment 5.6 5.6
Dividends on Class II
preferred stock (1.2) (1.2)
Unrealized gains on marketable
securities 1.7 1.7
Net income 66.9 66.9
----- ------ ------ ------ ------ ------- ------- ------- ------
Balance, July 31, 1995 2,001 40,972 $ 6.8 $641.8 $656.3 $(353.3) $ (6.8) $(114.8) $830.0
===== ====== ====== ====== ====== ======= ======= ======= ======
</TABLE>
As of July 31, 1995 options to purchase 2.5 million shares of common stock were
outstanding.
Page 8
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
During the first quarter of fiscal 1995, the Company discontinued its
Pacoma components operations (Pacoma). Pacoma manufactures hydraulic cylinders
and hydraulic valves and to a lesser degree allied equipment, primarily for
producers of construction machines. Such operations have historically been
referred to as the Company's 'other' segment. The Company's plan is to sell
Pacoma and is working actively to effect such a sale. Although the ultimate gain
or loss on disposal cannot be quantified currently, the Company estimates that
the disposal, including the results of Pacoma's operations until the sale is
completed, will not result in a loss. As a result of the aforementioned plan,
the 'other' segment has been presented as a discontinued operation in the
accompanying financial statements. Prior year financial statements have been
restated to conform to the current year presentation.
In addition, 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 resulting in a gain of $23.2 million. As a result of the
plan and subsequent sale, the farm equipment segment has been presented as a
discontinued operation in the accompanying financial statements.
For the three months ended July 31, 1995, the Company earned $32.7 million
($.78 per share) before the aforementioned discontinued operations on sales of
$572.4 million, compared with income before discontinued operations of $22.7
million ($.50 per share) on sales of $504.3 million for the comparable period in
the prior year. Net income in the prior year second quarter of $46.0 million
($1.02 per share) included income from discontinued operations of $23.3 million,
resulting primarily from the sale of the farm equipment segment. For the six
months ended July 31, 1995, the Company earned $66.4 million ($1.58 per share)
before the aforementioned discontinued operations on sales of $1,167.7 million,
compared with income of $48.2 million ($1.06 per share) on sales of $998.4
million for the comparable period in fiscal 1994. Fiscal 1994 sales did not
include $21 million of intercompany sales from the engines segment to the
discontinued farm equipment operation. Sales to this same customer are
reflected as third party sales in fiscal 1995. Income from discontinued
operations was $.5 million ($.01 per share) for the six months ended July 31,
1995 as compared to $27.2 million ($.61 per share) in the prior year, which
included $4.4 million of earnings from the discontinued farm equipment segment
and the related gain on sale of $23.2 million, for which no similar amounts
exist in fiscal 1995.
Page 9
<PAGE>
SEGMENT OPERATING REVIEW
<TABLE>
<CAPTION>
(Dollars in millions) Three Months Ended Six Months Ended
July 31, July 31,
---------------------- -------------------
% %
1995 1994 Change 1995 1994 Change
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Sales:
Automotive products:
Brake Systems $ 283 $ 271 4 $ 604 $ 566 7
Heavy Duty Brakes 31 41 (24) 65 87 (25)
Eliminations (1) (5) - (2) (11) -
----- ----- ------- -----
313 307 2 667 642 4
Engines 259 197 31 500 377 33
Intercompany sales to discontinued
farm equipment operation - - - - (21) -
----- ----- ------- -----
Total $ 572 $ 504 13 $ 1,167 $ 998 17
===== ===== ======= =====
Operating income (loss):
Automotive products:
Brake Systems $ 28 $ 24 17 $ 60 $ 50 20
Heavy Duty Brakes - (2) - - (1) -
----- ----- ------- -----
28 22 27 60 49 22
Engines 23 16 44 43 29 48
----- ----- ------- -----
Total $ 51 $ 38 34 $ 103 $ 78 32
===== ===== ======= =====
</TABLE>
AUTOMOTIVE PRODUCTS
United States light vehicle demand during the second quarter of fiscal 1995
improved modestly as measured by a 2% increase in vehicle sales over the
comparable fiscal 1994 period, with sales of light trucks increasing 4%.
However, North American industry production of light vehicles which incorporate
Kelsey-Hayes' products and influences the Company's automotive products segment,
decreased 3% during the same period with light truck production being flat.
Despite this decrease, within Varity's automotive products segment, Kelsey-Hayes
brake systems benefitted from secular anti-lock braking systems (ABS) growth and
its strategic position as a supplier of ABS and foundation (conventional) brakes
for several stronger selling pickup trucks, vans and sport utility vehicles. As
a result, Kelsey-Hayes brake systems recorded sales of $283 million in the
quarter ended July 31, 1995, an increase of 4% over fiscal 1994. Year to date,
Kelsey-Hayes brake systems sales increased 7% to $604 million despite a 1%
decrease in North American production of light trucks from the prior year's
first half. The increase in sales is attributable to secular ABS growth and
replacement of two-wheel ABS with higher value four-wheel systems.
Kelsey-Hayes brake systems segment operating income in the second quarter
increased by 17% to $28 million from $24 million in the second quarter of the
prior year. Year to date, such earnings improved 20% to $60 million as compared
to the first half of fiscal 1994. Earnings improvement over the prior year's
same periods is a direct result of increased sales and the continued focus on
implementing cost reductions and productivity improvements.
The automotive products segment also includes sales of products for the heavy
and medium duty truck and trailer market by Dayton Walther, a wholly-owned
subsidiary of the Company. Sales of this unit declined $10 million to $31
million in the second quarter of 1995. Year to date, sales decreased $22
million to $65 million. These decreases were primarily a result of the cessation
of an unprofitable light-duty truck contract which was completed in the fourth
quarter of fiscal 1994. Operating profits were breakeven for the three and six
months ended July 31, 1995, as compared to losses of $2 million and $1 million
in the second quarter and first half, respectively, of fiscal 1994.
Page 10
<PAGE>
ENGINES
Demand for diesel engines in the major market sectors in which the Company's
Perkins engines segment participates (agricultural, construction, industrial and
power generation) continued to improve during the second quarter of fiscal 1995
as manufacturers that incorporate such equipment in their products experienced
an increase in demand, particularly in the United States and Europe. For
Perkins, this was particularly apparent in the European agricultural sector and
the United States and European construction markets, all of which experienced
higher sales, reflecting both increased sales to certain existing accounts in
connection with new engine applications and an expanding customer base. In
addition, during the second quarter of fiscal 1994, Perkins acquired Dorman
Diesels Limited (Dorman), a manufacturer of diesel and natural gas powered
engines in the 1,000 to 2,500 horsepower range, designed primarily for the power
generation sector, which added approximately $19 million and $37 million of
incremental sales in the second quarter and first half, respectively, of fiscal
1995. As a result, total engines segment sales increased 31% to $259 million in
the quarter ended July 31, 1995 and 33% to $500 million in the first half of
fiscal 1995, as compared with the same periods in the prior year.
Operating income for the engines segment increased 44% to $23 million in the
second quarter and 48% to $43 million in the first half of fiscal 1995,
reflecting the benefit of higher sales and on-going success with margin
improvement and cost control programs, despite increases of $1 million and $7
million in engineering and product development expenditures for new engine
programs in the current quarter and first half of fiscal 1995, respectively.
Dorman contributed $2 million and $4 million of incremental operating profits in
the current quarter and first half of fiscal 1995, respectively.
NON-SEGMENT OPERATING REVIEW
Interest expense declined $1.1 million to $4.6 million for the three months
ended July 31, 1995, and $1.9 million to $9.6 million for the six months ended
July 31, 1995, principally due to lower average debt outstanding in the current
year as compared to the same periods of fiscal 1994.
Income taxes increased to $8.8 million and $17.7 million for the three and six
months ended July 31, 1995, respectively. The Company's effective tax rate
increased to 23%, since, as a result of the sale of Massey Ferguson, certain
foreign income is no longer sheltered against farm equipment losses within the
same taxing jurisdiction.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Liquidity during the current quarter was provided from ongoing operations and
existing cash reserves. Cash provided from operations during the first half of
fiscal 1995 amounted to $56.3 million.
Unused long-term and short-term lines of credit at July 31, 1995 were $164.9
million and $110.3 million, respectively. Management believes that Varity's
improved financial condition and operating results will continue to improve its
access to credit markets 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, 1995, 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, 1996.
Receivables decreased $11.6 million to $347.1 million at July 31, 1995 from
$358.7 million at January 31, 1995, primarily due to lower sales in the current
quarter (resulting from seasonal plant shutdowns in industries in which the
Company participates) as compared to the fourth quarter of fiscal 1994, offset
in part by fluctuations associated with foreign exchange.
Page 11
<PAGE>
Inventories of raw materials, work-in-process and finished products increased
$12.1 million to $158.1 million at July 31, 1995 from $146.0 million at January
31, 1995, primarily due to fluctuations associated with foreign exchange and
routine adjustments in manufacturing schedules.
Accounts payable and accrued liabilities decreased during the first half of
fiscal 1995 to $262.5 million and $230.9 million, respectively, at July 31,
1995, primarily due to scheduled temporary plant shutdowns occurring late in the
current quarter, offset in part by fluctuations associated with foreign
exchange.
Net fixed assets increased $30.8 million to $644.0 million at July 31, 1995
due to capital additions exceeding depreciation and disposals. Capital
expenditures for the first six months of fiscal 1995 were $68.2 million compared
to $98.0 million last year, and depreciation and amortization were $41.7 million
and $35.5 million, respectively, for the same periods. Capital expenditures for
fiscal 1995 should approximate $175 million. These expenditures will be mainly
for normal equipment replacements and operating improvements related to reducing
costs and increasing output.
Other long-term liabilities increased by $3.0 million to $321.8 million
at July 31, 1995 from $318.8 million at January 31, 1995, primarily due to
fluctuations associated with foreign exchange.
Stockholders' equity increased by $46.3 million to $830.0 million at July 31,
1995. The increase resulted primarily from net income of $66.9 million and a
favorable change in the cumulative foreign currency translation adjustment of
$5.6 million, partially offset by repurchases of 871,000 shares of common stock
amounting to $30.1 million and preferred dividends paid of $1.2 million.
The Company enters into forward exchange contracts to hedge certain firm sales
commitments, net of offsetting purchases, denominated in foreign currencies. In
addition, forward exchange contracts are entered into for a portion of
anticipated sales commitments, net of anticipated purchases, expected to be
denominated in foreign currencies. The purpose of such foreign currency hedging
activities is to protect the Company from the risk that the eventual cash flows
resulting from the sale of products to foreign customers (net of purchases from
foreign suppliers) will be adversely affected by fluctuations in exchange rates.
The Company does not hold or issue forward exchange contracts or other financial
instruments for trading purposes.
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 concerted actions over the past three 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. In order to maintain financial flexibility the Company has filed
with the Securities and Exchange Commission a registration statement covering
$100 million of debt securities of the Company and Kelsey-Hayes but which has
not yet become effective; the Company has no immediate plans to make an
offering under such registration statement.
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 12
<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 continues to believe that its automotive products segment is
positioned to increase sales and margins in fiscal 1995, even with weaker North
American light vehicle production, as a result of secular ABS penetration and as
actions taken to relieve capacity constraints and enhance productivity continue
to provide positive returns. Kelsey-Hayes is aggressively pursuing additional
margin enhancements and world-class manufacturing status in its foundation
brakes business. Cost reduction actions will be implemented to reduce floor
space and labor content concurrent with the introduction of new manufacturing
processes and rationalization of work flow on the plant floor, the net effect of
which will be to maintain or increase productive capacity under a lower cost
structure. Several alternatives are being explored and as a result, it is
likely that a pre-tax charge in the range of $10 - $25 million will be recorded
during fiscal 1995 with respect to these actions.
Continued improvements in manufacturing processes, in addition to an expanding
customer base arising from strategic alliances developed in prior years, have
positioned the Perkins engines segment for continued growth in sales and
operating margins despite uncertainty as to the economic health of many markets
throughout the world and anticipated increases in its new product research and
development expenditures in fiscal 1995 to support new engine programs.
Page 13
<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 May 25, 1995 at the Annual Meeting of Stockholders the following matters
were voted on:
1. Election of Directors. A total of 38,379,365 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>
Paul M.F. Cheng 38,249,791 129,574
William A. Corbett 37,911,016 468,349
Thomas N. Davidson 38,262,306 117,059
Robert M. Gates 38,259,490 119,875
Luiz F. Kahl 38,264,008 115,357
Vincent D. Laurenzo 37,886,147 493,218
W. Darcy McKeough 38,260,256 119,109
Sir Bryan Nicholson 37,914,208 465,157
Victor A. Rice 37,885,881 493,484
Warren S. Rustand 38,260,598 118,767
William R. Teschke 38,259,746 119,619
Robin H. Warrender 38,255,175 124,190
</TABLE>
2. Ratification of Auditors. A total of 38,312,801 votes were cast for,
16,988 votes were cast against, and 49,576 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:
None
Page 14
<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/ Mark J. MacGuidwin
----------------------------------- ----------------------------------------
N.D. Arnold Mark J. MacGuidwin
Senior Vice President and Vice President, Controller
Chief Financial Officer (Principal Accounting Officer)
(Principal Financial Officer)
September 8, 1995
Page 15
<PAGE>
VARITY CORPORATION
INDEX TO EXHIBITS
Exhibit
Number
------
10.0 MATERIAL CONTRACTS
10.1 LOAN AGREEMENTS
(j) - Amended and restated Credit Agreement dated as of May 1, 1995 between
Kelsey-Hayes Company, The Chase Manhattan Bank N.A., as agent, and
The Bank of Nova Scotia, as co-agent.
(k) - Amended and restated Credit Agreement dated as of July 14, 1995
between Dayton Walther Corporation, The Bank of Nova Scotia and NBD
Bank, N.A.
(i) Varity Corporation Guarantee dated July 14, 1995 to The Bank of
Nova Scotia and NBD Bank, N.A.
11.0 PRIMARY EARNINGS PER SHARE COMPUTATIONS
11.1 PRIMARY EARNINGS PER SHARE COMPUTATIONS FOR THREE MONTHS ENDED JULY
31, 1995 AND 1994
11.2 PRIMARY EARNINGS PER SHARE COMPUTATIONS FOR SIX MONTHS ENDED JULY 31,
1995 AND 1994
27.0 FINANCIAL DATA SCHEDULE
27.1 SIX MONTHS ENDED JULY 31, 1995
27.2 SIX MONTHS ENDED JULY 31, 1994 (RESTATED)
Page 16
<PAGE>
EXHIBIT 10.1(j)
================================================================================
KELSEY-HAYES COMPANY
-------------------------------------------
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of December 15, 1992
Amended and Restated as of May 1, 1995
-------------------------------------------
$75,000,000
-------------------------------------------
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
as Agent
THE BANK OF NOVA SCOTIA,
as Co-Agent
================================================================================
[MTH&M File No. 30774-00600]
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it is attached but
is inserted for convenience of reference only.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Definitions and Accounting Matters........... 1
1.01 Certain Defined Terms......................... 1
1.02 Accounting Terms and Determinations........... 25
1.03 Classes and Types of Loans.................... 26
Section 2. Commitments, Loans, Notes and Prepayments.... 26
2.01 Loans......................................... 26
2.02 Borrowings of Syndicated Loans................ 27
2.03 Money Market Loans............................ 27
2.04 Letters of Credit............................. 32
2.05 Changes of Commitments; Etc................... 37
2.06 Facility Fee.................................. 38
2.07 Lending Offices............................... 39
2.08 Several Obligations; Remedies Independent..... 39
2.09 Notes......................................... 39
2.10 Optional Prepayments and Conversions or
Continuations of Loans................. 40
2.11 Mandatory Prepayments and Reductions of
Commitments............................ 40
Section 3. Payments of Principal and Interest........... 41
3.01 Repayment of Loans............................ 41
3.02 Interest...................................... 41
Section 4. Payments; Pro Rata Treatment; Computations;
Etc................................ 42
4.01 Payments...................................... 42
4.02 Pro Rata Treatment............................ 43
4.03 Computations.................................. 44
4.04 Minimum Amounts............................... 44
4.05 Certain Notices............................... 44
4.06 Non-Receipt of Funds by the Agent............. 45
4.07 Sharing of Payments, Etc...................... 47
</TABLE>
Credit Agreement
----------------
<PAGE>
- ii -
<TABLE>
<CAPTION>
<S> <C>
Section 5. Yield Protection, Etc............................ 48
5.01 Additional Costs.................................. 48
5.02 Limitation on Types of Loans...................... 51
5.03 Illegality........................................ 51
5.04 Treatment of Affected Loans....................... 52
5.05 Compensation...................................... 52
5.06 Additional Costs in Respect of Letters of Credit.. 54
5.07 U.S. Taxes........................................ 54
Section 6. [Intentionally Omitted].......................... 56
Section 7. Conditions Precedent............................. 56
7.01 Conditions to Effectiveness....................... 56
7.02 Extensions of Credit.............................. 57
Section 8. Representations and Warranties................... 58
8.01 Corporate Existence............................... 58
8.02 Financial Condition............................... 58
8.03 Litigation........................................ 58
8.04 No Breach......................................... 59
8.05 Action............................................ 59
8.06 Approvals......................................... 59
8.07 Use of Credit..................................... 60
8.08 ERISA............................................. 60
8.09 Taxes............................................. 60
8.10 Investment Company Act............................ 61
8.11 Public Utility Holding Company Act................ 61
8.12 Material Agreements and Liens..................... 61
8.13 Environmental Matters............................. 61
8.14 Capitalization.................................... 62
8.15 Subsidiaries, Etc................................. 64
8.16 Title to Assets................................... 64
8.17 True and Complete Disclosure...................... 65
Section 9. Covenants of Kelsey-Hayes........................ 65
9.01 Financial Statements; Information; Etc............ 65
9.02 Litigation........................................ 70
9.03 Existence, Etc.................................... 71
9.04 Insurance......................................... 71
9.05 Prohibition of Fundamental Changes................ 72
9.06 Limitation on Liens............................... 73
</TABLE>
Credit Agreement
----------------
<PAGE>
- iii -
<TABLE>
<CAPTION>
<S> <C>
9.07 [Intentionally Omitted]........................... 75
9.08 [Intentionally Omitted]........................... 75
9.09 [Intentionally Omitted]........................... 75
9.10 Financial Covenants............................... 75
9.11 [Intentionally Omitted]........................... 76
9.12 Lines of Business................................. 76
9.13 Transactions with Affiliates...................... 76
9.14 Use of Proceeds................................... 77
9.15 [Intentionally Omitted]........................... 77
9.16 [Intentionally Omitted]........................... 77
9.17 [Intentionally Omitted]........................... 77
Section 10. Events of Default............................... 77
Section 11. The Agent....................................... 82
11.01 Appointment, Powers and Immunities............... 82
11.02 Reliance by Agent................................ 83
11.03 Defaults......................................... 84
11.04 Rights as a Bank................................. 84
11.05 Indemnification.................................. 84
11.06 Non-Reliance on Agent and Other Banks............ 85
11.07 Failure to Act................................... 85
11.08 Resignation or Removal of Agent.................. 86
11.09 Consents under Basic Documents................... 86
11.10 Co-Agent......................................... 86
11.11 Letter of Credit Collateral Account.............. 86
Section 12. Miscellaneous................................... 88
12.01 Waiver; Independence of Covenants................ 88
12.02 Notices.......................................... 88
12.03 Expenses, Etc.................................... 88
12.04 Amendments, Etc.................................. 90
12.05 Successors and Assigns........................... 91
12.06 Assignments and Participations................... 91
12.07 Survival......................................... 93
12.08 Captions......................................... 93
12.09 Counterparts..................................... 93
12.10 Governing Law; Submission to Jurisdiction........ 93
12.11 Waiver of Jury Trial............................. 94
12.12 Treatment of Certain Information;
Confidentiality............................... 94
</TABLE>
Credit Agreement
----------------
<PAGE>
- iv -
SCHEDULE I - Material Agreements and Liens
SCHEDULE II - Hazardous Materials
SCHEDULE III - Subsidiaries and Investments
SCHEDULE IV - Litigation
SCHEDULE V - Specified Account Debtors
SCHEDULE VI - Certain Waivers
SCHEDULE VII - Certain ERISA Matters
EXHIBIT A-1 - Form of Syndicated Note
EXHIBIT A-2 - Form of Money Market Note
EXHIBIT B - Form of Borrowing Base Certificate
EXHIBIT C-1 - Form of Legal Opinion of Cahill, Gordon
& Reindel
EXHIBIT C-2 - Form of Legal Opinion of General Counsel
to Kelsey-Hayes
EXHIBIT C-3 - Form of Legal Opinion of General Counsel
to Varity
EXHIBIT D - Form of Legal Opinion of Milbank, Tweed,
Hadley & McCloy
EXHIBIT E - Form of Varity Guarantee
EXHIBIT F - Form of Confidentiality Agreement
EXHIBIT G-1 - Form of Money Market Quote Request
EXHIBIT G-2 - Form of Money Market Quote
Credit Agreement
----------------
<PAGE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of December 15,
1992, amended and restated as of May 1, 1995 between:
KELSEY-HAYES COMPANY, a corporation duly organized and validly
existing under the laws of the State of Delaware (together with its
successors and assigns, "Kelsey-Hayes");
------------
each of the lenders named under the caption "BANKS" on the signature
pages hereof (together with its successors and assigns, individually, a
"Bank" and, collectively, the "Banks");
---- -----
THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as agent for the
Banks (in such capacity, together with its successors in such capacity, the
"Agent"); and
------
THE BANK OF NOVA SCOTIA, as co-agent (in such capacity, the
"Co-Agent").
--------
Kelsey-Hayes, the Banks, the Agent and the Co-Agent are party to a
Credit Agreement dated as of December 15, 1992 as amended and restated as of
August 31, 1993 (as modified and supplemented and in effect immediately prior to
the Amendment Effective Date referred to below, the "1993 Credit Agreement").
---------------------
Kelsey-Hayes has requested that the Banks, the Agent and the Co-Agent agree to
amend and restate the 1993 Credit Agreement, and the Banks, the Agent and the
Co-Agent are willing to amend and restate the 1993 Credit Agreement, to provide
for, among other things, the increase in the amount of the credit facilities
thereunder from $50,000,000 to $75,000,000, all on the terms and conditions
hereinafter set forth.
Accordingly, the parties hereto agree to amend and restate the 1993
Credit Agreement so that, as amended and restated, it reads in its entirety as
provided herein.
Accordingly, the parties hereto agree as follows:
Section 1. Definitions and Accounting Matters.
----------------------------------
1.01 Certain Defined Terms. As used herein, the following terms
---------------------
shall have the following meanings (all terms defined in this Section 1.01 or in
other provisions of this Agreement in the singular shall have the same meanings
when used in the plural and vice versa):
"Affiliate" shall mean, as to any specified Person, any other Person
---------
that directly or indirectly controls, or is under common control with, or is
controlled by, such specified
Credit Agreement
----------------
<PAGE>
2
Person. As used in this definition, "control" (including, with its correlative
-------
meanings, "controlled by" and "under common control with") shall mean
------------- -------------------------
possession, directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities or partnership
or other ownership interests, by contract or otherwise), provided that, in any
--------
event, any Person that owns directly or indirectly securities having 5% or more
of the voting power for the election of directors or other governing body of a
corporation or 5% or more of the partnership or other ownership interests of any
other Person will be deemed to control such corporation or other Person.
Notwithstanding the foregoing, (a) no individual shall be an Affiliate of
Kelsey-Hayes or any of its Subsidiaries solely by reason of such individual
being a director, officer or employee of Kelsey-Hayes or any of its
Subsidiaries, (b) Kelsey-Hayes and its Subsidiaries shall not be Affiliates of
each other and (c) neither the Agent nor any Bank shall be an Affiliate of
Kelsey-Hayes or any of its Subsidiaries.
"Amendment Effective Date" shall mean the date on which all of the
------------------------
conditions set forth in Section 7.01 hereof shall have been satisfied or waived
by the Banks, the Agent and the Co-Agent.
"Applicable Facility Fee Rate" shall mean the rate for each rating
-----------------------------
level set forth in the schedule below:
<TABLE>
<CAPTION>
Facility
Level Fee Rate
----- --------
<S> <C>
Level I Period .125%
Level II Period .175%
Level III Period .225%
Level IV Period .350%
</TABLE>
"Applicable Lending Office" shall mean, for each Bank and for each
-------------------------
Type of Loan, the "Lending Office" of such Bank (or of an affiliate of such
Bank) designated for such Type of Loan on the signature pages hereof or such
other office of such Bank (or of an affiliate of such Bank) as such Bank may
from time to time specify to the Agent and Kelsey-Hayes as the office by which
its Loans of such Type are to be made and maintained.
"Applicable Margin" shall mean (a) with respect to Base Rate Loans, 0%
-----------------
and (b) with respect to Eurodollar Loans, the rate for such Eurodollar Loan set
forth opposite the rating level then in effect:
Credit Agreement
----------------
<PAGE>
3
<TABLE>
<CAPTION>
Applicable
Level Margin
----- ----------
<S> <C>
Level I Period .225%
Level II Period .325%
Level III Period .400%
Level IV Period .525%
</TABLE>
Any change in the Applicable Margin for any Eurodollar Loan by reason of a
change in the Standard & Poor's Rating or the Moody's Rating shall become
effective on the date of announcement or publication by the respective rating
agencies of a change in such rating or, in the absence of such announcement or
publication, on the effective date of such changed rating.
"Bankruptcy Code" shall mean the Federal Bankruptcy Code of 1978,
---------------
as amended from time to time.
"Base Rate" shall mean, for any day, a rate per annum equal to the
---------
higher of (a) the Federal Funds Rate for such day plus 1/2 of 1% and (b) the
----
Prime Rate for such day. Each change in any interest rate provided for herein
based upon the Base Rate resulting from a change in the Base Rate shall take
effect at the time of such change in the Base Rate.
"Base Rate Loans" shall mean Syndicated Loans that bear interest at
---------------
rates based upon the Base Rate.
"Basic Documents" shall mean, collectively, this Agreement, the Notes,
---------------
the Letter of Credit Documents and the Varity Guarantee.
"Borrowing Base" shall mean, as at any date, the sum of (a) 80% of the
--------------
aggregate amount of Eligible Receivables owing at said date plus (b) 50% of the
----
aggregate value of Eligible Inventory at said date plus (c) the Covered Amount
----
at said date. The "value" of Eligible Inventory shall be determined at the
-----
lower of cost or market in accordance with GAAP, except that cost shall be
determined on a first-in-first-out basis.
"Borrowing Base Certificate" shall mean a certificate of a Senior
--------------------------
Financial Officer, substantially in the form of Exhibit B hereto and
appropriately completed.
"Borrowing Base Entity" shall mean Kelsey-Hayes and the Domestic
---------------------
Subsidiaries.
Credit Agreement
----------------
<PAGE>
4
"Business Day" shall mean any day (a) on which commercial banks are
------------
not authorized or required to close in New York City and (b) if such day relates
to the giving of notices or quotes in connection with a LIBOR Auction or to a
borrowing of, a payment or prepayment of principal of or interest on, a
Conversion of or into, or an Interest Period for, a Eurodollar Loan or a LIBOR
Market Loan or a notice by Kelsey-Hayes with respect to any such borrowing,
payment, prepayment, Conversion or Interest Period, also on which dealings in
Dollar deposits are carried out in the London interbank market.
"Capital Lease Obligations" shall mean, for any Person, all
-------------------------
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP, and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"Cash Interest Expense" shall mean, for any period, the sum of the
---------------------
following: (a) all interest in respect of Indebtedness actually paid in cash
during such period plus (b) the net amounts paid in cash (or minus the net
---- -----
amounts received in cash) under Interest Rate Protection Agreements during such
period. For the purposes of this Agreement, "Cash Interest Expense", for any
period, shall include all interest on Varity Subordinated Loans accrued or
capitalized during such period (whether or not actually paid during such
period).
"Chase" shall mean The Chase Manhattan Bank (National Association).
-----
"Class" shall have the meaning assigned to such term in Section 1.03
-----
hereof.
"Closing Date" shall mean December 23, 1992.
------------
"Code" shall mean the Internal Revenue Code of 1986, as amended from
----
time to time.
"Collateral Account" shall have the meaning assigned to such term in
------------------
Section 11.11 hereof.
"Commitment" shall mean, for each Bank, the obligation of such Bank to
----------
make Syndicated Loans pursuant to Section 2.01 hereof, and to issue or
participate in Letters of Credit pursuant to Section 2.04 hereof, in an
aggregate principal amount at any one time outstanding up to but not exceeding
(a) in the case of a Bank that is a party to this Agreement as of the Amendment
Effective Date, the amount set opposite the name of such Bank on the signature
pages hereof under the caption "Commitment" or (b) in the case of any other
Bank, the aggregate amount of the Commitments of other Banks acquired by it
pursuant to Section 12.06(b) hereof (in
Credit Agreement
----------------
<PAGE>
5
each case, as the same may be reduced from time to time pursuant to Section 2.05
hereof or increased or reduced from time to time pursuant to said Section
12.06(b)).
"Commitment Percentage" shall mean, with respect to any Bank, the
---------------------
ratio of (a) the amount of the Commitment of such Bank to (b) the aggregate
amount of the Commitments of all of the Banks.
"Commitment Termination Date" shall mean the Quarterly Date falling on
---------------------------
or nearest to the date five (5) years after the Restatement Date.
"Compensation Claims Payment Guarantee" shall mean the Michigan
-------------------------------------
Workers' Compensation Claims Payment Guarantee dated as of the date hereof
between Kelsey-Hayes and Hayes Wheels, relating to liability under the Michigan
Workers' Disability Compensation Act of 1969, as modified and supplemented and
in effect from time to time.
"Consolidated Adjusted Net Worth" shall mean, as at any date,
-------------------------------
consolidated shareholder's equity of Kelsey-Hayes and its Subsidiaries
(determined on a consolidated basis without duplication in accordance with GAAP)
minus the aggregate amount of outstanding Investments by Kelsey-Hayes and its
-----
Subsidiaries in any of the Affiliates of Kelsey-Hayes.
"Consolidated Capital Expenditures" shall mean, for any period,
---------------------------------
expenditures made by Kelsey-Hayes or any of its Subsidiaries to acquire or
construct fixed assets, plant and equipment (including renewals, improvements
and replacements, but excluding repairs) during such period computed in
accordance with GAAP.
"Consolidated Interest Coverage Ratio" shall mean, for any period, the
------------------------------------
ratio, for Kelsey-Hayes and its Subsidiaries (determined on a consolidated basis
without duplication in accordance with GAAP), of (a) the sum of (i) net
operating income (calculated before taxes, Interest Expense, extraordinary and
unusual items and income or loss attributable to equity in Affiliates of Kelsey-
Hayes) for such period plus (ii) depreciation, amortization and other non-cash
----
charges (to the extent deducted in determining net operating income) for such
period to (b) Interest Expense for such period.
"Consolidated Leverage Ratio" shall mean, at any time,the ratio of (a)
---------------------------
Total Debt of Kelsey-Hayes and its Subsidiaries (determined on a consolidated
basis without duplication in accordance with GAAP) at such time to (b)
Consolidated Adjusted Net Worth at such time.
"Consolidated Total Assets" shall mean, at any time, the aggregate
-------------------------
book value of all of the assets of Kelsey-Hayes and its Subsidiaries at such
time (determined on a consolidated basis without duplication in accordance with
GAAP).
Credit Agreement
----------------
<PAGE>
6
"Continue", "Continuation" and "Continued" shall refer to the
-------- ------------ ---------
continuation pursuant to Section 2.10 hereof of a Eurodollar Loan from one
Interest Period to the next Interest Period.
"Convert", "Conversion" and "Converted" shall refer to a conversion
------- ---------- ---------
pursuant to Section 2.10 hereof of one Type of Syndicated Loans into another
Type of Syndicated Loans, which may be accompanied by the transfer by a Bank (at
its sole discretion) of a Loan from one Applicable Lending Office to another.
"Covered Amount" shall mean, at any time of determination thereof, the
--------------
lesser of (a) the aggregate amount of funds standing to the credit of the
Collateral Account as cover for Letter of Credit Liabilities immediately prior
to such time of determination and (b) the aggregate amount of Letter of Credit
Liabilities outstanding immediately prior to such time of determination.
"date of this Agreement" and "date hereof" shall mean December 15,
---------------------- -----------
1992.
"Debt Service" shall mean, for any period, the sum of the following:
------------
(a) all payments of principal of Indebtedness scheduled to have been made during
such period plus (b) all Cash Interest Expense for such period. For the
----
purposes of this Agreement, the term "Debt Service" shall exclude any payment of
principal of Loans.
"Deeds" shall mean (a) the Deed dated the date hereof by and between
-----
Hayes Wheels, as grantor, and Kelsey-Hayes, as grantee, relating to the
conveyance of certain real Property located in Ann Arbor, Michigan, (b) the Deed
dated the date hereof by and between Hayes Wheels, as grantor, and Kelsey-Hayes,
as grantee, relating to the conveyance of certain real Property located in
Milford, Michigan, (c) the Deed dated the date hereof by and between Hayes
Wheels, as grantor, and Kelsey-Hayes, as grantee, relating to the conveyance of
certain real Property located in Brighton, Michigan, (d) the Deed dated the date
hereof by and between Hayes Wheels, as grantor, and Kelsey-Hayes, as grantee,
relating to the conveyance of certain real Property located at 1017 Dickenson,
in Fremont, Ohio, (e) the Deed dated the date hereof by and between Hayes
Wheels, as grantor, and Kelsey-Hayes, as grantee, relating to the conveyance of
certain real Property located at 4600 Oak Harbor, in Fremont, Ohio, and (f) the
Deed dated the date hereof by and between Hayes Wheels, as grantor, and Kelsey-
Hayes, as grantee, relating to the conveyance of certain real Property located
in Mt. Vernon, Ohio, (g) the Assignment and Assumption Agreement dated as of the
date hereof by and between Hayes Wheels, as assignor, and Kelsey-Hayes, as
assignee, relating to the assignment of rights under a lease of certain real
Property located in Mt. Vernon, Ohio, (h) the Deed dated the date hereof by and
between Hayes Wheels, as grantor, and Kelsey-Hayes, as grantee, relating to the
conveyance of certain real Property located in Detroit, Michigan and (i) the
Assignment and Assumption Agreement dated as of the date hereof by and between
Hayes Wheels, as assignor, and Kelsey-Hayes, as assignee, relating to the
assignment of rights under a lease of certain real Property located in Fenton,
Credit Agreement
----------------
<PAGE>
7
Michigan, in each case, as modified and supplemented and in effect from time to
time.
"Default" shall mean an Event of Default or an event that with notice
-------
or lapse of time or both would become an Event of Default.
"Distributorship Agreement" shall mean the Distributorship Agreement
-------------------------
dated as of the date hereof between Kelsey-Hayes and K-H, as modified and
supplemented and in effect from time to time.
"Dollars" and "$" shall mean lawful money of the United States of
------- -
America.
"Domestic Subsidiary" shall mean any Subsidiary of Kelsey-Hayes that
-------------------
is organized or created under the laws of the United States of America, any
state or territory thereof or the District of Columbia.
"Eligible Currency" shall mean (a) Dollars and (b) lawful money of any
-----------------
of Canada, England, the Republic of France, the Federal Republic of Germany, the
Republic of Italy and Japan.
"Eligible Inventory" shall mean, as at any date, all Inventory:
------------------
(a) that is owned by (and in the possession or under the control of)
a Borrowing Base Entity as at such date,
(b) that is located in a jurisdiction in the United States of America,
(c) that is new and unused and is otherwise in good condition,
(d) that meets all standards imposed by any governmental agency or
department or division thereof having regulatory authority over such
Inventory, its use or sale,
(e) that is either currently usable or currently saleable in the
normal course of such Borrowing Base Entity's business without any notice
to, or consent of, any governmental agency or department or division
thereof, and
(f) that is not subject to any Lien other than Liens of the type
referred to in Sections 9.06(c) and 9.06(d) hereof;
provided that by notice to Kelsey-Hayes, the Majority Banks (through the Agent)
--------
may at any time exclude from Eligible Inventory any type of Inventory that the
Majority Banks determine (in their reasonable judgment) to be unmarketable.
Credit Agreement
----------------
<PAGE>
8
"Eligible Receivables" shall mean, as at any date, all Receivables at
--------------------
such date payable to a Borrowing Base Entity other than the following
(determined without duplication):
(a) any Receivable not payable in an Eligible Currency,
(b) any Receivable that, at the date of issuance of the invoice
therefor, was payable more than 60 days after shipment of the related
Inventory (provided that Eligible Receivables (determined without reference
to this clause (b)) that, at the date of issuance of the respective invoices
therefor, were payable not more than one year after shipment of the related
Inventory shall not be excluded pursuant to this clause (b) from the
definition of "Eligible Receivables" except to the extent the aggregate
amount of Eligible Receivables (determined as aforesaid) would exceed 12% of
the aggregate amount of all Eligible Receivables),
(c) any Receivable payable by a Subsidiary or Affiliate of such
Borrowing Base Entity,
(d) any Receivable payable by an account debtor whose principal place
of business is located outside of the United States of America and the
Province of Ontario, Canada (other than a Specified Account Debtor),
(e) any Receivable payable by an account debtor (i) that has taken an
action, or has become the subject of a proceeding, case or order for relief,
of the type specified in clause (f) or (g) of Section 11 hereof or (ii) that
does not have a satisfactory credit standing (in the reasonable
determination of the Majority Banks and specified in a notice from the Agent
to Kelsey-Hayes),
(f) any Receivable that remains unpaid more than 60 days after the
original due date of the original invoice therefor,
(g) all Receivables payable by any account debtor if more than 25% of
the aggregate amount of the Receivables remain unpaid more than 60 days
after the original due date of the original invoice therefor,
(h) any Receivable as to which there is any unresolved dispute with
the respective account debtor (but only to the extent of the amount thereof
in dispute),
(i) any Receivable representing an obligation for goods sold on
consignment, approval or a sale-or-return basis or subject to any other
repurchase or return arrangement, and
Credit Agreement
----------------
<PAGE>
9
(j) any Receivable that is subject to any Lien (other than Liens of
the type referred to in Sections 9.06(c) and 9.06(d) hereof);
provided that no Receivable shall be excluded from the definition of "Eligible
--------
Receivables" by virtue of any of the foregoing clauses (a), (d), (e)(ii), (g)
and (h) to the extent such Receivable is supported by a Specified Letter of
Credit.
"Environmental Claim" shall mean, with respect to any Person, any
-------------------
written notice, claim, demand or other communication (collectively, a "claim")
-----
by any other Person alleging or asserting such Person's liability for
investigatory costs, cleanup costs, governmental response costs, damages to
natural resources or other Property, personal injuries, fines or penalties
arising out of, based on or resulting from (a) the presence, or Release into the
environment, of any Hazardous Material at any location, whether or not owned by
such Person, or (b) circumstances forming the basis of any violation, or alleged
violation, by such Person of any Environmental Law. The term "Environmental
Claim" shall include, without limitation, any claim by any governmental
authority for enforcement, cleanup, removal, response, remedial or other actions
or damages pursuant to any Environmental Law, and any claim by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the presence of Hazardous Materials or arising
from alleged injury or threat of injury to the environment.
"Environmental Laws" shall mean any and all present and future
------------------
Federal, state, local and foreign laws, rules or regulations, and any orders or
decrees, in each case as now or hereafter in effect, relating to the regulation
or protection of the environment or to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals or toxic or hazardous
substances or wastes into the indoor or outdoor environment, including, without
limitation, ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants or toxic or hazardous substances or wastes.
"Equity Rights" shall mean, with respect to any Person, any
-------------
outstanding subscriptions, options, warrants, commitments, preemptive rights or
agreements of any kind (including, without limitation, any stockholders' or
voting trust agreements) for the issuance, sale, registration or voting of, or
outstanding securities convertible into, any additional shares of capital stock
of any class, or partnership or other ownership interests of any type in, such
Person.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or business that
---------------
is a member of any group of organizations (a) described in Section 414(b) or (c)
of the Code of which
Credit Agreement
----------------
<PAGE>
10
Kelsey-Hayes is a member and (b) solely for purposes of potential liability
under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code and the
lien created under Section 302(f) of ERISA and Section 412(n) of the Code,
described in Section 414(m) or (o) of the Code of which Kelsey-Hayes is a
member.
"Eurodollar Base Rate" shall mean, with respect to any Fixed Rate Loan
--------------------
for any Interest Period therefor, the arithmetic mean (rounded upwards, if
necessary, to the nearest 1/16 of 1%) of the respective rates per annum quoted
by each Reference Bank at approximately 11:00 a.m. London time (or as soon
thereafter as practicable) on the date two Business Days prior to the first day
of such Interest Period for the offering by such Reference Bank to leading banks
in the London interbank market of Dollar deposits having a term comparable to
such Interest Period and in an amount comparable to the principal amount of the
Eurodollar Loan or LIBOR Market Loan to be made by such Reference Bank for such
Interest Period. If any Reference Bank is not participating in any Fixed Rate
Loans during any Interest Period therefor, the Eurodollar Base Rate for such
Loans for such Interest Period shall be determined by reference to the amount of
the Loans that such Reference Bank would have made or had outstanding had it
been participating in such Loans during such Interest Period; provided that in
---------
the case of any LIBOR Market Loan, the Eurodollar Base Rate for such Loan shall
be determined with reference to deposits of $5,000,000. If any Reference Bank
does not timely furnish such information for determination of any Fixed Base
Rate, the Agent shall determine such Fixed Base Rate on the basis of the
information timely furnished by the remaining Reference Banks.
"Eurodollar Loans" shall mean Syndicated Loans the interest rates on
----------------
which are determined on the basis of rates referred to in the definition of
"Eurodollar Base Rate" in this Section 1.01.
"Eurodollar Rate" shall mean, for any Eurodollar Loan for any Interest
---------------
Period therefor, a rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) determined by the Agent to be equal to the quotient of (a) the
Eurodollar Base Rate for such Loan for such Interest Period divided by (b) the
----------
sum of (i) 1 minus (ii) the Reserve Requirement for such Loan for such Interest
-----
Period.
"Event of Default" shall have the meaning assigned to such term in
----------------
Section 10 hereof.
"Federal Funds Rate" shall mean, for any day, the rate per annum
------------------
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (a) if the day for which such rate is to
--------
be determined is not a Business Day, the Federal Funds Rate for such day shall
be such rate on
Credit Agreement
----------------
<PAGE>
11
such transactions on the next preceding Business Day as so published on the next
succeeding Business Day and (b) if such rate is not so published for any
Business Day, the Federal Funds Rate for such Business Day shall be the average
rate charged to Chase on such Business Day on such transactions as determined by
the Agent.
"Fixed Rate Loans" shall mean Eurodollar Loans and, for the purposes
----------------
of the definition of "Eurodollar Base Rate" in this Section 1.01 and in Section
5 hereof, LIBOR Market Loans.
"Foreign Subsidiary" shall mean any Subsidiary of Kelsey-Hayes that
------------------
is not a Domestic Subsidiary.
"Funded Debt" shall mean all Indebtedness of Kelsey-Hayes or any of
-----------
its Subsidiaries (other than Indebtedness owing to Kelsey-Hayes or any of its
Subsidiaries) that (a) matures more than one year from the date of its creation
or matures within one year of the date of its creation but is renewable or
extendable, at the option of Kelsey-Hayes or any of its Subsidiaries, to a date
more than one year from the date of its creation or (b) arises under a revolving
credit or similar agreement that obligates (or, that upon the exercise of an
option by Kelsey-Hayes or any of its Subsidiaries, would obligate) the lender or
lenders thereunder to extend credit during a period of more than one year from
the date of its creation.
"GAAP" shall mean generally accepted accounting principles applied on
----
a basis consistent with those which, in accordance with Section 1.02(a) hereof,
are to be used in making the calculations for purposes of determining compliance
with this Agreement.
"Guarantee" shall mean a guarantee, an endorsement, a contingent
---------
agreement to purchase or to furnish funds for the payment or maintenance of, or
otherwise to be or become contingently liable under or with respect to, the
Indebtedness, other obligations, net worth, working capital or earnings of any
Person, or a guarantee of the payment of dividends or other distributions upon
the stock or equity interests of any Person, or an agreement to purchase, sell
or lease (as lessee or lessor) Property, products, materials, supplies or
services primarily for the purpose of enabling a debtor to make payment of such
debtor's obligations or an agreement to assure a creditor against loss, and
including, without limitation, causing a bank or other financial institution to
issue a letter of credit or other similar instrument for the benefit of another
Person, but excluding endorsements for collection or deposit in the ordinary
course of business. The terms "Guarantee" and "Guaranteed" used as a verb shall
--------- ----------
have a correlative meaning.
"Hayes Wheels" shall mean Hayes Wheels International, Inc., a Delaware
------------
corporation, together with its successors and assigns.
"Hazardous Material" shall mean, collectively, (a) any petroleum or
------------------
petroleum
Credit Agreement
----------------
<PAGE>
12
products, flammable explosives, radioactive materials, asbestos in any form that
is or could become friable, urea formaldehyde foam insulation and transformers
or other equipment that contain dielectric fluid containing polychlorinated
biphenyls, (b) any chemicals or other materials or substances which are now or
hereafter subject to regulation under any Environmental Law and (c) any other
chemical or other material or substance, exposure to which is now or hereafter
prohibited, limited or regulated under any Environmental Law.
"Headquarters Sublease" shall mean the Lease Agreement dated as of the
---------------------
date hereof between K-H, as landlord, and Kelsey-Hayes, as tenant, as modified
and supplemented and in effect from time to time.
"Indebtedness" shall mean, for any Person (without duplication): (a)
------------
obligations created, issued or incurred by such Person for borrowed money
(whether by loan, the issuance and sale of debt securities or the sale of
Property to another Person subject to an understanding or agreement, contingent
or otherwise, to repurchase such Property from such Person); (b) obligations of
such Person to pay the deferred purchase or acquisition price of Property or
services, other than trade accounts payable (other than for borrowed money)
arising, and accrued expenses incurred, in the ordinary course of business so
long as such trade accounts payable are payable within 90 days of the date the
respective goods are delivered or the respective services are rendered; (c)
Indebtedness of others secured by a Lien on the Property of such Person, whether
or not the respective Indebtedness so secured has been assumed by such Person;
(d) obligations (contingent or otherwise) of such Person in respect of letters
of credit, bankers' acceptances or similar instruments issued or accepted by
banks and other financial institutions for account of such Person; (e) Capital
Lease Obligations of such Person; and (f) Indebtedness of others Guaranteed by
such Person.
"Interest Expense" shall mean, for any period, the sum of the
----------------
following: (a) all interest in respect of Indebtedness accrued or capitalized
during such period (whether or not actually paid during such period) plus (b)
----
the net amounts payable (or minus the net amounts receivable) under Interest
-----
Rate Protection Agreements accrued during such period (whether or not actually
paid or received during such period).
"Interest Period" shall mean:
---------------
(a) with respect to any Eurodollar Loan, each period commencing on the
date such Eurodollar Loan is made or Converted from a Base Rate Loan or the
last day of the next preceding Interest Period for such Loan and ending on
the numerically corresponding day in the first, second, third or sixth
calendar month thereafter, as Kelsey-Hayes may select as provided in Section
4.05 hereof (or such longer period as may be requested by Kelsey-Hayes and
agreed to by all of the Banks), except that each Interest Period that
commences on the last Business Day of a calendar month (or on any day for
which there
Credit Agreement
----------------
<PAGE>
13
is no numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Business Day of the appropriate subsequent
calendar month.
(b) With respect to any Set Rate Loan, the period commencing on the
date such Set Rate Loan is made and ending on any Business Day up to 180
days thereafter, as Kelsey-Hayes may select as provided in Section 2.03(b)
hereof; and
(c) With respect to any LIBOR Market Loan, the period commencing on
the date such LIBOR Market Loan is made and ending on the numerically
corresponding day in the first, second, third or sixth calendar month
thereafter, as Kelsey-Hayes may select as provided in Section 2.03(b)
hereof, except that each Interest Period that commences on the last Business
Day of a calendar month (or any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall end on
the last Business Day of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (i) no Interest Period for any Loan may end
after the Commitment Termination Date; (ii) each Interest Period that would
otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (or, in the case of an Interest Period for a Eurodollar
Loan or a LIBOR Market Loan, if such next succeeding Business Day falls in the
next succeeding calendar month, on the next preceding Business Day); and (iii)
notwithstanding clause (i) above, no Interest Period for any Loan (other than a
Set Rate Loan) shall have a duration of less than one month (in the case of a
Eurodollar Loan or a LIBOR Market Loan) and, if the Interest Period for any
Eurodollar Loan or LIBOR Market Loan would otherwise be a shorter period, such
Loan shall not be available hereunder for such period.
"Interest Rate Protection Agreement" shall mean, for any Person, an
----------------------------------
interest rate swap, cap, floor or collar agreement or similar arrangement
between such Person and one or more financial institutions providing for the
transfer or mitigation of interest risks either generally or under specific
contingencies.
"Inventory" shall mean readily marketable materials, including raw
---------
materials and work-in-process (but excluding factory supplies), of a type
manufactured or consumed by a Borrowing Base Entity in the ordinary course of
its business as presently conducted.
"Investment" shall mean, for any Person: (a) the acquisition (whether
----------
for cash, Property, services or securities or otherwise) of capital stock,
bonds, notes, debentures, partnership or other ownership interests or other
securities of any other Person or any agreement to make any such acquisition
(including, without limitation, any "short sale" or any sale of any securities
at a time when such securities are not owned by the Person entering into such
short sale); (b) the making of any deposit with, or advance, loan or other
extension of credit to, any other Person (including the purchase of Property
from another Person subject to an understanding
Credit Agreement
----------------
<PAGE>
14
or agreement, contingent or otherwise, to resell such Property to such Person,
but excluding any such advance, loan or extension of credit having a term not
exceeding 90 days representing the purchase price of inventory or supplies sold
by such Person in the ordinary course of business) and (without duplication) the
entering into of any commitment to deposit funds with, advance or lend funds to
or otherwise extend credit to such Person; (c) the entering into of any
Guarantee of, or other contingent obligation with respect to, Indebtedness or
other liability of any other Person; or (d) the entering into of any Interest
Rate Protection Agreement.
"Issuing Bank" shall mean Chase, as the Bank that is the issuer of
------------
Letters of Credit under Section 2.04 hereof, together with its successors and
assigns in such capacity.
"Kelsey-Hayes Management Services Agreement" shall mean the Management
------------------------------------------
Services Agreement dated as of the date hereof between K-H and Kelsey-Hayes, as
modified and supplemented and in effect from time to time.
"Kelsey-Hayes Preferred Stock" shall mean the Redeemable Preferred
----------------------------
Stock, par value $0.01 per share and having an aggregate original liquidation
preference equal to $77,131,000, issued or to be issued by Kelsey-Hayes.
"Kelsey-Hayes Tax Sharing Agreement" shall mean the Tax Allocation
----------------------------------
Agreement dated as of the date hereof between Varity and Kelsey-Hayes, as
modified and supplemented and in effect from time to time.
"K-H" shall mean K-H Corporation, a Delaware corporation, together
---
with its successors and assigns.
"Letter of Credit" shall have the meaning assigned to such term in
----------------
Section 2.04 hereof.
"Letter of Credit Documents" shall mean, with respect to any Letter of
--------------------------
Credit, collectively, any application therefor and any other agreements,
instruments, guarantees or other documents (whether general in application or
applicable only to such Letter of Credit) governing or providing for (a) the
rights and obligations of the parties concerned or at risk with respect to such
Letter of Credit or (b) any collateral security for any of such obligations,
each as the same may be modified and supplemented and in effect from time to
time.
"Letter of Credit Interest" shall mean, for each Bank, such Bank's
-------------------------
participation interest (or, in the case of the Issuing Bank, the Issuing Bank's
retained interest) in the Issuing Bank's liability under Letters of Credit and
such Bank's rights and interests in Reimbursement Obligations and fees, interest
and other amounts payable in connection with Letters of Credit and
Reimbursement Obligations.
Credit Agreement
----------------
<PAGE>
15
"Letter of Credit Liability" shall mean, without duplication, at any
--------------------------
time and in respect of any Letter of Credit, the sum of (a) the undrawn face
amount of such Letter of Credit plus (b) the aggregate unpaid principal amount
of all Reimbursement Obligations of Kelsey-Hayes at such time due and payable in
respect of all drawings made under such Letter of Credit. For purposes of this
Agreement, a Bank (other than the Issuing Bank) shall be deemed to hold a Letter
of Credit Liability in an amount equal to its participation interest in the
related Letter of Credit under Section 2.04 hereof, and the Issuing Bank shall
be deemed to hold a Letter of Credit Liability in an amount equal to its
retained interest in the related Letter of Credit Liability after giving effect
to the acquisition by the Banks other than the Issuing Bank of their
participation interests under said Section 2.04.
"Level I Period" shall mean any period during which (a) no Event of
--------------
Default shall have occurred and be continuing and (b) the Standard & Poor's
Rating is at or above A- (or any successor rating) or the Moody's Rating is at
or above A3 (or any successor rating).
"Level II Period" shall mean any period, other than a Level I Period,
---------------
during which (a) no Event of Default shall have occurred and be continuing and
(b) the Standard & Poor's Rating is at or above BBB (or any successor rating) or
the Moody's Rating is at or above Baa2 (or any successor rating).
"Level III Period" shall mean any period, other than a Level I Period
----------------
or a Level II Period, during which (a) no Event of Default shall have occurred
and be continuing and (b) the Standard & Poor's Rating is at or above BB (or any
successor rating) or the Moody's Rating is at or above Ba2 (or any successor
rating).
"Level IV Period" shall mean any period that is not a Level I Period,
---------------
a Level II Period or a Level III Period.
"LIBO Margin" shall have the meaning assigned to such term in Section
-----------
2.03(c)(ii)(C) hereof.
"LIBO Rate" shall mean, for any LIBOR Market Loan, a rate per annum
---------
(rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the
Agent to be equal to the rate of interest specified in the definition of
"Eurodollar Base Rate" in this Section 1.01 for the Interest Period for such
Loan divided by 1 minus the Reserve Requirement (if any) for such Loan for such
Interest Period.
"LIBOR Auction" shall mean a solicitation of Money Market Quotes
-------------
setting forth LIBO Margins based on the LIBO Rate pursuant to Section 2.03
hereof.
"LIBOR Market Loans" shall mean Money Market Loans interest rates on
------------------
which
Credit Agreement
----------------
<PAGE>
16
are determined on the basis of LIBO Rates pursuant to a LIBOR Auction.
"Lien" shall mean, with respect to any Property, any mortgage, lien,
----
pledge, charge, security interest or encumbrance of any kind in respect of such
Property. For purposes of this Agreement and the other Basic Documents, a
Person shall be deemed to own subject to a Lien any Property that it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
(other than an operating lease) relating to such Property.
"Loans" shall mean Syndicated Loans and Money Market Loans.
-----
"Majority Banks" shall mean, Banks having at least 66-2/3% of the
--------------
aggregate amount of the Commitments or, if the Commitments shall have
terminated, Banks holding at least 66-2/3% of the sum of (a) the aggregate
unpaid principal amount of the Loans plus (b) the aggregate amount of all Letter
of Credit Liabilities.
"Management Fees" shall mean all fees, salaries and other
---------------
compensation, and all out-of-pocket expenses, paid, incurred or reimbursed by
(a) Kelsey-Hayes or any of its Domestic Subsidiaries to any Person that is an
Affiliate of Kelsey-Hayes or (b) any Foreign Subsidiary to any Person (other
than another Foreign Subsidiary) that is an Affiliate of Kelsey-Hayes in respect
of services rendered in connection with the management, supervision or financial
or business affairs of Kelsey-Hayes or any of its Subsidiaries (including,
without limitation, any loan or credit guarantee fee).
"Margin Stock" shall mean "margin stock" within the meaning of
------------
Regulations U and X.
"Material Adverse Effect" shall mean a material adverse effect on (a)
-----------------------
the condition (financial or otherwise), business, operations, Property,
liabilities or prospects of Kelsey-Hayes and its Subsidiaries taken as a whole,
(b) the ability of any Obligor to perform its obligations under any of the Basic
Documents to which it is a party, (c) the validity or enforceability of any of
the Basic Documents, (d) the rights and remedies of the Banks and the Agent
under any of the Basic Documents or (e) the timely payment of the principal of
or interest on the Loans or the Reimbursement Obligations or other amounts
payable in connection therewith.
"MF Delaware" shall mean Varity Automotive Inc., a Delaware
-----------
corporation.
"Money Market Borrowing" shall have the meaning assigned to such term
----------------------
in Section 2.03(b) hereof.
"Money Market Loan Limit" shall have the meaning assigned to such
-----------------------
term in
Credit Agreement
----------------
<PAGE>
17
Section 2.03(c)(ii) hereof.
"Money Market Loans" shall mean the loans provided for by Section
------------------
2.03 hereof.
"Money Market Notes" shall mean the promissory notes provided for by
------------------
Section 2.09(b) hereof and all promissory notes delivered in substitution or
exchange therefor, in each case as the same shall be modified and supplemented
and in effect from time to time.
"Money Market Quote" shall mean an offer in accordance with Section
------------------
2.03(c) hereof by a Bank to make a Money Market Loan with one single specified
interest rate.
"Money Market Quote Request" shall have the meaning assigned to such
--------------------------
term in Section 2.03(b) hereof.
"Moody's" shall mean Moody's Investors Service, Inc. or any successor
-------
corporation thereto.
"Moody's Rating" shall mean, at any time, the then current rating by
--------------
Moody's of the Rated Entity's senior unsecured long-term public debt; provided
--------
that, if Moody's shall fail to issue any such rating or if the Rated Entity
shall not then have any outstanding senior unsecured long-term public debt, then
"Moody's Rating" shall mean the last such rating issued by Moody's.
--------------
"Multiemployer Plan" shall mean a multiemployer plan defined as such
------------------
in Section 3(37) of ERISA to which contributions have been made by Kelsey-Hayes
or any ERISA Affiliate and which is covered by Title IV of ERISA.
"Notes" shall mean the Syndicated Notes and the Money Market Notes.
-----
"Obligors" shall mean Varity and Kelsey-Hayes.
--------
"Original Notes" shall mean the promissory notes of Kelsey-Hayes
--------------
delivered to each Bank pursuant to the 1993 Credit Agreement.
"Payment Default" shall mean an Event of Default of the type described
---------------
in Section 10(a) hereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
----
entity succeeding to any or all of its functions under ERISA.
"Permitted Investments" shall mean: (a) direct obligations of the
---------------------
United States of America, or of any agency thereof, or obligations guaranteed as
to principal and interest by the
Credit Agreement
----------------
<PAGE>
18
United States of America, or of any agency thereof, in either case maturing not
more than 90 days from the date of acquisition thereof; (b) certificates of
deposit issued by any bank or trust company organized under the laws of the
United States of America or any state thereof and having capital, surplus and
undivided profits of at least $500,000,000, maturing not more than 90 days from
the date of acquisition thereof; and (c) commercial paper rated A-1 or better or
P-1 or better by Standard & Poor's or Moody's respectively (but not rated lower
than A-1 or P-1 by Standard & Poor's or Moody's respectively), maturing not more
than 90 days from the date of acquisition thereof.
"Person" shall mean any individual, corporation, company, voluntary
------
association, partnership, joint venture, trust, unincorporated organization or
government (or any agency, instrumentality or political subdivision thereof).
"Plan" shall mean an employee benefit or other plan established or
----
maintained by Kelsey-Hayes or any ERISA Affiliate and that is covered by Title
IV of ERISA, other than a Multiemployer Plan.
"Post-Default Rate" shall mean, with respect to (a) any principal of
-----------------
any Loan (whether or not then due and payable) and (b) any other amount payable
under this Agreement, any Note or any other Basic Document that is not paid when
due, for any period during which a Payment Default shall have occurred and be
continuing, a rate per annum equal to 2% plus the Base Rate as in effect from
----
time to time plus the Applicable Margin for Base Rate Loans (provided that, if
---- --------
the amount is principal of a Eurodollar Loan or a Money Market Loan and the due
date thereof is a day other than the last day of the Interest Period therefor,
the "Post-Default Rate" for such principal shall be, for the period commencing
with the occurrence of such Payment Default to but excluding the last day of the
then current Interest Period for such Loan, 2% plus the interest rate for such
----
Loan as provided in Section 3.02 hereof and, thereafter, the rate provided for
above in this definition).
"Prime Rate" shall mean the rate of interest from time to time
----------
announced by Chase at the Principal Office as its prime commercial lending rate.
"Principal Office" shall mean the principal office of Chase, located
----------------
on the date hereof at 1 Chase Manhattan Plaza, New York, New York 10081.
"Property" shall mean any right or interest in or to property of any
--------
kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Quarterly Dates" shall mean the last Business Day of each March,
---------------
June, September and December in each year, the first of which shall be the first
such day after the Restatement Date.
Credit Agreement
----------------
<PAGE>
19
"Rated Entity" shall mean Kelsey-Hayes; provided that during any
------------ --------
period that Kelsey-Hayes does not have any outstanding senior unsecured long-
term public debt rated by Standard & Poor's and Moody's the term "Rated Entity"
shall mean Varity.
"Receivable" shall mean, as at any date, the unpaid portion of the
----------
obligation, as stated on the respective invoice, of a customer of a Borrowing
Base Entity in respect of Inventory sold and shipped by such Borrowing Base
Entity to such customer, net of any credits, rebates or offsets owed to such
customer and also net of any commissions payable to third parties (and for
purposes hereof, a credit or rebate paid by check or draft of a Borrowing Base
Entity shall be deemed to be outstanding until such check or draft shall have
been debited to the account of such Borrowing Base Entity on which such check or
draft was drawn).
"Reference Banks" shall mean Chase and The Bank of Nova Scotia (or
---------------
their respective Applicable Lending Offices, as the case may be).
"Regulation A", "Regulation D", "Regulation U" and "Regulation X"
------------ ------------ ------------ ------------
shall mean, respectively, Regulation A, Regulation D, Regulation U and
Regulation X of the Board of Governors of the Federal Reserve System (or any
successor), as the same may be modified and supplemented and in effect from time
to time.
"Regulatory Change" shall mean, with respect to any Bank, any change
-----------------
after the date of this Agreement in Federal, state or foreign law or regulations
(including, without limitation, Regulation D) or the adoption or making after
such date of any interpretation, directive or request applying to a class of
banks including such Bank of or under any Federal, state or foreign law or
regulations (whether or not having the force of law and whether or not failure
to comply therewith would be unlawful) by any court or governmental or monetary
authority charged with the interpretation or administration thereof.
"Reimbursement Obligations" shall mean, at any time, the obligations
-------------------------
of Kelsey-Hayes (and, to the extent provided by Section 2.04 hereof, one or more
of its Subsidiaries) then outstanding, or which may thereafter arise in respect
of all Letters of Credit then outstanding, to reimburse amounts paid by the
Issuing Bank in respect of any drawings under a Letter of Credit.
"Release" shall mean any release, spill, emission, leaking, pumping,
-------
injection, deposit, disposal, discharge, dispersal, leaching or migration of
Hazardous Materials into the indoor or outdoor environment, including, without
limitation, the movement of Hazardous Materials through ambient air, soil,
surface water, ground water, wetlands, land or subsurface strata.
"Reorganization Agreement" shall mean the Conveyance and Transfer
------------------------
Agreement
Credit Agreement
----------------
<PAGE>
20
dated as of the date hereof between Hayes Wheels and Kelsey-Hayes, as modified
and supplemented and in effect from time to time.
"Reserve Requirement" shall mean, for any Interest Period for any
-------------------
Eurodollar Loan or LIBOR Market Loan, the average maximum rate at which reserves
(including, without limitation, any marginal, supplemental or emergency
reserves) are required to be maintained during such Interest Period under
Regulation D by member banks of the Federal Reserve System in New York City with
deposits exceeding one billion Dollars against "Eurocurrency liabilities" (as
such term is used in Regulation D). Without limiting the effect of the
foregoing, the Reserve Requirement shall include any other reserves required to
be maintained by such member banks by reason of any Regulatory Change with
respect to (i) any category of liabilities that includes deposits by reference
to which the Eurodollar Base Rate for Eurodollar Loans or LIBOR Market Loans (as
the case may be) is to be determined as provided in the definition of
"Eurodollar Base Rate" in this Section 1.01 or (ii) any category of extensions
of credit or other assets that includes Eurodollar Loans or LIBOR Market Loans.
"Restatement Date" shall mean May 1, 1995.
----------------
"SEC" shall mean the Securities and Exchange Commission (or any
---
successor agency).
"Senior Financial Officer" shall mean any of (a) the chief financial
------------------------
officer of Kelsey-Hayes, (b) the Vice President-Finance of Kelsey-Hayes, (c) the
Treasurer of Kelsey-Hayes and (d) the Assistant Treasurer of Kelsey-Hayes.
"Set Rate" shall have the meaning assigned to such term in Section
--------
2.03(c)(ii)(D) hereof.
"Set Rate Auction" shall mean a solicitation of Money Market Quotes
----------------
setting forth Set Rates pursuant to Section 2.03 hereof.
"Set Rate Loans" shall mean Money Market Loans the interest rates on
--------------
which are determined on the basis of Set Rates pursuant to a Set Rate Auction.
"Specified Account Debtor" shall mean (a) a Person named in Schedule V
------------------------
hereto and (b) any other Person designated by the Agent (after consultation with
the Banks) as a "Specified Account Debtor" in a notice from the Agent to Kelsey-
Hayes.
"Specified Letter of Credit" shall mean, with reference to the
--------------------------
obligations of an account debtor in respect of any Receivable, a standby letter
of credit (a) issued or confirmed by a banking office located in the United
States of America of a bank having a capital and surplus
Credit Agreement
----------------
<PAGE>
21
in excess of $250,000,000 (other than a bank that does not have a satisfactory
credit standing (in the reasonable determination of the Majority Banks and
specified in a notice from the Agent to Kelsey-Hayes)), (b) naming the Person to
which such Receivable is payable as the beneficiary of such letter of credit,
(c) available by drafts of the beneficiary accompanied only by certificates of
the beneficiary stating that the drafts represent amounts past due on one or
more Receivables of such account debtor owing to the beneficiary and (d) payable
in an Eligible Currency.
"Standard & Poor's" shall mean Standard & Poor's Ratings Service or
-----------------
any successor thereto.
"Standard & Poor's Rating" shall mean, at any time, the then current
------------------------
rating (including the failure to rate) by Standard &Poor's of the Rated Entity's
senior unsecured long-term public debt; provided that, if Standard & Poor's
--------
shall fail to issue any such rating or if the Rated Entity shall not then have
any outstanding senior unsecured long-term public debt, the "Standard & Poor's
-----------------
Rating" shall mean the last such rating issued by Standard & Poor's.
------
"Subsidiary" shall mean, with respect to any Person, any corporation,
----------
partnership or other entity of which at least a majority of the securities or
other ownership interests having by the terms thereof ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions of such corporation, partnership or other entity (irrespective of
whether or not at the time securities or other ownership interests of any other
class or classes of such corporation, partnership or other entity shall have or
might have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned or controlled by such Person or one or more
Subsidiaries of such Person or by such Person and one or more Subsidiaries of
such Person. "Wholly Owned Subsidiary" shall mean, with respect to any Person,
-----------------------
any such corporation, partnership or other entity of which all of the equity
securities or other ownership interests (other than, in the case of a
corporation, directors' qualifying shares) are owned or controlled by such
Person or one or more Wholly Owned Subsidiaries of such Person.
"Syndicated Loans" shall mean the loans provided for by Section 2.01
----------------
hereof, which may be Base Rate Loans and/or Eurodollar Loans.
"Syndicated Notes" shall mean the promissory notes provided for by
----------------
Section 2.09(a) hereof and all promissory notes delivered in substitution or
exchange thereof, in each case as the same shall be modified and supplemented
and in effect from time to time.
"Tax Sharing Agreement" shall mean the Tax Sharing Agreement dated as
---------------------
of the date hereof between Varity, K-H, Kelsey-Hayes and Hayes Wheels, as
modified and supplemented and in effect from time to time.
"Total Debt" shall mean, as at any date, the sum, for any Person, of
----------
all
Credit Agreement
----------------
<PAGE>
22
Indebtedness of such Person of the types described in clauses (a), (b), (d)
and (e) of the definition of the term "Indebtedness" in this Section 1.01.
"Type" shall have the meaning assigned to such term in Section 1.03
----
hereof.
"Varity" shall mean Varity Corporation, a Delaware corporation,
------
together with its successors and assigns.
"Varity Guarantee" shall mean the Varity Guarantee substantially in
----------------
the form of Exhibit E hereto between Varity and the Agent, as the same shall be
modified and supplemented and in effect from time to time.
"Varity 1991 Indenture" shall mean the Indenture dated as of October
---------------------
8, 1991 between Varity and Manufacturers and Traders Trust Company, as Trustee,
providing for, among other things, the issuance by Varity of $150,000,000
original aggregate principal amount of its 11-3/8% Senior Notes due 1998, as
modified and supplemented and in effect from time to time.
"Varity Note" shall mean the promissory note dated November 15, 1991
-----------
made by Hayes Wheels (formerly named "Kelsey-Hayes Company") payable to Varity
in a principal amount equal to $127,131,000, as modified and supplemented and in
effect from time to time, which note was repaid in full on or before the
Restatement Date.
"Varity Specified Subsidiary" shall mean (a) MF Delaware and (b) any
---------------------------
Subsidiary of Varity that is a "significant subsidiary" of Varity within the
meaning given to such term under Regulation S-X of the SEC (as said Regulation
is in effect on the date hereof).
"Varity Subordinated Loans" shall mean unsecured Indebtedness of
-------------------------
Kelsey-Hayes to Varity incurred after the Closing Date; provided that the
documentation evidencing such Indebtedness shall provide (without limitation):
(a) that no payment of any principal of, interest on, or other amount owing in
respect of, such Indebtedness or under such documentation shall be payable so
long as an Event of Default shall have occurred and be continuing, (b) that all
amounts owing in respect of such Indebtedness shall, on terms and conditions
satisfactory to the Majority Banks, be subordinate and subject in right of
payment to the prior payment in full of all obligations of Kelsey-Hayes to the
Banks hereunder and under the other Basic Documents and (c) that Varity will not
ask, demand, sue for, take or receive from Kelsey-Hayes or any of its
Subsidiaries (whether by set-off or otherwise) any payment in respect of such
Indebtedness not then entitled to be received by Varity under such
documentation.
1.02 Accounting Terms and Determinations.
------------------------------------
(a) Except as otherwise expressly provided herein, (i) all accounting
terms used
Credit Agreement
----------------
<PAGE>
23
herein shall be interpreted, (ii) all financial statements and all certificates
and reports as to financial matters required to be delivered to the Banks
hereunder shall (unless otherwise disclosed to the Banks in writing at the time
of delivery thereof in the manner described in subsection (b) below) be prepared
and (iii) all calculations made for the purposes of determining compliance with
this Agreement shall (except as otherwise expressly provided herein) be made in
accordance with or by application of generally accepted accounting principles
applied on a basis consistent with those used in the preparation of the most
recent financial statements furnished to the Banks under Section 9.01(c) or (d)
hereof after the Restatement Date (or, prior to the first such delivery after
the Restatement Date, the financial statements as at January 31, 1995) unless
(x) Kelsey-Hayes shall notify the Banks of its objection thereto at the time of
delivery of any financial statements pursuant to Section 9.01 hereof or (y) the
Majority Banks shall notify Kelsey-Hayes (through the Agent) of their objection
within 30 days after the delivery of any such financial statements, in either of
which events such interpretations, statements, certificates, reports and
calculations shall be made in accordance with, or by application of, generally
accepted accounting principles on a basis consistent with those used in the
preparation of the most recent financial statements furnished after the
Restatement Date as to which no such objection shall have been made (or, prior
to the first such delivery after the Restatement Date, the financial statements
as at January 31, 1995).
(b) Kelsey-Hayes shall deliver to the Banks at the same time as the
delivery of any annual or quarterly financial statement under Section 9.01
hereof (i) a description in reasonable detail of any material variation between
the application of accounting principles employed in the preparation of such
statement and the application of accounting principles employed in the
preparation of the next preceding annual or quarterly financial statements as to
which no objection has been made in accordance with the last sentence of
paragraph (a) above and (ii) reasonable estimates of the difference between such
statements arising as a consequence thereof.
(c) Kelsey-Hayes will not, and will not permit any of its Domestic
Subsidiaries to, change the last day of its fiscal year from January 31 of each
year, or the last days of the first three fiscal quarters in each of its fiscal
years from April 30, July 31 and October 31 of each year, respectively.
(d) [Intentionally Omitted]
(e) So long as Kelsey-Hayes and its Subsidiaries shall be included in
consolidated Federal income tax returns filed by Varity or K-H, whenever making
determinations under this Agreement of the amount of Federal income taxes
payable during any period (or the amount of refunds in respect of such taxes
receivable during any period) by Kelsey-Hayes and its Subsidiaries, the amount
of such taxes payable or receivable shall be deemed to be equal to the amounts
payable or receivable, as the case may be, by Kelsey-Hayes and its Subsidiaries
to or from Varity, K-H or Hayes Wheels under the Tax Sharing Agreement and to or
from Varity under the Kelsey-Hayes Tax Sharing Agreement without reference to
whether Varity, K-H or Hayes
Credit Agreement
----------------
<PAGE>
24
Wheels shall in fact pay any amounts in respect of Federal income taxes
(or receive any amounts in respect of refunds of Federal income taxes) during
the relevant period.
1.03 Classes and Types of Loans. Loans hereunder are distinguished
--------------------------
by "Class" and by "Type". The "Class" of a Loan refers to whether such Loan is
a Money Market Loan or a Syndicated Loan, each of which constitutes a Class.
The "Type" of a Loan refers to whether such Loan is a Base Rate Loan, a
Eurodollar Loan, a Set Rate Loan or a LIBOR Market Loan, each of which
constitutes a Type of Loan. Loans may be identified by both Class and Type.
Section 2. Commitments, Loans, Notes and Prepayments.
-----------------------------------------
2.01 Loans.
-----
(a) Syndicated Loans. Each Bank severally agrees, on the terms and
----------------
conditions of this Agreement, to make loans to Kelsey-Hayes in Dollars during
the period from and including the Closing Date to but not including the
Commitment Termination Date in an aggregate principal amount at any one time
outstanding up to but not exceeding the amount of the Commitment of such Bank as
in effect from time to time; provided that in no event shall the aggregate
--------
principal amount of all Loans, together with the aggregate amount of all Letter
of Credit Liabilities, exceed the aggregate amount of the Commitments as in
effect from time to time. Subject to the terms and conditions of this
Agreement, during such period Kelsey-Hayes may borrow, repay and reborrow the
amount of the Commitments by means of Base Rate Loans and Eurodollar Loans and
may Convert Loans of one Type into Loans of another Type (as provided in Section
2.10 hereof) or Continue Loans of one Type as Loans of the same Type (as
provided in Section 2.10 hereof).
(b) Limit on Eurodollar Loans. No more than six separate Interest
-------------------------
Periods in respect of Eurodollar Loans from each Bank may be outstanding at any
one time.
2.02 Borrowings of Syndicated Loans. Kelsey-Hayes shall give the
------------------------------
Agent (which shall promptly notify the Banks) notice of each borrowing hereunder
as provided in Section 4.05 hereof. Not later than 2:00 p.m. New York time on
the date specified for each borrowing of Syndicated Loans hereunder, each Bank
shall make available the amount of the Syndicated Loan or Loans to be made by it
on such date to the Agent, at account number NYAO-DI-900-9-000002 maintained by
the Agent with Chase at the Principal Office, in Dollars and immediately
available funds, for account of Kelsey-Hayes. The amount so received by the
Agent shall, subject to the terms and conditions of this Agreement, be made
available by the Agent to Kelsey-Hayes by depositing the same, in immediately
available funds, in an account of Kelsey-Hayes maintained with Chase at the
Principal Office designated by Kelsey-Hayes.
2.03 Money Market Loans.
------------------
Credit Agreement
----------------
<PAGE>
25
(a) In addition to borrowings of Syndicated Loans, at any time prior
to the Commitment Termination Date Kelsey-Hayes may, as set forth in this
Section 2.03, request the Banks to make offers to make Money Market Loans to
Kelsey-Hayes in Dollars. The Banks may, but shall have no obligation to, make
such offers and Kelsey-Hayes may, but shall have no obligation to, accept any
such offers in the manner set forth in this Section 2.03. Money Market Loans
may be LIBOR Market Loans or Set Rate Loans, provided that:
(i) there may be no more than fifteen different Interest Periods for
both Syndicated Loans and Money Market Loans outstanding at the same time
(for which purpose Interest Periods described in different lettered clauses
of the definition of the term "Interest Period" shall be deemed to be
different Interest Periods even if they are coterminous);
(ii) the aggregate principal amount of all Money Market Loans,
together with the aggregate principal amount of all Syndicated Loans and
the aggregate amount of all Letter of Credit Liabilities, at any one time
outstanding shall not exceed the aggregate amount of the Commitments at
such time.
(b) When Kelsey-Hayes wishes to request offers to make Money Market
Loans, it shall give the Agent (which shall promptly notify the Banks) notice (a
"Money Market Quote Request") so as to be received no later than 11:00 a.m. New
--------------------------
York time on (x) the fourth Business Day prior to the date of borrowing proposed
therein, in the case of a LIBOR Auction or (y) the Business Day next preceding
the date of borrowing proposed therein, in the case of a Set Rate Auction (or,
in any such case, such other time and date as Kelsey-Hayes and the Agent, with
the consent of the Majority Banks, may agree). Kelsey-Hayes may request offers
to make Money Market Loans for up to three different Interest Periods in a
single notice (for which purpose Interest Periods in different lettered clauses
of the definition of the term "Interest Period" shall be deemed to be different
Interest Periods even if they are coterminous); provided that the request
--------
for each separate Interest Period shall be deemed to be a separate Money Market
Quote Request for a separate borrowing (a "Money Market Borrowing"). Each such
----------------------
notice shall be substantially in the form of Exhibit G-1 hereto and shall
specify as to each Money Market Borrowing:
(i) the proposed date of such borrowing, which shall be a Business
Day;
(ii) the aggregate amount of such Money Market Borrowing, which shall
be at least $5,000,000 (or a larger multiple of $1,000,000) but shall not
cause the limits specified in Section 2.03(a) hereof to be violated;
(iii) the duration of the Interest Period applicable thereto;
(iv) whether the Money Market Quotes requested for a particular
Interest Period are seeking quotes for LIBOR Market Loans or Set Rate
Loans; and
Credit Agreement
----------------
<PAGE>
26
(v) if the Money Market Quotes requested are seeking quotes for Set
Rate Loans, the date on which the Money Market Quotes are to be submitted
if it is before the proposed date of borrowing (the date on which such
Money Market Quotes are to be submitted is called the "Quotation Date").
Except as otherwise provided in this Section 2.03(b), no Money Market Quote
Request shall be given within five Business Days (or such other number of days
as Kelsey-Hayes and the Agent, with the consent of the Majority Banks, may
agree) of any other Money Market Quote Request.
(c) (i) Each Bank may submit one or more Money Market Quotes, each
constituting an offer to make a Money Market Loan in response to any Money
Market Quote Request; provided that, if Kelsey-Hayes' request under Section
2.03(b) hereof specified more than one Interest Period, such Bank may make
a single submission containing one or more Money Market Quotes for each
such Interest Period. Each Money Market Quote must be submitted to the
Agent not later than (x) 2:00 p.m. New York time on the fourth Business Day
prior to the proposed date of borrowing, in the case of a LIBOR Auction or
(y) 10:00 a.m. New York time on the Quotation Date, in the case of a Set
Rate Auction (or, in any such case, such other time and date as Kelsey-
Hayes and the Agent, with the consent of the Majority Banks, may agree);
provided that any Money Market Quote may be submitted by Chase (or its
Applicable Lending Office) only if Chase (or such Applicable Lending
Office) notifies Kelsey-Hayes of the terms of the offer contained therein
not later than (x) 1:00 p.m. New York time on the fourth Business Day prior
to the proposed date of borrowing, in the case of a LIBOR Auction or (y)
9:45 a.m. New York time on the Quotation Date, in the case of a Set Rate
Auction. Subject to Sections 5.02(b), 5.03, 7.02 and 10 hereof, any Money
Market Quote so made shall be irrevocable except with the consent of the
Agent given on the instructions of Kelsey-Hayes.
(ii) Each Money Market Quote shall be substantially in the form of Exhibit
G-2 hereto and shall specify:
(A) the proposed date of borrowing and the Interest Period
therefor;
(B) the principal amount of the Money Market Loan for which each
such offer is being made, which principal amount shall be at least
$5,000,000 (or a larger multiple of $1,000,000); provided that the
aggregate principal amount of all Money Market Loans for which a Bank
submits Money Market Quotes (x) may be greater or less than the
Commitment of such Bank but (y) may not exceed the principal amount of
the Money Market Borrowing for a particular Interest Period for which
offers were requested;
Credit Agreement
----------------
<PAGE>
27
(C) in the case of a LIBOR Auction, the margin above or below the
applicable LIBO Rate (the "LIBO Margin") offered for each such Money
Market Loan, expressed as a percentage (rounded upwards, if necessary,
to the nearest 1/10,000th of 1%) to be added to or subtracted from the
applicable LIBO Rate;
(D) in the case of a Set Rate Auction, the rate of interest per
annum (rounded upwards, if necessary, to the nearest 1/10,000th of 1%)
offered for each such Money Market Loan (the "Set Rate"); and
(E) the identity of the quoting Bank.
Unless otherwise agreed by the Agent and Kelsey-Hayes, no Money Market
Quote shall contain qualifying, conditional or similar language or propose
terms other than or in addition to those set forth in the applicable Money
Market Quote Request and, in particular, no Money Market Quote may be
conditioned upon acceptance by Kelsey-Hayes of all (or some specified
minimum) of the principal amount of the Money Market Loan for which such
Money Market Quote is being made, provided that the submission by any Bank
--------
containing more than one Money Market Quote may be conditioned on Kelsey-
Hayes not accepting offers contained in such submission that would result
in such Bank making Money Market Loans pursuant thereto in excess of a
specified aggregate amount (the "Money Market Loan Limit").
-----------------------
(d) The Agent shall (x) in the case of a Set Rate Auction, as
promptly as practicable after the Money Market Quote is submitted (but in any
event not later than 10:15 a.m. New York time on the Quotation Date) or (y) in
the case of a LIBOR Auction, by 4:00 p.m. New York time on the day a Money
Market Quote is submitted, notify Kelsey-Hayes of the terms (i) of any Money
Market Quote submitted by a Bank that is in accordance with Section 2.03(c)
hereof and (ii) of any Money Market Quote that amends, modifies or is otherwise
inconsistent with a previous Money Market Quote submitted by such Bank with
respect to the same Money Market Quote Request. Any such subsequent Money
Market Quote shall be disregarded by the Agent unless such subsequent Money
Market Quote is submitted solely to correct a manifest error in such former
Money Market Quote. The Agent's notice to Kelsey-Hayes shall specify (A) the
aggregate principal amount of the Money Market Borrowing for which offers have
been received and (B) the respective principal amounts and LIBO Margins or Set
Rates, as the case may be, so offered by each Bank (identifying the Bank that
made each Money Market Quote).
(e) Not later than 11:00 a.m. New York time on (x) the third Business
Day prior to the proposed date of borrowing, in the case of a LIBOR Auction or
(y) the Quotation Date, in the case of a Set Rate Auction (or, in any such case,
such other time and date as Kelsey-Hayes and the Agent, with the consent of the
Majority Banks, may agree), Kelsey-Hayes shall notify the Agent of its
acceptance or nonacceptance of the offers so notified to it pursuant to Section
2.03(d)
Credit Agreement
----------------
<PAGE>
28
hereof (which notice shall specify the aggregate principal amount of offers from
each Bank for each Interest Period that are accepted, it being understood that
the failure of Kelsey-Hayes to give such notice by such time shall constitute
nonacceptance) and the Agent shall promptly notify each affected Bank. The
notice from the Agent shall also specify the aggregate principal amount of
offers for each Interest Period that were accepted and the lowest and highest
LIBO Margins and Set Rates that were accepted for each Interest Period. Kelsey-
Hayes may accept any Money Market Quote in whole or in part (provided that any
Money Market Quote accepted in part shall be at least $5,000,000 or a larger
multiple of $1,000,000); provided that:
--------
(i) the aggregate principal amount of each Money Market Borrowing may
not exceed the applicable amount set forth in the related Money Market
Quote Request;
(ii) the aggregate principal amount of each Money Market Borrowing
shall be at least $5,000,000 (or a larger multiple of $1,000,000) but shall
not cause the limits specified in Section 2.03(a) hereof to be violated;
(iii) acceptance of offers may, subject to clause (v) below, be made
only in ascending order of LIBO Margins or Set Rates, as the case may be,
in each case beginning with the lowest rate so offered;
(iv) Kelsey-Hayes may not accept any offer where the Agent has advised
Kelsey-Hayes that such offer fails to comply with Section 2.03(c)(ii)
hereof or otherwise fails to comply with the requirements of this Agreement
(including, without limitation, Section 2.03(a) hereof);
(v) the aggregate principal amount of each Money Market Borrowing from
any Bank may not exceed any applicable Money Market Loan Limit of such
Bank.
If offers are made by two or more Banks with the same LIBO Margins or Set Rates,
as the case may be, for a greater aggregate principal amount than the amount in
respect of which offers are accepted for the related Interest Period, the
principal amount of Money Market Loans in respect of which such offers are
accepted shall be allocated by Kelsey-Hayes among such Banks as nearly as
possible (in amounts of at least $5,000,000 or larger multiples of $1,000,000)
in proportion to the aggregate principal amount of such offers. Determinations
by the Company of the amounts of Money Market Loans shall be conclusive in the
absence of manifest error.
(f) Any Bank whose offer to make any Money Market Loan has been
accepted in accordance with the terms and conditions of this Section 2.03 shall,
not later than 1:00 p.m. New York time on the date specified for the making of
such Loan, make the amount of such Loan available to the Agent at account number
NYAO-DI-900-9-000002 maintained by the Agent with Chase at the Principal Office
in immediately available funds, for account of Kelsey-Hayes. The
Credit Agreement
----------------
<PAGE>
29
amount so received by the Agent shall, subject to the terms and conditions of
this Agreement, be made available to Kelsey-Hayes on such date by depositing the
same, in immediately available funds, in an account of Kelsey-Hayes maintained
with Chase at the Principal Office designated by Kelsey-Hayes.
(g) Except for the purpose and to the extent expressly stated in
Section 2.05(b) hereof, the amount of any Money Market Loan made by any Bank
shall not constitute a utilization of such Bank's Commitment.
(h) Kelsey-Hayes shall pay to the Agent a fee of $2,000 each time
Kelsey-Hayes gives a Money Market Quote Request to the Agent.
2.04 Letters of Credit. Subject to the terms and conditions of this
-----------------
Agreement, the Commitments may be utilized, upon the request of Kelsey-Hayes, in
addition to the Loans provided for by Section 2.01(a) hereof, by the issuance by
the Issuing Bank of letters of credit (collectively, "Letters of Credit") for
-----------------
account of Kelsey-Hayes (and, to the extent specified by Kelsey-Hayes, any of
its Domestic Subsidiaries), provided that in no event shall (i) the aggregate
--------
amount of all Letter of Credit Liabilities, together with the aggregate
principal amount of all Loans, exceed the aggregate amount of the Commitments as
in effect from time to time, (ii) the outstanding aggregate amount of all Letter
of Credit Liabilities exceed $15,000,000 and (iii) the expiration date of any
Letter of Credit extend beyond the earlier of (x) the date one year after the
issuance thereof and (y) the Commitment Termination Date. The following
additional provisions shall apply to Letters of Credit:
(a) Kelsey-Hayes shall give the Agent and the Issuing Bank at least
three Business Days' irrevocable prior notice (effective upon receipt)
specifying the Business Day (which shall be no later than 30 days preceding
the Commitment Termination Date) each Letter of Credit is to be issued and
the account party or parties therefor and describing in reasonable detail
the proposed terms of such Letter of Credit (including the beneficiary
thereof) and the nature of the transactions or obligations proposed to be
supported thereby (including whether such Letter of Credit is to be a
commercial letter of credit or a standby letter of credit).
(b) On each day during the period commencing with the issuance by the
Issuing Bank of any Letter of Credit and until such Letter of Credit shall
have expired or been terminated, the Commitment of each Bank shall be
deemed to be utilized for all purposes of this Agreement in an amount equal
to such Bank's Commitment Percentage of the then undrawn face amount of
such Letter of Credit. Each Bank (other than the Issuing Bank) agrees that,
upon the issuance of any Letter of Credit hereunder, it shall automatically
and without any further action on the part of the Agent, the Issuing Bank
or such Bank acquire a participation in the Issuing Bank's liability under
such Letter of Credit in an amount
Credit Agreement
----------------
<PAGE>
30
equal to such Bank's Commitment Percentage of such liability, and each Bank
(other than the Issuing Bank) thereby shall absolutely, unconditionally and
irrevocably assume, as primary obligor and not as surety, and shall be
unconditionally obligated to the Issuing Bank to pay and discharge when
due, its Commitment Percentage of the Issuing Bank's liability under such
Letter of Credit.
(c) Upon receipt from the beneficiary of any Letter of Credit of any
demand for payment under such Letter of Credit, the Issuing Bank shall
promptly notify Kelsey-Hayes (through the Agent) of the amount to be paid
by the Issuing Bank as a result of such demand and the date on which
payment is to be made by the Issuing Bank to such beneficiary in respect of
such demand. Notwithstanding the identity of the account party of any
Letter of Credit, Kelsey-Hayes hereby unconditionally agrees to pay and
reimburse the Agent for account of the Issuing Bank for the amount of each
demand for payment under such Letter of Credit at or prior to the date on
which payment is to be made by the Issuing Bank to the beneficiary
thereunder, without presentment, demand, protest or other formalities of
any kind.
(d) Forthwith upon its receipt of a notice referred to in paragraph
(c) of this Section 2.04, Kelsey-Hayes shall advise the Agent whether or
not Kelsey-Hayes intends to borrow hereunder to finance its obligation to
reimburse the Issuing Bank for the amount of the related demand for payment
and, if it does, submit a notice of such borrowing as provided in Section
4.05 hereof. In the event that Kelsey-Hayes fails to so advise the Agent,
or if Kelsey-Hayes fails to reimburse the Issuing Bank for a demand for
payment under a Letter of Credit by the date of such payment, the Agent
shall give each Bank prompt notice of the amount of the demand for payment,
specifying such Bank's Commitment Percentage of the amount of the related
demand for payment.
(e) Each Bank (other than the Issuing Bank) shall pay to the Agent for
account of the Issuing Bank at the Principal Office in Dollars and in
immediately available funds, the amount of such Bank's Commitment
Percentage of any payment under a Letter of Credit upon notice by the
Issuing Bank (through the Agent) to such Bank requesting such payment and
specifying such amount. Each such Bank's obligation to make such payments
to the Agent for account of the Issuing Bank under this paragraph (e), and
the Issuing Bank's right to receive the same, shall be absolute and
unconditional and shall not be affected by any circumstance whatsoever,
including, without limitation, the failure of any other Bank to make its
payment under this paragraph (e), the financial condition of Kelsey-Hayes
(or any other account party), the existence of any Default or the
termination of the Commitments. Each such payment to the Issuing Bank shall
be made without any offset, abatement, withholding or reduction whatsoever.
If any Bank shall default in its obligation to make any such payment to the
Agent for account of the Issuing Bank, for so long as such default shall
continue the Agent shall at the request of the Issuing Bank withhold from
Credit Agreement
----------------
<PAGE>
31
any payments received by the Agent under this Agreement or any Note for
account of such Bank the amount so in default and the Agent shall pay the
same to the Issuing Bank in satisfaction of such defaulted obligation.
(f) Upon the making of each payment by a Bank to the Issuing Bank
pursuant to paragraph (e) above (including by the operation of the last
sentence thereof), in respect of any Letter of Credit, such Bank shall,
automatically and without any further action on the part of the Agent, the
Issuing Bank or such Bank, acquire (i) a participation in an amount equal
to such payment in the Reimbursement Obligation owing to the Issuing Bank
by Kelsey-Hayes hereunder and under the Letter of Credit Documents relating
to such Letter of Credit and (ii) a participation in a percentage equal to
such Bank's Commitment Percentage in any interest or other amounts payable
by Kelsey-Hayes hereunder and under such Letter of Credit Documents in
respect of such Reimbursement Obligation (other than the amounts payable to
the Issuing Bank pursuant to the last sentence of paragraph (g) of this
Section 2.04). Upon receipt by the Issuing Bank from or for account of
Kelsey-Hayes of any payment in respect of any Reimbursement Obligation or
any such interest or other amount (including by way of setoff or
application of proceeds of any collateral security) the Issuing Bank shall
promptly pay to the Agent for account of each Bank entitled thereto, such
Bank's Commitment Percentage of such payment, each such payment by the
Issuing Bank to be made in the same money and funds in which received by
the Issuing Bank. In the event any payment received by the Issuing Bank and
so paid to the Banks hereunder is rescinded or must otherwise be returned
by the Issuing Bank, each Bank shall, upon the request of the Issuing Bank
(through the Agent), repay to the Issuing Bank (through the Agent) the
amount of such payment paid to such Bank, with interest at the rate
specified in paragraph (j) of this Section 2.04.
(g) Kelsey-Hayes shall pay to the Agent for account of the Issuing
Bank a letter of credit fee on the daily average undrawn amount of each
Letter of Credit for the period from and including the date of issuance of
such Letter of Credit to and including the date such Letter of Credit is
drawn in full, expires or is terminated, at a rate per annum equal to the
Applicable Margin for Eurodollar Loans (such letter of credit fee shall be
non-refundable, shall be paid in arrears on each Quarterly Date and on the
Commitment Termination Date and shall be calculated, for any day, after
giving effect to any payments made under such Letter of Credit on such
day). Promptly following its receipt of any letter of credit fee with
respect to any Letter of Credit (including any such fee in respect of any
period of renewal or extension thereof), the Issuing Bank shall pay to the
Agent for account of each Bank (other than the Issuing Bank) an amount
equal to such Bank's Commitment Percentage of such fee. In addition, Kelsey
-Hayes shall pay to the Agent for account of the Issuing Bank (i) a
fronting fee on the daily average undrawn amount of each Letter of Credit
for the period from and including the date of issuance of such Letter of
Credit to and including the date such Letter of Credit is drawn in full,
expires or is
Credit Agreement
----------------
<PAGE>
32
terminated, at a rate per annum equal to 1/4 of 1% (such fronting fee shall
be non-refundable, shall be paid in arrears on each Quarterly Date and on
the Commitment Termination Date and shall be calculated, for any day, after
giving effect to any payments made under such Letter of Credit on such day)
and (ii) all commissions, charges, costs and expenses in the amounts
customarily charged by the Issuing Bank from time to time in like
circumstances with respect to the issuance of each Letter of Credit and
drawings and other transactions relating thereto.
(h) Promptly following the issuance of any Letter of Credit, the
Issuing Bank shall deliver (through the Agent) to each Bank a notice of
such issuance, which notice shall set forth the face amount of such Letter
of Credit. Upon the request of any Bank from time to time, the Issuing Bank
shall deliver any other information reasonably requested by such Bank with
respect to each Letter of Credit then outstanding.
(i) The issuance by the Issuing Bank of each Letter of Credit shall,
in addition to the conditions precedent set forth in Section 7 hereof, be
subject to the conditions precedent that (i) such Letter of Credit shall be
in such form, contain such terms and support such transactions as shall be
satisfactory to the Issuing Bank consistent with its then current practices
and procedures with respect to letters of credit of the same type and (ii)
Kelsey-Hayes shall have executed and delivered such applications,
agreements and other instruments relating to such Letter of Credit as the
Issuing Bank shall have reasonably requested consistent with its then
current practices and procedures with respect to letters of credit of the
same type, provided that in the event of any conflict between any such
--------
application, agreement or other instrument and the provisions of this
Agreement, the provisions of this Agreement shall control.
(j) To the extent that any Bank fails to pay any amount required to be
paid pursuant to paragraph (e) or (f) of this Section 2.04 on the due date
therefor, such Bank shall pay interest to the Issuing Bank (through the
Agent) on such amount from and including such due date to but excluding the
date such payment is made (i) during the period from and including such due
date to but excluding the date three Business Days thereafter, at a rate
per annum equal to the Federal Funds Rate (as in effect from time to time)
and (ii) thereafter, at a rate per annum equal to the Base Rate (as in
effect from time to time) plus 2%.
----
(k) The issuance by the Issuing Bank of any modification or supplement
to any Letter of Credit hereunder shall be subject to the same conditions
applicable under this Section 2.04 to the issuance of new Letters of
Credit, and no such modification or supplement shall be issued hereunder
unless either (i) the respective Letter of Credit affected thereby would
have complied with such conditions had it originally been issued hereunder
in such modified or supplemented form or (ii) each Bank shall have
consented
Credit Agreement
----------------
<PAGE>
33
thereto.
Kelsey-Hayes hereby indemnifies and holds harmless each Bank (including the
Issuing Bank) and the Agent from and against any and all claims and damages,
losses, liabilities, costs or expenses which such Bank or the Agent may incur
(or which may be claimed against such Bank or the Agent by any Person
whatsoever) by reason of or in connection with the execution and delivery or
transfer of or payment or refusal to pay by the Issuing Bank under any Letter of
Credit; provided that Kelsey-Hayes shall not be required to indemnify any Bank
--------
or the Agent for any claims, damages, losses, liabilities, costs or expenses to
the extent, but only to the extent, caused by (x) the willful misconduct or
gross negligence of the Issuing Bank in determining whether a request presented
under any Letter of Credit complied with the terms of such Letter of Credit or
(y) the Issuing Bank's failure to pay under any Letter of Credit after the
presentation to it of a request strictly complying with the terms and conditions
of such Letter of Credit. Nothing in this Section 2.04 is intended to limit the
other obligations of Kelsey-Hayes, any Bank or the Agent under this Agreement.
2.05 Changes of Commitments; Etc.
---------------------------
(a) The aggregate amount of the Commitments shall be automatically
reduced to zero on the Commitment Termination Date.
(b) Kelsey-Hayes shall have the right at any time or from time to
time (i) so long as no Syndicated Loans, Money Market Loans or Letter of Credit
Liabilities are outstanding, to terminate the Commitments and (ii) to reduce the
aggregate unused amount of the Commitments (for which purpose use of the
Commitments shall be deemed to include the aggregate amount of Letter of Credit
Liabilities and the aggregate principal amount of all Money Market Loans);
provided that (x) Kelsey-Hayes shall give notice of each such termination or
--------
reduction as provided in Section 4.05 hereof and (y) each partial reduction
shall be in an aggregate amount equal to $5,000,000 or any integral multiple of
$1,000,000 in excess thereof.
(c) If any Bank requests compensation pursuant to Section 5.01, 5.06
or 5.07 hereof, or such Bank's obligation to make or Continue, or to Convert
Loans of any other Type into, either Type of Fixed Rate Loan shall be suspended
pursuant to Section 5.01 or 5.03 hereof, Kelsey-Hayes, upon three Business Days'
notice to such Bank and the Administrative Agent given not more than 30 days
after such Bank requests such compensation, may require, so long as no Default
shall have occurred and be continuing, that such Bank transfer, pursuant to
Section 12.06(b) hereof, all of its right, title and interest under this
Agreement and such Bank's Notes to any bank identified by Kelsey-Hayes in such
notice (a "Proposed Bank") (i) if the Proposed Bank agrees to assume all of the
-------------
obligations of such Bank for consideration equal to the aggregate principal
amount of such Bank's Loans and Letter of Credit Interest outstanding on the
date of such transfer, together with interest thereon to the date of such
transfer, and arrangements
Credit Agreement
----------------
<PAGE>
34
reasonably satisfactory to such Bank are made for payment to such Bank of all
other amounts payable hereunder to such Bank on or prior to the date of such
transfer (including any fees accrued hereunder, all amounts then due and payable
to such Bank under Sections 5.01, 5.06 and 5.07 hereof and any amounts which
would be payable under Section 5.05 hereof as if all of such Bank's Loans were
being prepaid in full on such date) and (ii) if such Bank being replaced has
requested compensation pursuant to Section 5.01, 5.06 or 5.07 hereof, such
Proposed Bank's aggregate compensation that it has requested or at any time may
request (with respect to any circumstance in existence on, or any event that has
occurred prior to, the date of such transfer), if any, pursuant to said Section
5.01, 5.06 or 5.07 hereof in respect of the obligations and Loans to be
transferred to such Proposed Bank is less than that of the Bank being replaced.
If such transfer is effected in compliance with Section 12.06(b) hereof, such
Proposed Bank shall be a "Bank" for all purposes hereunder. Without prejudice
to the survival of any other agreement of Kelsey-Hayes hereunder, the agreements
of Kelsey-Hayes contained in Sections 5.01, 5.05, 5.06, 5.07 and 12.03 hereof
(without duplication of any payments made to such Bank by Kelsey-Hayes or the
Proposed Bank) shall survive for the benefit of any Bank replaced under this
Section 2.05(c) with respect to the time prior to such replacement.
(d) The Commitments, once terminated or reduced, may not be
reinstated.
2.06 Facility Fee. Kelsey-Hayes shall pay to the Agent for account
------------
of each Bank facility fee on the daily average amount of such Bank's Commitment
(whether or not utilized), for the period from and including the Amendment
Effective Date to but not including the earlier of the date such Commitment is
terminated and the Commitment Termination Date, at a rate per annum equal to the
Applicable Facility Fee Rate. Accrued facility fee shall be payable in arrears
(a) on each Quarterly Date and (b) on the earlier of (i) the date the
Commitments are terminated and (ii) the Commitment Termination Date.
2.07 Lending Offices. The Loans of each Type made by each Bank shall
---------------
be made and maintained at such Bank's Applicable Lending Office for Loans of
such Type.
2.08 Several Obligations; Remedies Independent. The failure of any
-----------------------------------------
Bank to make any Loan to be made by it on the date specified therefor shall not
relieve any other Bank of its obligation to make its Loan on such date, but
neither any Bank nor the Agent shall be responsible for the failure of any other
Bank to make a Loan to be made by such other Bank, and no Bank shall have any
obligation to the Agent or any other Bank for the failure by such Bank to make
any Loan required to be made by such Bank. The amounts payable by Kelsey-Hayes
at any time hereunder and under the Notes to each Bank shall be a separate and
independent debt and each Bank shall be entitled to protect and enforce its
rights arising out of this Agreement and the Notes, and it shall not be
necessary for any other Bank or the Agent to consent to, or be joined as an
additional party in, any proceedings for such purposes.
Credit Agreement
----------------
<PAGE>
35
2.09 Notes.
-----
(a) The Syndicated Loans made by each Bank shall be evidenced by a
single promissory note of Kelsey-Hayes substantially in the form of Exhibit A-1
hereto, dated the Restatement Date, payable to the order of such Bank in a
principal amount equal to the amount of its Commitment as originally in effect
and otherwise duly completed.
(b) The Money Market Loans made by any Bank shall be evidenced by a
single promissory note of the Company substantially in the form of Exhibit A-2
hereto, dated the Restatement Date, payable to such Bank and otherwise duly
completed.
(c) The date, amount, Type, interest rate and duration of Interest
Period (if applicable) of each Loan of each Class made by each Bank to Kelsey-
Hayes, and each payment made on account of the principal thereof, shall be
recorded by such Bank on its books and, prior to any transfer of the Note
evidencing Loans of such Class held by it, endorsed by such Bank on the schedule
attached to such Note or any continuation thereof; provided that the failure of
--------
such Bank to make any such recordation or endorsement shall not affect the
obligations of Kelsey-Hayes to make a payment when due of any amount owing
hereunder or under such Note in respect of the Loans to be evidenced by such
Note.
(d) No Bank shall be entitled to have its Notes subdivided, by
exchange for promissory notes of lesser denominations or otherwise, except in
connection with a permitted assignment of all or any portion of such Bank's
Commitment, Loans and Notes pursuant to Section 12.06(b) hereof.
2.10 Optional Prepayments and Conversions or Continuations of Loans.
--------------------------------------------------------------
Subject to Section 4.04 hereof, Kelsey-Hayes shall have the right to prepay
Syndicated Loans, or to Convert Syndicated Loans of one Type into Syndicated
Loans of another Type or Continue Syndicated Loans of one Type as Syndicated
Loans of the same Type, at any time or from time to time, provided that:
--------
(a) Kelsey-Hayes shall give the Agent notice of each such prepayment,
Conversion or Continuation as provided in Section 4.05 hereof (and, upon
the prepayment date specified in any such notice of prepayment, the amount
to be prepaid shall become due and payable hereunder); and
(b) Eurodollar Loans may be prepaid or Converted only on the last day
of an Interest Period for such Loans.
Money Market Loans may not be optionally prepaid. Notwithstanding the
foregoing, and without limiting the rights and remedies of the Banks under
Section 10 hereof, in the event that any Event
Credit Agreement
----------------
<PAGE>
36
of Default shall have occurred and be continuing, the Agent may (and at the
request of the Majority Banks shall) suspend the right of Kelsey-Hayes to borrow
any Loan as a Eurodollar Loan, to Convert any Base Rate Loan into a Eurodollar
Loan or to Continue any Eurodollar Loan as a Eurodollar Loan, in which event all
Eurodollar Loans then outstanding shall be automatically Converted (on the last
day(s) of the respective Interest Periods therefor) or Continued, as the case
may be, as Base Rate Loans.
2.11 Mandatory Prepayments and Reductions of Commitments.
---------------------------------------------------
(a) Borrowing Base. Kelsey-Hayes shall from time to time prepay the
--------------
Loans (and/or provide cover for Letter of Credit Liabilities as specified in
paragraph (b) below) in such amounts as shall be necessary so that at all times
the aggregate principal amount of the Loans then outstanding, together with the
aggregate amount of Letter of Credit Liabilities then outstanding, shall not
exceed the Borrowing Base at such time, such amount to be applied, first to
Syndicated Loans outstanding, second as cover for Letter of Credit Liabilities
and third to Money Market Loans.
(b) Cover for Letter of Credit Liabilities. In the event that
--------------------------------------
Kelsey-Hayes shall be required pursuant to this Section 2.11 to provide cover
for Letter of Credit Liabilities, Kelsey-Hayes shall effect the same by paying
to the Agent immediately available funds in an amount equal to the required
amount, which funds shall be retained by the Agent in the Collateral Account
subject to and in accordance with Section 11.11 hereof.
Section 3. Payments of Principal and Interest.
----------------------------------
3.01 Repayment of Loans.
------------------
(a) Kelsey-Hayes hereby promises to pay to the Agent for account of
the Banks the entire outstanding principal amount of the Syndicated Loans, and
each Syndicated Loan shall mature, on the Commitment Termination Date.
(b) The Company hereby promises to pay to the Agent for account of
each Bank that makes any Money Market Loan the principal amount of such Money
Market Loan, and such Money Market Loan shall mature, on the last day of the
Interest Period for such Money Market Loan.
3.02 Interest. Kelsey-Hayes hereby promises to pay to the Agent for
---------
account of each Bank interest on the unpaid principal amount of each Loan made
by such Bank for the period from and including the date of such Loan to but
excluding the date such Loan shall be paid in full, at the following rates per
annum:
Credit Agreement
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<PAGE>
37
(a) during such periods as such Loan is a Base Rate Loan, the Base
Rate (as in effect from time to time) plus the Applicable Margin;
----
(b) during such periods as such Loan is a Eurodollar Loan, for each
Interest Period relating thereto, the Eurodollar Rate for such Loan for
such Interest Period plus the Applicable Margin;
----
(c) if such Loan is a LIBOR Market Loan, the LIBO Rate for such Loan
for the Interest Period therefor plus (or minus) the LIBO Margin quoted by
---- -----
the Bank making such Loan in accordance with Section 2.03 hereof; and
(d) if such Loan is a Set Rate Loan, the Set Rate for such Loan for
the Interest Period therefor quoted by the Bank making such Loan in
accordance with Section 2.03 hereof.
Notwithstanding the foregoing, Kelsey-Hayes hereby promises to pay to the Agent
for account of each Bank interest, for each day so long as any Payment Default
shall have occurred and be continuing, at the applicable Post-Default Rate (x)
on any principal of any Loan made by such Bank (whether or not then due and
payable) and (y) on any other amount payable by Kelsey-Hayes hereunder or under
the Notes held by such Bank to or for account of such Bank that is not paid when
due. Accrued interest on each Loan shall be payable (i) in the case of a Base
Rate Loan, quarterly on the Quarterly Dates, (ii) in the case of a Eurodollar
Loan or a Money Market Loan, on the last day of each Interest Period therefor
and, if such Interest Period is longer than three months (in the case of a
Eurodollar Loan or a LIBOR Market Loan), at three-month intervals following the
first day of such Interest Period, and (iii) in the case of any Loan, upon the
payment or prepayment thereof or the Conversion of such Loan to a Loan of
another Type (but only on the principal amount so paid, prepaid or Converted),
except that interest payable at the Post-Default Rate shall also be payable from
time to time on demand of the Banks for whose account such interest is payable.
Promptly after the determination of any interest rate provided for herein or any
change therein, the Agent shall give notice thereof to the Banks to which such
interest is payable and to Kelsey-Hayes.
Section 4. Payments; Pro Rata Treatment; Computations; Etc.
-----------------------------------------------
4.01 Payments.
--------
(a) Except to the extent otherwise provided herein, all payments of
principal, interest, Reimbursement Obligations and other amounts to be made by
Kelsey-Hayes under this Agreement and the Notes, and, except to the extent
otherwise provided therein, all payments to be made by the Obligors under any
other Basic Document, shall be made in Dollars, in immediately available funds,
without deduction, set-off or counterclaim, to the Agent at account
Credit Agreement
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<PAGE>
38
number NYAO-DI-900-9-000002 maintained by the Agent with Chase at the Principal
Office, not later than 1:00 p.m. New York time on the date on which such payment
shall become due (each such payment made after such time on such due date to be
deemed to have been made on the next succeeding Business Day).
(b) Any Bank for whose account any such payment is to be made may
(but shall not be obligated to) debit the amount of any such payment that is not
made by such time to any ordinary deposit account of Kelsey-Hayes with such Bank
(with notice to Kelsey-Hayes and the Agent).
(c) Kelsey-Hayes shall, at the time of making each payment under this
Agreement or any Note for account of any Bank, specify to the Agent (which shall
notify the intended recipient(s) thereof) the Loans, Reimbursement Obligations
or other amounts payable by Kelsey-Hayes hereunder to which such payment is to
be applied, in which case such payment shall be, subject to Section 4.02 hereof,
so applied (and in the event that Kelsey-Hayes fails to so specify, or if an
Event of Default has occurred and is continuing, such payment shall be, subject
to said Section 4.02, applied in such manner as is determined to be appropriate
by the Majority Banks or, if the Majority Banks fail to advise the Agent of
their determination promptly following a request from the Agent for such a
determination, by the Agent).
(d) Except to the extent otherwise provided in Section 2.04(e)
hereof, each payment received by the Agent under this Agreement or any Note for
account of any Bank shall be paid by the Agent promptly to such Bank, in
immediately available funds, for account of such Bank's Applicable Lending
Office for the Loan or other obligation in respect of which such payment is
made.
(e) If the due date of any payment under this Agreement or any Note
would otherwise fall on a day that is not a Business Day, such date shall be
extended to the next succeeding Business Day, and interest shall be payable on
any principal so extended for the period of such extension.
4.02 Pro Rata Treatment. Except to the extent otherwise provided
-------------------
herein:
(a) each borrowing of Syndicated Loans of a particular Class under
Section 2.01 hereof shall be made from the Banks, each payment of facility
fee under Section 2.06 hereof in respect of Commitments shall be made for
account of the Banks, and each termination or reduction of the Commitments
under Section 2.05 hereof shall be applied to the respective Commitments of
the Banks, pro rata according to the amounts of the respective Commitments
of the Banks;
(b) the making, Conversion and Continuation of Syndicated Loans of a
particular
Credit Agreement
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<PAGE>
39
Type (other than Conversions provided for by Section 5.04 hereof) shall be
made pro rata among the Banks according to the amounts of their respective
Commitments (in the case of making of Syndicated Loans) or their respective
Syndicated Loans (in the case of Conversions and Continuations of
Syndicated Loans), and Eurodollar Loans of a particular Type having the
same Interest Period shall be allocated pro rata among the Banks according
to the amounts of their respective Commitments (in the case of the making
of Syndicated Loans) or their respective Syndicated Loans (in the case of
Conversions and Continuations of Loans) of such Type;
(c) each payment or prepayment of principal of Syndicated Loans shall
be made for account of the Banks prorata in accordance with the respective
unpaid principal amounts of the Syndicated Loans held by the Banks; and
(d) each payment of interest on Syndicated Loans shall be made for
account of the Banks pro rata in accordance with the amounts of interest on
such Loans then due and payable to the respective Banks.
4.03 Computations. Interest on Loans and Reimbursement Obligations,
------------
facility fees, letter of credit fees and fronting fees shall be computed on the
basis of a year of 360 days and actual days elapsed (including the first day but
(except as otherwise provided in Section 2.04(g) hereof) excluding the last day)
occurring in the period for which payable.
4.04 Minimum Amounts. Except for mandatory prepayments made pursuant
---------------
to Section 2.11 hereof and Conversions or prepayments made pursuant to Section
5.04 hereof, each borrowing, Conversion and partial prepayment of principal of
Syndicated Loans shall be in integral multiples of $1,000,000 (borrowings,
Conversions or prepayments of or into Loans of different Types or, in the case
of Eurodollar Loans, having different Interest Periods at the same time
hereunder to be deemed separate borrowings, Conversions and prepayments for
purposes of the foregoing, one for each Type or Interest Period). Anything in
this Agreement to the contrary notwithstanding, the aggregate principal amount
of Eurodollar Loans having the same Interest Period shall be in an amount at
least equal to $1,000,000 and, if any Eurodollar Loans having the same Interest
Period would otherwise be in a lesser principal amount for any period, such
Loans shall be Base Rate Loans during such period.
4.05 Certain Notices. Notices by Kelsey-Hayes to the Agent of
---------------
terminations or reductions of Commitments, of borrowings, Conversions,
Continuations and optional prepayments of Syndicated Loans, of Types of
Syndicated Loans and of the duration of Interest Periods for Syndicated Loans
shall be irrevocable and shall be effective only if received by the Agent not
later than 11:00 a.m. New York time on the number of Business Days prior to the
date of the relevant termination, reduction, borrowing, Conversion, Continuation
or prepayment or the first day of such Interest Period specified below:
Credit Agreement
----------------
<PAGE>
40
<TABLE>
<CAPTION>
Number of
Business
Notice Days Prior
------ ----------
<S> <C>
Termination or reduction of Commitments 1
Borrowing or prepayment of, or Conversions into,
Base Rate Loans same day
Borrowing or prepayment of, Conversions into,
Continuations as, or duration of Interest Period
for, Eurodollar Loans 3
</TABLE>
Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation or optional prepayment shall specify the Type of Loans
to be borrowed, Converted, Continued or prepaid and the amount (subject to
Section 4.04 hereof) of each Loan of each Type to be borrowed, Converted,
Continued or prepaid (and, in the case of a borrowing or Continuation of, or a
Conversion into, Eurodollar Loans, the duration of the Interest Period for such
Loans) and the date of borrowing, Conversion, Continuation or optional
prepayment (which shall be a Business Day). Each such notice of the duration of
an Interest Period shall specify the Loans to which such Interest Period is to
relate. The Agent shall promptly (and, in the case of any notice of borrowing
relating to Eurodollar Loans, not later than the close of business on the date
of receipt by the Agent of such notice) notify the Banks of the contents of each
such notice. In the event that Kelsey-Hayes fails to select the Type of Loan,
or the duration of any Interest Period for any Eurodollar Loan, within the time
period and otherwise as provided in this Section 4.05, such Loan (if outstanding
as a Eurodollar Loan) will be automatically Converted into a Base Rate Loan on
the last day of the then current Interest Period for such Loan or (if
outstanding as a Base Rate Loan) will remain as, or (if not then outstanding)
will be made as, a Base Rate Loan.
4.06 Non-Receipt of Funds by the Agent. Unless the Agent shall have
---------------------------------
been notified by a Bank or Kelsey-Hayes (the "Payor") prior to the date on which
the Payor is to make payment to the Agent of (in the case of a Bank) the
proceeds of a Loan to be made by such Bank, or an amount payable in respect of a
participation in a Letter of Credit Liability to be acquired by such Bank,
hereunder or (in the case of Kelsey-Hayes) a payment to the Agent for account of
one or more of the Banks hereunder (such payment being herein called the
"Required Payment"), which notice shall be effective upon receipt, that the
-----------------
Payor does not intend to make the Required Payment to the Agent, the Agent may
assume that the Required Payment has been made and may, in reliance upon such
assumption (but shall not be required to), make the amount thereof available to
the intended recipient(s) on such date; and, if the Payor has not in fact made
the Required Payment to the Agent, the recipient(s) of such payment shall, on
demand, repay to the Agent the
Credit Agreement
----------------
<PAGE>
41
amount so made available together with interest thereon in respect of each day
during the period commencing on the date (the "Advance Date") such amount was so
------------
made available by the Agent until the date the Agent recovers such amount at a
rate per annum equal to the Federal Funds Rate for such day and, if such
recipient(s) shall fail promptly to make such payment, the Agent shall be
entitled to recover such amount, on demand, from the Payor, together with
interest as aforesaid, provided that if the recipient(s) shall fail to return,
--------
and the Payor shall fail to make, the Required Payment to the Agent within three
Business Days of the Advance Date, then the Payor and the recipient(s) shall
each be obligated to pay interest on the Required Payment as follows:
(a) if the Required Payment shall represent a payment to be made by
Kelsey-Hayes to the Banks, Kelsey-Hayes and the recipient(s) shall each be
obligated retroactively to the Advance Date to pay interest in respect of
the Required Payment at the Post-Default Rate (and, in case the
recipient(s) shall return the Required Payment to the Agent, without
limiting the obligation of Kelsey-Hayes under Section 3.02 hereof to pay
interest to such recipient(s) at the Post-Default Rate in respect of the
Required Payment);
(b) if the Required Payment shall represent proceeds of a Loan to be
made by the Banks to Kelsey-Hayes, the Payor and Kelsey-Hayes shall each be
obligated retroactively to the Advance Date to pay interest in respect of
the Required Payment at the rate of interest provided for such Required
Payment pursuant to Section 3.02 hereof (and, in case Kelsey-Hayes shall
return the Required Payment to the Agent, without limiting any claim Kelsey
-Hayes may have against the Payor in respect of the Required Payment); and
(c) if the Required Payment shall represent a payment to be made by a
Bank to the Issuing Bank in respect of a participation in a Letter of
Credit Liability to be acquired by such Bank, the Payor shall be obligated
retroactively to the Advance Date to pay interest in respect of the
Required Payment at the rate of interest provided for such Required Payment
pursuant to Section 3.02 hereof with respect to Base Rate Loans.
4.07 Sharing of Payments, Etc.
------------------------
(a) Kelsey-Hayes agrees that, in addition to (and without limitation
of) any right of set-off, banker's lien or counterclaim a Bank may otherwise
have, each Bank shall be entitled, at its option, to offset balances held by it
for account of Kelsey-Hayes at any of its offices, in Dollars or in any other
currency, against any principal of or interest on any of such Bank's Loans,
Reimbursement Obligations or any other amount payable to such Bank hereunder,
that is not paid when due (regardless of whether such balances are then due to
Kelsey-Hayes), in which case it shall promptly thereafter notify Kelsey-Hayes
and the Agent thereof, provided that such Bank's failure to give such notice
shall not affect the validity thereof.
(b) If any Bank shall obtain from any Obligor payment of any
principal of or
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42
interest on any Loan of any Class or Letter of Credit Liability owing to it or
payment of any other amount under this Agreement or any other Basic Document
through the exercise of any right of set-off, banker's lien or counterclaim or
similar right or otherwise (other than from the Agent as provided herein), and,
as a result of such payment, such Bank shall have received a greater percentage
of the principal of or interest on the Loans of such Class or Letter of Credit
Liabilities or such other amounts then due hereunder or thereunder by such
Obligor to such Bank than the percentage received by any other Bank, it shall
promptly purchase from such other Banks participations in (or, if and to the
extent specified by such Bank, direct interests in) the Loans of such Class or
Letter of Credit Liabilities or such other amounts, respectively, owing to such
other Banks (or in interest due thereon, as the case may be) in such amounts,
and make such other adjustments from time to time as shall be equitable, to the
end that all the Banks shall share the benefit of such excess payment (net of
any expenses that may be incurred by such Bank in obtaining or preserving such
excess payment) pro rata in accordance with the unpaid principal of and/or
interest on the Loans of such Class or Letter of Credit Liabilities or such
other amounts, respectively, owing to each of the Banks. To such end all the
Banks shall make appropriate adjustments among themselves (by the resale of
participations sold or otherwise) if such payment is rescinded or must otherwise
be restored.
(c) Kelsey-Hayes agrees that any Bank so purchasing such a
participation (or direct interest) may exercise all rights of set-off, banker's
lien, counterclaim or similar rights with respect to such participation as fully
as if such Bank were a direct holder of Loans or other amounts (as the case may
be) owing to such Bank in the amount of such participation.
(d) Nothing contained herein shall require any Bank to exercise any
such right or shall affect the right of any Bank to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness or
obligation of any Obligor. If, under any applicable bankruptcy, insolvency or
other similar law, any Bank receives a secured claim in lieu of a set-off to
which this Section 4.07 applies, such Bank shall, to the extent practicable,
exercise its rights in respect of such secured claim in a manner consistent with
the rights of the Banks entitled under this Section 4.07 to share in the
benefits of any recovery on such secured claim.
Section 5. Yield Protection, Etc.
---------------------
5.01 Additional Costs.
-----------------
(a) Kelsey-Hayes shall pay directly to each Bank from time to time
such amounts as such Bank may determine to be necessary to compensate such Bank
for any costs that such Bank determines are attributable to its making or
maintaining of any Fixed Rate Loans or its obligation to make any Fixed Rate
Loans hereunder, or any reduction in any amount receivable by such Bank
hereunder in respect of any of such Loans or such obligation (such increases in
costs and reductions in amounts receivable being herein called "Additional
----------
Costs"), resulting from any
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43
Regulatory Change that:
(i) changes the basis of taxation of any amounts payable to such Bank
under this Agreement or its Notes in respect of any of such Loans (other
than taxes imposed on or measured by the net income of such Bank or of its
Applicable Lending Office for any of such Loans by the jurisdiction in
which such Bank has its principal office or such Applicable Lending
Office); or
(ii) imposes or modifies any reserve, special deposit or similar
requirements (other than the Reserve Requirement utilized in the
determination of the Eurodollar Rate or LIBO Rate, as the case may be, for
such Loan) relating to any extensions of credit or other assets of, or any
deposits with or other liabilities of, such Bank (including, without
limitation, any of such Loans or any deposits referred to in the definition
of "Eurodollar Base Rate" in Section 1.01 hereof), or any commitment of
such Bank hereunder (including, without limitation, the Commitment of such
Bank); or
(iii) imposes any other condition affecting this Agreement or its
Notes (or any of such extensions of credit or liabilities) or its
Commitment.
If any Bank requests compensation from Kelsey-Hayes under this Section 5.01(a),
Kelsey-Hayes may, by notice to such Bank (with a copy to the Agent), suspend the
obligation of such Bank thereafter to make or Continue Eurodollar Loans, or to
Convert Base Rate Loans into Eurodollar Loans, until the Regulatory Change
giving rise to such request ceases to be in effect (in which case the provisions
of Section 5.04 hereof shall be applicable), provided that such suspension shall
--------
not affect the right of such Bank to receive the compensation so requested.
(b) Without limiting the effect of the provisions of paragraph (a) of
this Section 5.01, in the event that, by reason of any Regulatory Change, any
Bank either (i) incurs Additional Costs based on or measured by the excess above
a specified level of the amount of a category of deposits or other liabilities
of such Bank that includes deposits by reference to which the interest rate on
Eurodollar Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of such Bank that includes Eurodollar Loans
or (ii) becomes subject to restrictions on the amount of such a category of
liabilities or assets that it may hold, then, if such Bank so elects by notice
to Kelsey-Hayes (with a copy to the Agent), the obligation of such Bank to make
or Continue, or to Convert Base Rate Loans into, Eurodollar Loans hereunder
shall be suspended until such Regulatory Change ceases to be in effect (in which
case the provisions of Section 5.04 hereof shall be applicable).
(c) Without limiting the effect of the foregoing provisions of this
Section 5.01 (but without duplication), Kelsey-Hayes shall pay directly to each
Bank from time to time on request such amounts as such Bank may determine to be
necessary to compensate such Bank (or, without
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44
duplication, the bank holding company of which such Bank is a subsidiary) for
any costs that it determines are attributable to the maintenance by such Bank
(or any Applicable Lending Office or such bank holding company), pursuant to any
law or regulation or any interpretation, directive or request (whether or not
having the force of law and whether or not failure to comply therewith would be
unlawful) of any court or governmental or monetary authority (i) following any
Regulatory Change or (ii) implementing any risk-based capital guideline or other
requirement (whether or not having the force of law and whether or not the
failure to comply therewith would be unlawful) issued by any government or
governmental or supervisory authority after the Restatement Date implementing at
the national level the Basel Accord (including, without limitation, the Final
Risk-Based Capital Guidelines of the Board of Governors of the Federal Reserve
System (12 C.F.R. Part 208, Appendix A; 12 C.F.R. Part 225, Appendix A) and the
Final Risk-Based Capital Guidelines of the Office of the Comptroller of the
Currency (12 C.F.R. Part 3, Appendix A)), of capital in respect of its
Commitment or Loans (such compensation to include, without limitation, an amount
equal to any reduction of the rate of return on assets or equity of such Bank
(or any Applicable Lending Office or such bank holding company) to a level below
that which such Bank (or any Applicable Lending Office or such bank holding
company) could have achieved but for such law, regulation, interpretation,
directive or request). For purposes of this Section 5.01(c) and Section 5.06
hereof, "Basel Accord" shall mean the proposals for risk-based capital framework
------------
described by the Basel Committee on Banking Regulations and Supervisory
Practices in its paper entitled "International Convergence of Capital
Measurement and Capital Standards" dated July 1988, as amended, modified and
supplemented and in effect from time to time or any replacement thereof.
(d) Each Bank shall notify Kelsey-Hayes of any event occurring after
the date of this Agreement entitling such Bank to compensation under paragraph
(a) or (c) of this Section 5.01 or under Section 5.06 hereof as promptly as
practicable, but in any event within 45 days, after such Bank obtains actual
knowledge thereof; provided that (i) if any Bank fails to give such notice
--------
within 45 days after it obtains actual knowledge of such an event, such Bank
shall, with respect to compensation payable pursuant to this Section 5.01 or
Section 5.06 hereof in respect of any costs resulting from such event, only be
entitled to payment under this Section 5.01 or Section 5.06 hereof, as the case
may be, for costs incurred from and after the date 45 days prior to the date
that such Bank does give such notice and (ii) each Bank will designate a
different Applicable Lending Office for the Loans of such Bank affected by such
event if such designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the sole opinion of such Bank, be disadvantageous
to such Bank, except that such Bank shall have no obligation to designate an
Applicable Lending Office located in the United States of America. Each Bank
will furnish to Kelsey-Hayes a certificate setting forth the basis and amount of
each request by such Bank for compensation under paragraph (a) or (c) of this
Section 5.01 or under Section 5.06 hereof. Determinations and allocations by
any Bank for purposes of this Section 5.01 and Section 5.06 hereof of the effect
of any Regulatory Change pursuant to paragraph (a) or (b) of this Section 5.01
or to Section 5.06 hereof, or of the effect of capital maintained pursuant to
paragraph (c) of
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45
this Section 5.01 or to Section 5.06 hereof, on its costs or rate of return of
maintaining Loans or its obligation to make Loans, or on amounts receivable by
it in respect of Loans, and of the amounts required to compensate such Bank
under this Section 5.01 or Section 5.06 hereof, as the case may be, shall be
conclusive, provided that (x) such determinations and allocations are made on a
--------
reasonable basis and (y) such determinations and allocations are made with
respect to corporations or other Persons similar to Kelsey-Hayes who are then
borrowers from such Bank pursuant to agreements having provisions similar to
this Section 5.01 or Section 5.06 hereof, as the case may be.
5.02 Limitation on Types of Loans. Anything herein to the contrary
----------------------------
notwithstanding, if, on or prior to the determination of any Eurodollar Base
Rate for any Interest Period:
(a) the Agent determines, which determination shall be conclusive,
that quotations of interest rates for the relevant deposits referred to in
the definition of "Eurodollar Base Rate" in Section 1.01 hereof are not
being provided in the relevant amounts or for the relevant maturities for
purposes of determining rates of interest for either Type of Fixed Rate
Loans as provided herein; or
(b) the Majority Banks determine (or any Bank that has outstanding a
Money Market Quote with respect to a LIBOR Market Loan determines), which
determination shall be conclusive, and notify (or notifies, as the case may
be) the Agent that the relevant rates of interest referred to in the
definition of "Eurodollar Base Rate" in Section 1.01 hereof upon the basis
of which the rate of interest for Eurodollar Loans (or LIBOR Market Loans,
as the case may be) for such Interest Period is to be determined are not
likely adequately to cover the cost to such Banks (or to such quoting Bank)
of making or maintaining Eurodollar Loans for such Interest Period;
then the Agent shall give Kelsey-Hayes and each Bank prompt notice thereof and,
so long as such condition remains in effect, the Banks (or such quoting Bank)
shall be under no obligation to make additional Eurodollar Loans, to Continue
Eurodollar Loans or to Convert Base Rate Loans into Eurodollar Loans, and
Kelsey-Hayes shall, on the last day(s) of the then current Interest Period(s)
for the outstanding Eurodollar Loans, either prepay such Loans or Convert such
Loans into Base Rate Loans in accordance with Section 2.10 hereof.
5.03 Illegality. Notwithstanding any other provision of this
----------
Agreement, in the event that it becomes unlawful for any Bank or its Applicable
Lending Office to honor its obligation to make or maintain Eurodollar Loans or
LIBOR Market Loans hereunder (and, in the sole opinion of such Bank, the
designation of a different Applicable Lending Office would either not avoid such
unlawfulness or would be disadvantageous to such Bank), then such Bank shall
promptly notify Kelsey-Hayes thereof (with a copy to the Agent) and such Bank's
obligation to
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46
make or Continue, or to Convert Loans of any other Type into, Eurodollar Loans
shall be suspended until such time as such Bank may again make and maintain
Eurodollar Loans (in which case the provisions of Section 5.04 hereof shall be
applicable), and such Bank shall no longer be obligated to make any LIBOR Market
Loan that it has offered to make.
5.04 Treatment of Affected Loans. If the obligation of any Bank to
---------------------------
make Eurodollar Loans or to Continue, or to Convert Base Rate Loans into,
Eurodollar Loans shall be suspended pursuant to Section 5.01 or 5.03 hereof,
such Bank's Eurodollar Loans shall be automatically Converted into Base Rate
Loans on the last day(s) of the then current Interest Period(s) for Eurodollar
Loans (or, in the case of a Conversion required by Section 5.01(b) or 5.03
hereof, on such earlier date as such Bank may specify to Kelsey-Hayes with a
copy to the Agent) and, unless and until such Bank gives notice as provided
below that the circumstances specified in Section 5.01 or 5.03 hereof that gave
rise to such Conversion no longer exist:
(a) to the extent that such Bank's Eurodollar Loans have been so
Converted, all payments and prepayments of principal that would otherwise
be applied to such Bank's Eurodollar Loans shall be applied instead to its
Base Rate Loans; and
(b) all Loans that would otherwise be made or Continued by such Bank
as Eurodollar Loans shall be made or Continued instead as Base Rate Loans,
and all Base Rate Loans of such Bank that would otherwise be Converted into
Eurodollar Loans shall remain as Base Rate Loans.
If such Bank gives notice to Kelsey-Hayes with a copy to the Agent that the
circumstances specified in Section 5.01 or 5.03 hereof that gave rise to the
Conversion or non-Continuation of such Bank's Eurodollar Loans pursuant to this
Section 5.04 no longer exist (which such Bank agrees to do promptly upon such
circumstances ceasing to exist) at a time when Eurodollar Loans made by other
Banks are outstanding, such Bank's Base Rate Loans shall be automatically
Converted, on the first day(s) of the next succeeding Interest Period(s) for
such outstanding Eurodollar Loans, to the extent necessary so that, after giving
effect thereto, all Syndicated Loans held by the Banks holding Eurodollar Loans
and by such Bank are held pro rata (as to principal amounts, Types and Interest
Periods) in accordance with their respective Commitments.
5.05 Compensation. Kelsey-Hayes shall pay to the Agent for account
------------
of each Bank, upon the request of such Bank through the Agent, such amount or
amounts as shall be sufficient (in the reasonable opinion of such Bank) to
compensate it for any loss, cost or expense that such Bank determines is
attributable to:
(a) any payment, mandatory or optional prepayment or Conversion of a
Fixed Rate Loan or a Set Rate Loan made by such Bank for any reason
(including, without limitation, the acceleration of the Loans pursuant to
Section 10 hereof) on a date other than the last
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47
day of the Interest Period for such Loan;
(b) any failure by Kelsey-Hayes for any reason (including, without
limitation, the failure of any of the conditions precedent specified in
Section 7 hereof to be satisfied, but excluding the failure of such Bank to
make a Fixed Rate Loan or a Set Rate Loan required to be made by it) to
borrow a Fixed Rate Loan or a Set Rate Loan (with respect to which, in the
case of a Money Market Loan, the Company has accepted a Money Market Quote)
from such Bank on the date for such borrowing specified in the relevant
notice of borrowing given under Sections 2.02 or 2.03(b) hereof; or
(c) any failure for any reason (including, without limitation, as
provided in Section 5.02 or 5.03 hereof) of a Syndicated Loan of such Bank
to be Continued as or Converted into a Eurodollar Loan on the date for such
Continuation or Conversion specified in the relevant notice given under
Section 2.10 hereof.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess (if any) of (i) the amount of interest
that otherwise would have accrued on the principal amount so paid, prepaid or
Converted or not borrowed, Continued or Converted for the period from the date
of such payment, prepayment, Conversion or failure to borrow, Continue or
Convert to the last day of the then current Interest Period for such Loan (or,
in the case of a failure to borrow, Continue or Convert, the Interest Period for
such Loan that would have commenced on the date specified for such borrowing,
Continuation or Conversion) at the applicable rate of interest for such Loan
provided for herein over (ii) the amount of interest that otherwise would have
----
accrued on such principal amount at a rate per annum equal to the interest
component of the amount such Bank would have bid in the London interbank market
(if such Loan is a Eurodollar Loan or a LIBOR Market Loan) or the United States
secondary certificate of deposit market (if such Loan is a Set Rate Loan) for
Dollar deposits of leading banks in amounts comparable to such principal amount
and with maturities comparable to such period (as reasonably determined by such
Bank).
5.06 Additional Costs in Respect of Letters of Credit. Without
------------------------------------------------
limiting the obligations of Kelsey-Hayes under Section 5.01 hereof (but without
duplication), if as a result of any Regulatory Change or any risk-based capital
guideline or other requirement hereafter issued by any government or
governmental or supervisory authority implementing at the national level the
Basel Accord there shall be imposed, modified or deemed applicable any tax
(other than taxes imposed on or measured by the net income of a Bank or of its
Applicable Lending Office by the jurisdiction in which such Bank has its
principal office or such Applicable Lending Office), reserve, special deposit,
capital adequacy or similar requirement against or with respect to or measured
by reference to Letters of Credit issued or to be issued hereunder and the
result shall be to increase the cost to any Bank or Banks of issuing (or
purchasing participations in) or maintaining its obligation hereunder to issue
(or purchase participations in) any Letter of Credit
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48
or reduce any amount receivable by any Bank hereunder in respect of any Letter
of Credit (which increases in cost, or reductions in amount receivable, shall be
the result of such Bank's or Banks' reasonable allocation of the aggregate of
such increases or reductions resulting from such event), then, upon demand by
such Bank or Banks (through the Agent), Kelsey-Hayes shall pay immediately to
the Agent for account of such Bank or Banks, from time to time as specified by
such Bank or Banks (through the Agent), such additional amounts as shall be
sufficient to compensate such Bank or Banks (through the Agent) for such
increased costs or reductions in amount. A statement as to such increased costs
or reductions in amount incurred by any such Bank or Banks, submitted by such
Bank or Banks to Kelsey-Hayes shall be conclusive in the absence of manifest
error as to the amount thereof.
5.07 U.S. Taxes.
----------
(a) Kelsey-Hayes agrees to pay to each Bank that is not a U.S. Person
such additional amounts as are necessary in order that the net payment of any
amount due to such non-U.S. Person hereunder after deduction for or withholding
in respect of any U.S. Tax imposed with respect to such payment (or in lieu
thereof, payment of such U.S. Tax by such non-U.S. Person), will not be less
than the amount stated herein to be then due and payable, provided that the
--------
foregoing obligation to pay such additional amounts shall not apply:
(i) to any payment to a Bank hereunder unless such Bank is, on the
date hereof (or on the date it becomes a Bank as provided in Section
12.06(b) hereof) and on the date of any change in the Applicable Lending
Office of such Bank, either entitled to submit a Form 1001 (relating to
such Bank and entitling it to a complete exemption from withholding on all
interest to be received by it hereunder in respect of the Loans) or Form
4224 (relating to all interest to be received by such Bank hereunder in
respect of the Loans), or
(ii) to any U.S. Tax imposed solely by reason of the failure by such
non-U.S. Person to comply with applicable certification, information,
documentation or other reporting requirements concerning the nationality,
residence, identity or connections with the United States of America of
such non-U.S. Person if such compliance is required by statute or
regulation of the United States of America as a precondition to relief or
exemption from such U.S. Tax.
For the purposes of this Section 5.07(a), (w) "Form 1001" shall mean Form 1001
---------
(Ownership, Exemption, or Reduced Rate Certificate) of the Department of the
Treasury of the United States of America, (x) "Form 4224" shall mean Form 4224
---------
(Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States) of the Department of the
Treasury of the United States of America (or in relation to either such Form
such successor and related forms as may from time to time be adopted by the
relevant taxing
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49
authorities of the United States of America to document a claim to which such
Form relates), (y) "U.S. Person" shall mean a citizen, national or resident of
-----------
the United States of America, a corporation, partnership or other entity created
or organized in or under any laws of the United States of America, or any estate
or trust that is subject to Federal income taxation regardless of the source of
its income and (z) "U.S. Taxes" shall mean any present or future tax, assessment
----------
or other charge or levy imposed by or on behalf of the United States of America
or any taxing authority thereof or therein (other than taxes imposed on or
measured by the net income of such Bank or of its Applicable Lending Office for
any of such Loans by the jurisdiction in which such Bank has its principal
office or such Applicable Lending Office).
(b) Within 30 days after paying any amount to the Agent or any Bank
from which it is required by law to make any deduction or withholding, and
within 30 days after it is required by law to remit such deduction or
withholding to any relevant taxing or other authority, Kelsey-Hayes shall
deliver to the Agent for delivery to such non-U.S. Person evidence satisfactory
to such Person of such deduction, withholding or payment (as the case may be).
Section 6. [Intentionally Omitted].
Section 7. Conditions Precedent.
---------------------
7.01 Conditions to Effectiveness. The effectiveness of the amendment
---------------------------
and restatement of the 1993 Credit Agreement provided for hereby is subject to
the receipt by the Agent of the following documents, each of which shall be
satisfactory to the Agent (and to the extent specified below, to each Bank) in
form and substance:
(a) Corporate Documents. A certificate of the corporate secretary or
-------------------
assistant secretary of each Obligor, dated the Amendment Effective Date, as
to (i) its charter (which charter shall be certified as of a recent date by
the Secretary of State of the jurisdiction of organization of such
Obligor), by-laws, existence and good standing, (ii) all corporate action
taken by it in connection with the Basic Documents to which it is or is
intended to be a party and (iii) the incumbency and specimen signature of
the officers signing the Basic Documents to which it is or is intended to
be a party and giving notices in connection therewith.
(b) Officer's Certificate. A certificate of a senior officer of
---------------------
Kelsey-Hayes, dated the Amendment Effective Date, to the effect set forth in
the first sentence of Section 7.02 hereof.
(c) Opinions of Counsel to the Obligors. Opinions, dated the
-----------------------------------
Amendment Effective Date, of each of (i) Cahill Gordon & Reindel, counsel to
the Obligors, substantially in the form of Exhibit C-1 hereto and covering
such other matters as the
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50
Agent or any Bank may reasonably request, (ii) the General Counsel to Kelsey
-Hayes, substantially in the form of Exhibit C-2 hereto and covering such
other matters as the Agent or any Bank may reasonably request and (iii) the
General Counsel to Varity, substantially in the form of Exhibit C-3 hereto
and covering such other matters as the Agent or any Bank may reasonably
request (and Kelsey-Hayes hereby instructs such counsel to deliver such
opinions to the Banks and the Agent).
(d) Opinion of Special New York Counsel to the Banks. An opinion,
------------------------------------------------
dated the Amendment Effective Date, of Milbank, Tweed, Hadley & McCloy,
special New York counsel to the Banks, substantially in the form of Exhibit
D hereto.
(e) Notes. The Notes, duly completed and executed dated the
-----
Restatement Date in exchange for the Original Notes.
(f) Varity Guarantee. The Varity Guarantee, duly executed and
----------------
delivered by Varity and the Agent.
(g) Other Documents. Such other documents as the Agent or any Bank or
---------------
special New York counsel to the Banks may reasonably request.
The effectiveness of the amendment and restatement of the 1993 Credit Agreement
is also subject to the payment by Kelsey-Hayes of (i) all commitment fees and
letter of credit fees under the 1993 Credit Agreement accrued to the Amendment
Effective Date and unpaid and (ii) such fees as Kelsey-Hayes shall have agreed
to pay or deliver to any Bank or the Agent in connection herewith, including,
without limitation, the reasonable fees and expenses of Milbank, Tweed, Hadley &
McCloy, special New York counsel to the Banks in connection with the
negotiation, preparation, execution and delivery of this Agreement and the Notes
and the other Basic Documents and the extensions of credit hereunder (to the
extent that statements for such fees and expenses have been delivered to Kelsey-
Hayes).
7.02 Extensions of Credit. The obligation of the Banks to make any
--------------------
Loan or otherwise extend any credit to Kelsey-Hayes upon the occasion of each
borrowing or other extension of credit hereunder is subject to the conditions
precedent that, both immediately prior to the making of such Loan or other
extension of credit and also after giving effect thereto and to the intended use
thereof:
(a) no Default shall have occurred and be continuing;
(b) the representations and warranties made by Kelsey-Hayes in Section
8 hereof, and by each Obligor in each of the other Basic Documents to which
it is a party, shall be true and complete on and as of the date of the
making of such Loan or other extension of
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<PAGE>
51
credit with the same force and effect as if made on and as of such date
(or, if any such representation or warranty is expressly stated to have
been made as of a specific date, as of such specific date);
(c) the aggregate principal amount of the Loans outstanding, together
with the aggregate amount of all Letter of Credit Liabilities outstanding,
shall not exceed the Borrowing Base reflected on the most recent Borrowing
Base Certificate delivered pursuant to Section 9.01(j) hereof.
Each notice of borrowing or request for the issuance of a Letter of Credit by
Kelsey-Hayes hereunder shall constitute a certification by Kelsey-Hayes to the
effect set forth in the preceding sentence (both as of the date of such notice
or request and, unless Kelsey-Hayes otherwise notifies the Agent prior to the
date of such borrowing or issuance, as of the date of such borrowing or
issuance).
Section 8. Representations and Warranties. Kelsey-Hayes represents and
------------------------------
warrants to the Agent and the Banks that:
8.01 Corporate Existence. Each of the Obligors: (a) is a
-------------------
corporation, partnership or other entity duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization; (b) has
all requisite corporate or other power, and has all material governmental
licenses, authorizations, consents and approvals, necessary to own its assets
and carry on its business as now being or as proposed to be conducted; and (c)
is qualified to do business and is in good standing in all jurisdictions in
which the nature of the business conducted by it makes such qualification
necessary and where failure so to qualify could, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
8.02 Financial Condition. Kelsey-Hayes has heretofore furnished to
-------------------
each of the Banks the audited consolidated balance sheet of Kelsey-Hayes and its
Subsidiaries as at January 31, 1995 and the audited consolidated statements of
operations, changes in stockholders' equity and cash flows of Kelsey-Hayes and
its Subsidiaries for the fiscal year ended on such date. All such financial
statements present fairly, in all material respects, the consolidated financial
position of Kelsey-Hayes and its Subsidiaries as at said date and the
consolidated results of their operations for the period covered thereby, all in
accordance with generally accepted accounting principles applied on a consistent
basis. None of Kelsey-Hayes and its Subsidiaries has on the Restatement Date
any material contingent liabilities, liabilities for taxes, unusual forward or
long-term commitments or unrealized or anticipated losses from any unfavorable
commitments, except as referred to or reflected or provided for in said
financial statements (or in the notes thereto) as at said date. Since January
31, 1995, there has been no material adverse change in the condition (financial
or otherwise), business, operations, Property, liabilities or prospects of
Kelsey-Hayes and its Subsidiaries taken as a whole from that set forth in said
financial statements as at said date.
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52
8.03 Litigation. Except as disclosed in Schedule IV hereto and
----------
except as may be disclosed after the Restatement Date in a notice to the Agent
and the Banks (but only to the extent any information so disclosed after the
Restatement Date is designated as acceptable to the Banks in a notice from the
Agent (upon authorization from the Banks) to Kelsey-Hayes), there are no legal
or arbitral proceedings, or any proceedings by or before any governmental or
regulatory authority or agency, now pending or (to the knowledge of Kelsey-
Hayes) threatened against Kelsey-Hayes or any of its Domestic Subsidiaries that,
if adversely determined, could, either individually or in the aggregate, have a
Material Adverse Effect.
8.04 No Breach. None of the execution and delivery of this Agreement
---------
and the Notes and the other Basic Documents, the consummation of the
transactions herein and therein contemplated or compliance with the terms and
provisions hereof and thereof will conflict with or result in a breach of, or
require any consent under, the charter or by-laws of any Obligor, or any
applicable law or regulation, or any order, writ, injunction or decree of any
court or governmental authority or agency, or any agreement or instrument to
which Kelsey-Hayes or any of its Domestic Subsidiaries is a party or by which
Kelsey-Hayes or any of its Domestic Subsidiaries or any of its Property is bound
or to which Kelsey-Hayes or any of its Domestic Subsidiaries is subject, or
constitute a default under any such agreement or instrument.
8.05 Action. Each Obligor has all necessary corporate power,
------
authority and legal right to execute, deliver and perform its obligations under
each of the Basic Documents to which it is a party; the execution, delivery and
performance by each Obligor of each of the Basic Documents to which it is a
party have been duly authorized by all necessary corporate action on its part
(including, without limitation, any required shareholder approvals); and this
Agreement has been duly and validly executed and delivered by and constitutes,
and each of the Notes and the other Basic Documents when executed and delivered
by each Obligor party thereto (in the case of the Notes, for value) will
constitute, the legal, valid and binding obligation of each Obligor party
thereto, enforceable against such Obligors in accordance with its terms.
8.06 Approvals. No authorizations, approvals or consents of, and no
---------
filings or registrations with, any governmental or regulatory authority or
agency, or any securities exchange, are necessary for the execution, delivery or
performance by any Obligor of the Basic Documents to which it is a party or for
the legality, validity or enforceability hereof or thereof.
8.07 Use of Credit. No Obligor is engaged principally, or as one of
-------------
its important activities, in the business of extending credit for the purpose,
whether immediate, incidental or ultimate, of buying or carrying Margin Stock,
and no part of the proceeds of any extension of credit hereunder will be used to
buy or carry any Margin Stock. Not more than 25% of the value of the Properties
of the Obligors subject to the provisions of Section 9.05 and/or 9.06 hereof is
represented by Properties constituting Margin Stock.
Credit Agreement
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53
8.08 ERISA. Except as disclosed in Schedule VII hereto and as may be
-----
disclosed after the Restatement Date in a notice to the Agent and the Banks (but
only to the extent any information so disclosed is designated as acceptable to
the Banks in a notice from the Agent (upon authorization from the Banks) to
Kelsey-Hayes), each Plan, and, to the knowledge of Kelsey-Hayes, each
Multiemployer Plan, is in compliance in all material respects with, and has been
administered in all material respects in compliance with, the applicable
provisions of ERISA, the Code and any other Federal or State law, and no event
or condition has occurred and is continuing as to which Kelsey-Hayes would be
under an obligation to furnish a report to the Banks under Section 9.01(i)
hereof that could reasonably be expected to have a Material Adverse Effect.
8.09 Taxes. K-H, Kelsey-Hayes and the Subsidiaries of Kelsey-Hayes
-----
are members of an affiliated group of corporations filing consolidated returns
for Federal income tax purposes, of which Varity is the "common parent" (within
the meaning of Section 1504 of the Code) of such group. Except for the Tax
Sharing Agreement and the Kelsey-Hayes Tax Sharing Agreement, there is no tax
sharing, tax allocation or similar agreement currently in effect providing for
the manner in which tax payments owing by the members of such affiliated group
(whether in respect of Federal or state income or other taxes) are allocated
among the members of the group. Kelsey-Hayes and its Subsidiaries have filed
(either directly, or indirectly through Varity) all Federal income tax returns
and all other material tax returns that are required to be filed by them and
have paid (either directly, or indirectly through Varity) all taxes due pursuant
to such returns or pursuant to any assessment received by any member of such
affiliated group, except for any such tax the payment of which is being
contested in good faith and by proper proceedings and against which adequate
reserves are being maintained in accordance with GAAP. The charges, accruals and
reserves on the books of Kelsey-Hayes and its Subsidiaries in respect of taxes
and other governmental charges are, in the opinion of Kelsey-Hayes, adequate.
Except as disclosed in Schedule VI hereto and as may be disclosed after the
Restatement Date in a notice to the Agent and the Banks (but only to the extent
any information so disclosed is designated as acceptable to the Banks in a
notice from the Agent (upon authorization from the Banks) to Kelsey-Hayes), no
member of such affiliated group has given or been requested to give a waiver of
the statute of limitations relating to the payment of Federal, state, local and
foreign taxes or other impositions.
8.10 Investment Company Act. No Obligor is an "investment company",
----------------------
or a company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended.
8.11 Public Utility Holding Company Act. No Obligor is a "holding
----------------------------------
company", or an "affiliate" of a "holding company" or a "subsidiary company" of
a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
8.12 Material Agreements and Liens.
-----------------------------
Credit Agreement
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<PAGE>
54
(a) Part A of Schedule I hereto is a complete and correct list, as of
the Restatement Date, each credit agreement, loan agreement, indenture,
securities purchase agreement, guarantee, letter of credit or other arrangement
providing for or otherwise relating to any Indebtedness or any extension of
credit (or commitment for any extension of credit) to, or guarantee by, Kelsey-
Hayes or any of its Subsidiaries the aggregate principal or face amount of which
equals or exceeds (or may equal or exceed) $250,000 (or, in the case of any
Foreign Subsidiary, $1,000,000), and the aggregate principal or face amount
outstanding or that may become outstanding under each such arrangement is
correctly described in Part A of said Schedule I.
(b) Part B of Schedule I hereto is a complete and correct list, as of
the Restatement Date, of each Lien securing Indebtedness of any Person the
aggregate principal or face amount of which equals or exceeds (or may equal or
exceed) $250,000 and covering any Property of Kelsey-Hayes or any of its
Domestic Subsidiaries, and the aggregate Indebtedness secured (or which may be
secured) by each such Lien and the Property covered by each such Lien is
correctly described in Part B of said Schedule I.
8.13 Environmental Matters. Except as set forth on Schedule II
---------------------
hereto, each of Kelsey-Hayes and its Subsidiaries has obtained all permits,
licenses and other authorizations, or has applied for and is authorized to
conduct its business pending receipt of such permit, license or other
authorization, required under all applicable Environmental Laws currently in
effect to carry on its business as now being conducted, except to the extent
failure to have any such permit, license or authorization could not, either
individually or in the aggregate, have a Material Adverse Effect. Except as set
forth on Schedule II hereto, each of such permits, licenses and authorizations
is in full force and effect, and each of Kelsey-Hayes and its Subsidiaries is in
compliance with the terms and conditions thereof and is in substantial
compliance with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
any applicable Environmental Law currently in effect or in any regulation, code,
plan, order, decree, judgment, injunction, notice or demand letter issued,
entered, promulgated or approved thereunder, except to the extent failure to
comply therewith could not, either individually or in the aggregate, have a
Material Adverse Effect. In addition, except as set forth on Schedule II
hereto, no written notice, notification, demand, request for information,
citation, summons or order has been issued, no complaint has been filed, no
penalty has been assessed and no investigation or review is (to the knowledge of
Kelsey-Hayes) pending or threatened by any governmental or other entity with
respect to any alleged failure by Kelsey-Hayes or any of its Subsidiaries to
have any permit, license or other authorization required under any applicable
Environmental Law currently in effect in connection with the conduct of the
business of Kelsey-Hayes or any of its Subsidiaries or with respect to any
generation, treatment, storage, recycling, transportation, discharge or
disposal, or any Release of any Hazardous Materials generated by Kelsey-Hayes or
any of its Subsidiaries, except to the extent any of the matters referred to in
this sentence could not, either individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. There have been no environmental
investigations,
Credit Agreement
----------------
<PAGE>
55
studies, audits, tests, reviews or other analyses conducted by or that are in
the possession of Kelsey-Hayes or any of its Subsidiaries in relation to any
site or facility now or previously owned, operated or leased by Kelsey-Hayes or
any of its Subsidiaries which, to the extent any such investigation, study,
audit, test, review or other analysis has revealed a circumstance or condition
that could reasonably be expected to have a Material Adverse Effect, have not
been made available to the Banks.
8.14 Capitalization.
--------------
(a) The authorized capital stock of MF Delaware consists, on the
Restatement Date, of an aggregate of 1,000 shares of common stock, par value
$1.00 per share, of which 777 shares are duly and validly issued and
outstanding, each of which shares will be fully paid and nonassessable. As of
the Restatement Date, all of such issued and outstanding shares of common stock
are owned beneficially and of record by Varity. As of the Restatement Date, (i)
there are no outstanding Equity Rights with respect to MF Delaware, (ii) there
are no outstanding obligations of MF Delaware or any of its Subsidiaries to
repurchase, redeem, or otherwise acquire any shares of capital stock of MF
Delaware and (iii) there are no outstanding obligations of MF Delaware or any of
its Subsidiaries to make payments to any Person, such as "phantom stock"
payments, to the extent the amount of such payments is calculated with reference
to the fair market value or equity value of MF Delaware or any of its
Subsidiaries.
(b) The authorized capital stock of K-H consists, on the Restatement
Date, of an aggregate of 1,000 shares of common stock, par value $0.01 per
share, of which 1,000 shares are duly and validly issued and outstanding, each
of which shares are fully paid and nonassessable. As of the Restatement Date,
all of such issued and outstanding shares of common stock are owned beneficially
and of record by MF Delaware. As of the Restatement Date, (i) there are no
outstanding Equity Rights with respect to K-H, (ii) there are no outstanding
obligations of K-H or any of its Subsidiaries to repurchase, redeem, or
otherwise acquire any shares of capital stock of K-H and (iii) there are no
outstanding obligations of K-H or any of its Subsidiaries to make payments to
any Person, such as "phantom stock" payments, to the extent the amount of such
payments is calculated with reference to the fair market value or equity value
of K-H or any of its Subsidiaries.
(c) The authorized capital stock of Kelsey-Hayes consists, on the
Restatement Date, of an aggregate of 2,000 shares consisting of (i) 1000 shares
of common stock, par value $0.01 per share, of which 500 shares are duly and
validly issued and outstanding, each of which shares are fully paid and
nonassessable, and (ii) 1000 shares of Kelsey-Hayes Preferred Stock, par value
$0.01 per share, of which 144 shares are duly and validly issued and
outstanding, each of which shares are fully paid and nonassessable. As of the
Restatement Date, all of such issued and outstanding shares of common stock are
owned beneficially and of record by K-H and all of such issued and outstanding
shares of Kelsey-Hayes Preferred Stock are owned beneficially and of
Credit Agreement
----------------
<PAGE>
56
record by Varity. As of the Restatement Date, (i) there are no outstanding
Equity Rights with respect to Kelsey-Hayes, (ii) there are no outstanding
obligations of Kelsey-Hayes or any of its Subsidiaries to repurchase, redeem, or
otherwise acquire any shares of capital stock of Kelsey-Hayes and (iii) there
are no outstanding obligations of Kelsey-Hayes or any of its Subsidiaries to
make payments to any Person, such as "phantom stock" payments, to the extent the
amount of such payments is calculated with reference to the fair market value or
equity value of Kelsey-Hayes or any of its Subsidiaries.
8.15 Subsidiaries, Etc.
-----------------
(a) Set forth in Part A of Schedule III hereto is a complete and
correct list, as of the Restatement Date, of all of the Subsidiaries of Kelsey-
Hayes, together with, for each such Subsidiary, (i) the jurisdiction of
organization of such Subsidiary, (ii) each Person holding ownership interests in
such Subsidiary, (iii) the nature of the ownership interests held by each such
Person and the percentage of ownership of such Subsidiary represented by such
ownership interests and (iv) whether such Subsidiary is a Domestic Subsidiary.
Except as disclosed in Part A of Schedule III hereto, as of the Restatement
Date, (x) each of Kelsey-Hayes and its Subsidiaries owns, free and clear of
Liens, and has the unencumbered right to vote, all outstanding ownership
interests in each Person shown to be held by it in Part A of Schedule III
hereto, (y) all of the issued and outstanding capital stock of each such Person
organized as a corporation is validly issued, fully paid and nonassessable and
(z) there are no outstanding Equity Rights with respect to such Person.
(b) Set forth in Part B of Schedule III hereto is a complete and
correct list, as of the Restatement Date, of all Investments (other than
Investments disclosed in Part A of said Schedule III hereto) heldby Kelsey-Hayes
or any of its Subsidiaries in any Person and, for each such Investment, (x) the
identity of the Person or Persons holding such Investment and (y) the nature of
such Investment. Except as disclosed in Part B of Schedule III hereto, as of
the Restatement Date, each of Kelsey-Hayes and its Subsidiaries owns, free and
clear of all Liens, all such Investments.
(c) [Intentionally Omitted.]
8.16 Title to Assets. Each of Kelsey-Hayes and its Subsidiaries owns
---------------
and has on the Restatement Date good and marketable title (subject only to Liens
permitted by Section 9.06 hereof) to the Properties shown to be owned in the
most recent financial statements referred to in Section 8.02 hereof (other than
Properties disposed of in the ordinary course of business or otherwise permitted
to be disposed of pursuant to Section 9.05 hereof). Each of Kelsey-Hayes and
its Subsidiaries owns and has on the Restatement Date good and marketable title
to, and enjoys on the Restatement Date peaceful and undisturbed possession of
all Properties (subject only to Liens permitted by Section 9.06 hereof) that are
necessary for the operation and conduct of
Credit Agreement
----------------
<PAGE>
57
their businesses, except for Properties duly and validly held under leases none
of which leases contains any unusual or burdensome provision that, either
individually or in the aggregate, would be reasonably likely to have a Material
Adverse Effect.
8.17 True and Complete Disclosure. The information, reports,
----------------------------
financial statements, exhibits and schedules furnished in writing by or on
behalf of any Obligor to the Agent or any Bank in connection with the
negotiation, preparation or delivery of this Agreement and the other Basic
Documents or included herein or therein or delivered pursuant hereto or thereto,
when taken as a whole, do not, as of the Restatement Date, contain any untrue
statement of material fact or omit to state any material fact necessary to make
the statements herein or therein, in light of the circumstances under which they
were made, not misleading. All written information furnished after the
Restatement Date by any Obligor to the Agent and the Banks in connection with
this Agreement and the other Basic Documents and the transactions contemplated
hereby and thereby will be true, complete and accurate in every material
respect, or (in the case of projections) based on reasonable estimates, on the
date as of which such information is stated or certified. To the knowledge of
Kelsey-Hayes, there is no fact peculiar to any Obligor that could have a
Material Adverse Effect that has not been disclosed herein, in the other Basic
Documents or in a report, financial statement, exhibit, schedule, disclosure
letter or other writing furnished to the Banks for use in connection with the
transactions contemplated hereby or thereby.
Section 9. Covenants of Kelsey-Hayes. Kelsey-Hayes covenants and
-------------------------
agrees with the Banks and the Agent that, so long as any Commitment, Loan or
Letter of Credit Liability is outstanding and until payment in full of all
amounts payable by Kelsey-Hayes hereunder:
9.01 Financial Statements; Information; Etc. Kelsey-Hayes shall
---------------------------------------
deliver to each of the Banks:
(a) as soon as available and in any event within 45 days after the end
of each of the first three quarterly fiscal periods of each fiscal year of
Kelsey-Hayes, consolidated and consolidating statements of operations,
changes in stockholder's equity and cash flows of Kelsey-Hayes and its
Subsidiaries for such period and for the period from the beginning of the
respective fiscal year to the end of such period, and the related
consolidated and consolidating balance sheets of Kelsey-Hayes and its
Subsidiaries as at the end of such period, setting forth in each case in
comparative form the corresponding consolidated and consolidating figures
for the corresponding period in the preceding fiscal year (it being
understood that the balance sheets may be compared with the figures for the
end of the preceding year), accompanied by a certificate of a Senior
Financial Officer, which certificate shall state that said consolidated
financial statements present fairly, in all material respects, the
consolidated financial position and results of operations of Kelsey-Hayes
and its Subsidiaries, and said consolidating financial statements present
fairly , in all material respects, the respective individual unconsolidated
financial position and
Credit Agreement
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<PAGE>
58
results of operations of Kelsey-Hayes and of each of its Subsidiaries, in
each case in accordance with generally accepted accounting principles,
consistently applied, as at the end of, and for, such period (subject to
normal year-end audit adjustments);
(b) as soon as available and in any event within 90 days after the end
of each fiscal year of Kelsey-Hayes, consolidated and consolidating
statements of operations, changes in stockholder's equity and cash flows of
Kelsey-Hayes and its Subsidiaries for such fiscal year and the related
consolidated and consolidating balance sheets of Kelsey-Hayes and its
Subsidiaries as at the end of such fiscal year, setting forth in each case
in comparative form the corresponding consolidated and consolidating
figures for the preceding fiscal year, and accompanied (i) in the case of
said consolidated statements and balance sheet of Kelsey-Hayes, by an
opinion thereon of independent certified public accountants of recognized
national standing, which opinion shall state that said consolidated
financial statements present fairly, in all material respects, the
consolidated financial condition and results of operations of Kelsey-Hayes
and its Subsidiaries as at the end of, and for, such fiscal year in
accordance with generally accepted accounting principles, and a certificate
of such accountants stating that, in making the examination necessary for
their opinion, they obtained no knowledge, except as specifically stated,
of any Default insofar as it may relate to accounting matters, and (ii) in
the case of said consolidating statements and balance sheets, by a
certificate of a Senior Financial Officer, which certificate shall state
that said consolidating financial statements present fairly, in all
material respects, the respective individual unconsolidated financial
condition and results of operations of Kelsey-Hayes and of each of its
Subsidiaries, in each case in accordance with generally accepted accounting
principles, consistently applied, as at the end of, and for, such fiscal
year;
(c) [Intentionally Omitted];
(d) [Intentionally Omitted];
(e) as soon as available and in any event within 45 days after the end
of each of the first three quarterly fiscal periods of each fiscal year of
Varity, consolidated statements of operations, changes in stockholder's
equity and cash flows of Varity and its Subsidiaries for such period and
for the period from the beginning of the respective fiscal year to the end
of such period, and the related consolidated balance sheet of Varity and
its Subsidiaries as at the end of such period, setting forth in each case
in comparative form the corresponding figures for the corresponding period
in the preceding fiscal year (or, if Varity shall then be subject to the
reporting requirements of Section 13 of the Securities Exchange Act of
1934, as amended, a copy of the report of Varity required to be filed on
Form 10-Q with respect to such quarterly fiscal period), accompanied by a
certificate of a senior financial officer of Varity, which certificate
shall state that said financial
Credit Agreement
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<PAGE>
59
statements (or the financial statements included in such Form 10-Q) present
fairly the consolidated financial condition and results of operations of
Varity and its Subsidiaries in accordance with generally accepted
accounting principles, consistently applied, as at the end of, and for,
such period (subject to normal year-end audit adjustments);
(f) as soon as available and in any event within 90 days after the end
of each fiscal year of Varity, consolidated statements of operations,
changes in stockholder's equity and cash flows of Varity and its
Subsidiaries for such fiscal year and the related consolidated balance
sheet of Varity and its Subsidiaries as at the end of such fiscal year,
setting forth in each case in comparative form the corresponding figures
for the preceding fiscal year (or, if Varity shall then be subject to the
reporting requirements of Section 13 of the Securities Exchange Act of
1934, as amended, a copy of the report of Varity required to be filed on
Form 10-K with respect to such fiscal year), accompanied by a certificate
of a senior financial officer of Varity, which certificate shall state that
said financial statements (or the financial statements included in such
Form 10-K) present fairly the consolidated financial condition and results
of operations of Varity and its Subsidiaries in accordance with generally
accepted accounting principles, consistently applied, as at the end of, and
for, such fiscal year;
(g) promptly upon their becoming available, copies of all registration
statements and regular periodic reports, if any, which any Obligor shall
have filed with the SEC or any national securities exchange;
(h) promptly upon the mailing thereof to the shareholders of Varity
generally, copies of all financial statements, reports and proxy statements
so mailed;
(i) as soon as possible, and in any event within 30 days after Kelsey-
Hayes knows or has reason to believe that any of the events or conditions
specified below with respect to any Plan or Multiemployer Plan has occurred
or exists, a statement signed by a Senior Financial Officer setting forth
details respecting such event or condition and the action, if any, that
Kelsey-Hayes or its ERISA Affiliate proposes to take with respect thereto
(and a copy of any report or notice required to be filed with or given to
PBGC by Kelsey-Hayes or an ERISA Affiliate with respect to such event or
condition):
(i) any reportable event, as defined in Section 4043(b) of ERISA
and the regulations issued thereunder, with respect to a Plan, as to
which PBGC has not by regulation waived the requirement of Section
4043(a) of ERISA that it be notified within 30 days of the occurrence
of such event (provided that a failure to meet the minimum funding
standard of Section 412 of the Code or Section 302 of ERISA,
including, without limitation, the failure to make on or before its
due date a required installment under Section 412(m) of the Code or
Section 302(e) of
Credit Agreement
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60
ERISA, shall be a reportable event regardless of the issuance of any
waivers in accordance with Section 412(d) of the Code); and any
request for a waiver under Section 412(d) of the Code for any Plan;
(ii) the distribution under Section 4041 of ERISA of a notice of
intent to terminate any Plan or any action taken by Kelsey-Hayes or an
ERISA Affiliate toterminate any Plan;
(iii) the institution by PBGC of proceedings under Section 4042
of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan, or the receipt by Kelsey-Hayes or any ERISA
Affiliate of a notice from a Multiemployer Plan that such action has
been taken by PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a Multiemployer Plan
by Kelsey-Hayes or any ERISA Affiliate that results in liability under
Section 4201 or 4204 of ERISA (including the obligation to satisfy
secondary liability as a result of a purchaser default) or the receipt
by Kelsey-Hayes or any ERISA Affiliate of notice from a Multiemployer
Plan that it is in reorganization or insolvency pursuant to Section
4241 or 4245 of ERISA or that it intends to terminate or has
terminated under Section 4041A of ERISA;
(v) the institution of a proceeding by a fiduciary of any
Multiemployer Plan against Kelsey-Hayes or any ERISA Affiliate to
enforce Section 515 of ERISA, which proceeding is not dismissed within
30 days; and
(vi) the adoption of an amendment to any Plan that, pursuant to
Section 401(a)(29) of the Code or Section 307 of ERISA, would result
in the loss of tax-exempt status of the trust of which such Plan is a
part if Kelsey-Hayes or an ERISA Affiliate fails to timely provide
security to the Plan in accordance with the provisions of said
Sections;
(j) as soon as available and in any event within 20 days after the end
of each calendar month (or, if the end of such calendar month is the last
day of the fiscal year of Kelsey-Hayes, within 30 days after the end of
such calendar month), a Borrowing Base Certificate as at the last day of
such calendar month;
(k) as soon as available and in any event no later than the date 60
days after the first day of each fiscal year of Kelsey-Hayes, a budget for
Kelsey-Hayes and its Subsidiaries for such fiscal year (prepared on a
quarterly basis) together with the business outlook for Kelsey-Hayes and
its Subsidiaries for such fiscal year and the next succeeding
Credit Agreement
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61
fiscal year;
(l) periodically at the request of the Agent or the Majority Banks
(but, unless an Event of Default shall have occurred and be continuing, no
more frequently than once during any fiscal quarter of Kelsey-Hayes), a
report of an independent auditor satisfactory to the Majority Banks (which
may be, or be affiliated with, one of the Banks) with respect to the
Receivables and Inventory components included in the Borrowing Base as at
the end of any monthly accounting period which report shall indicate that,
based upon a review by such auditors of the Receivables (including, without
limitation, verification with respect to the amount, aging, identity and
credit of the respective account debtors and the billing practices of
Kelsey-Hayes and its Subsidiaries) and Inventory (including, without
limitation, verification as to the value, location and respective types),
the information set forth in the Borrowing Base Certificate delivered by
Kelsey-Hayes as at the end of such accounting period is accurate and
complete in all material respects;
(m) [Intentionally Omitted];
(n) promptly after Kelsey-Hayes knows or has reason to believe that
any Default has occurred, a notice of such Default specifying that such
notice is a "Notice of Default" and describing the same in reasonable
detail and, together with such notice or as soon thereafter as possible, a
description of the action that Kelsey-Hayes has taken or proposes to take
with respect thereto; and
(o) from time to time such other information regarding the financial
condition, operations, business or prospects of Kelsey-Hayes or any of its
Subsidiaries as any Bank or the Agent may reasonably request.
Kelsey-Hayes will furnish to each Bank, at the time it furnishes each set of
financial statements pursuant to paragraph (a) or (b) above, a certificate of a
Senior Financial Officer (i) to the effect that no Default has occurred and is
continuing (or, if any Default has occurred and is continuing, describing the
same in reasonable detail and describing the action that Kelsey-Hayes has taken
or proposes to take with respect thereto), (ii) setting forth in reasonable
detail the computations necessary to determine whether Kelsey-Hayes is in
compliance with Section 9.10 hereof as of the end of the respective quarterly
fiscal period or fiscal year and (iii) setting forth in reasonable detail an
analysis of the variance between the consolidated and consolidating figures
contained in said financial statements and the corresponding figures with
respect to the corresponding period contained in the budget most recently
delivered pursuant to Section 9.01(k) hereof.
9.02 Litigation. Kelsey-Hayes will promptly give to each Bank notice
----------
of all legal or arbitral proceedings, and of all proceedings by or before any
governmental or regulatory authority or agency, and any material development in
respect of such legal or other proceedings,
Credit Agreement
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62
affecting Kelsey-Hayes or any of its Subsidiaries, except proceedings which, if
adversely determined, could not, either individually or in the aggregate, have a
Material Adverse Effect. Without limiting the generality of the foregoing,
Kelsey-Hayes will give to each Bank notice of the assertion of any Environmental
Claim by any Person against, or with respect to the activities of, Kelsey-Hayes
or any of its Subsidiaries and notice of any alleged violation of or non-
compliance by Kelsey-Hayes or any of its Subsidiaries with any applicable
Environmental Law then in effect or any permit, license or authorization
required under any such Environmental Law, other than any Environmental Claim or
alleged violation that, if adversely determined, and any such non-compliance
that, could not, either individually or in the aggregate, have a Material
Adverse Effect.
9.03 Existence, Etc. Kelsey-Hayes will, and will cause each of its
--------------
Subsidiaries to:
(a) preserve and maintain its legal existence and all of its material
rights, privileges, licenses and franchises (provided that nothing in this
--------
Section 9.03 shall prohibit any transaction expressly permitted by Section
9.05 hereof);
(b) comply with the requirements of all applicable laws, rules,
regulations and orders of governmental or regulatory authorities if failure
to comply with such requirements could, either individually or in the
aggregate, have a Material Adverse Effect;
(c) pay and discharge all taxes, assessments and governmental charges
or levies imposed on it or on its income or profits or on any of its
Property prior to the date on which penalties attach thereto, except for
any such tax, assessment, charge or levy the payment of which is being
contested in good faith and by proper proceedings and against which
adequate reserves are being maintained in accordance with GAAP;
(d) maintain all of its Properties used or useful in its business in
good working order and condition, ordinary wear and tear excepted;
(e) keep adequate records and books of account, in which entries will
be made in accordance with generally accepted accounting principles
consistently applied; and
(f) permit representatives of any Bank or the Agent, during normal
business hours, to examine, copy and make extracts from its books and
records, to inspect any of its Properties, and to discuss its business and
affairs with its officers, all to the extent reasonably requested by such
Bank or the Agent (as the case may be).
9.04 Insurance. Kelsey-Hayes will, and will cause each of its
---------
Subsidiaries to,
Credit Agreement
----------------
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63
maintain insurance against such risks and in such amounts as is consistent with
the insurance maintained by them on the Restatement Date. In addition, Kelsey-
Hayes will, and will cause each of its Subsidiaries to, maintain such insurance
as may be required by law, such insurance as is customarily maintained by
companies similarly situated.
9.05 Prohibition of Fundamental Changes.
----------------------------------
(a) Kelsey-Hayes will not, and will not permit any of its
Subsidiaries to, enter into any transaction of merger or consolidation or
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution).
(b) Kelsey-Hayes will not, and will not permit any of its
Subsidiaries to, acquire any business or Property from, or capital stock of, or
be a party to any acquisition of, any Person.
(c) Kelsey-Hayes will not, and will not permit any of its
Subsidiaries to, convey, sell, lease, transfer or otherwise dispose of, all or
any substantial part of its Property, whether now owned or hereafter acquired.
(d) Notwithstanding the foregoing paragraphs of this Section 9.05, so
long as no Default shall have occurred and be continuing or would result
therefrom:
(i) any Subsidiary of Kelsey-Hayes may be merged or consolidated
with or into Kelsey-Hayes (if Kelsey-Hayes shall be the continuing or
surviving corporation) or any other Subsidiary of Kelsey-Hayes;
provided that if any such transaction shall be between a Subsidiary of
--------
Kelsey-Hayes and a Wholly Owned Subsidiary of Kelsey-Hayes, such
Wholly Owned Subsidiary shall be the continuing or surviving
corporation;
(ii) Kelsey-Hayes or any of its Subsidiaries may purchase
inventory and other Property to be sold or used in the ordinary course
of business and make Consolidated Capital Expenditures;
(iii) any Subsidiary of Kelsey-Hayes may convey, sell, lease,
transfer or otherwise dispose of any or all of its Property (upon
voluntary liquidation or otherwise) to Kelsey-Hayes or a Wholly Owned
Subsidiary of Kelsey-Hayes (and Kelsey-Hayes or such Wholly Owned
Subsidiary may acquire such Property);
(iv) in addition to any conveyance, sale, lease, transfer or
other disposition permitted under clauses (iii), (v) and (vii) of this
Section 9.05(d), Kelsey-Hayes or any of its Subsidiaries may convey,
sell, lease, transfer or otherwise dispose of any Property (a
"Disposition"); provided the proceeds of any such Disposition
----------- --------
Credit Agreement
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64
(herein, the "Current Disposition"), together with the proceeds of all
-------------------
prior Dispositions since the Restatement Date, shall not exceed an
aggregate amount equal to 5% of Consolidated Total Assets as set out
in the most recent financial statements of Kelsey-Hayes and its
Subsidiaries delivered pursuant to Section 9.01(a) or (b) hereof prior
to the Current Disposition;
(v) Kelsey-Hayes or any of its Subsidiaries may (x) convey, sell,
lease, transfer or otherwise dispose of tools and equipment no longer
used or useful in its business and (y) sell inventory in the ordinary
course of business;
(vi) in addition to any acquisition permitted under clause (ii)
of this Section 9.05(d), Kelsey-Hayes and its Subsidiaries may acquire
any business or Property from, or make Investments in, or be a party
to any acquisition of, any Person (a "Consolidated Investment");
-----------------------
provided the maximum consideration expended by Kelsey-Hayes and its
Subsidiaries in respect of any such Consolidated Investment (herein,
the "Current Consolidated Investment"), together with the
-------------------------------
consideration expended in respect of all prior Consolidated
Investments since the Restatement Date, shall not exceed an aggregate
amount equal to 15% of Consolidated Total Assets as set out in the
most recent financial statements of Kelsey-Hayes and its Subsidiaries
delivered pursuant to Section 9.01(a) and (b) hereof prior to making
the Current Consolidated Investment; and
(vii) Kelsey-Hayes may sell certain equipment pursuant to a sale-
leaseback transaction with Bell Atlantic TriCon Leasing Corporation on
terms and conditions heretofore disclosed in a letter from Kelsey-
Hayes to the Agent (a copy of which has heretofore been delivered to
the Banks).
9.06 Limitation on Liens. Kelsey-Hayes will not, and will not permit
-------------------
any of its Domestic Subsidiaries to, create, incur, assume or suffer to exist
any Lien upon any of its Property, whether now owned or hereafter acquired,
except:
(a) Liens created pursuant to Section 11.11 hereof;
(b) Liens in existence on the date hereof and listed in Part B of
Schedule I hereto (excluding, however, following the Restatement Date,
Liens securing Indebtedness to be repaid with the proceeds of the Loans to
be made on such date, as indicated on said Schedule I);
(c) Liens imposed by any governmental authority for taxes, assessments
or charges not yet due or which are being contested in good faith and by
appropriate proceedings if adequate reserves with respect thereto are
maintained on the books of Kelsey-Hayes or any
Credit Agreement
----------------
<PAGE>
65
affected Subsidiary, as the case may be, in accordance with GAAP;
(d) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business with respect
to which the obligation secured by any such Lien is not overdue for a
period of more than 30 days or which obligation is being contested in good
faith and by appropriate proceedings, and Liens securing judgments but only
to the extent, for an amount and for a period not resulting in an Event of
Default under Section 10(h) hereof;
(e) pledges or deposits under worker's compensation, unemployment
insurance and other social security legislation;
(f) deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred,
and statutory or contractual bankers' Liens on monies held in bank
accounts, in the ordinary course of business;
(g) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and encumbrances
consisting of zoning restrictions, easements, licenses, restrictions on the
use of Property or minor imperfections in title thereto which, in the
aggregate, are not material in amount, and which do not in any case
materially detract from the value of the Property subject thereto or
interfere with the ordinary conduct of the business of Kelsey-Hayes or any
of its Subsidiaries;
(h) Liens on Property of any corporation which becomes a Domestic
Subsidiary of Kelsey-Hayes after the Restatement Date; provided that such
--------
Liens are in existence at the time such corporation becomes a Domestic
Subsidiary of Kelsey-Hayes and were not created in anticipation thereof;
(i) Liens upon real and/or tangible personal Property acquired after
the Restatement Date (by purchase, construction or otherwise) by Kelsey-
Hayes or any of its Domestic Subsidiaries, each of which Liens either
existed on such Property before the time of its acquisition and was not
created in anticipation thereof or was created solely for the purpose of
securing Indebtedness incurred to finance, refinance or refund the cost
(including the cost of construction) of such Property; provided that (i) no
--------
such Lien shall extend to or cover any Property of Kelsey-Hayes or such
Domestic Subsidiary other than the Property so acquired and improvements
thereon and (ii) the principal amount of Indebtedness secured by any such
Lien shall not exceed 80% of the lesser of (x) the fair market value (as
determined in good faith by a Senior Financial Officer) of such Property
and (y) the cost of such Property, in each case, at the time such Property
was acquired (by purchase, construction or otherwise);
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66
(j) additional Liens upon real and/or personal Property; provided that
--------
the aggregate amount of Indebtedness secured by Liens incurred pursuant to
this paragraph (j) shall not exceed $1,000,000 at any one time outstanding;
and
(k) any extension, renewal or replacement of the foregoing; provided
--------
that the Liens permitted by this paragraph shall not extend to or cover any
additional Indebtedness or Property (other than a substitution of like
Property).
9.07 [Intentionally Omitted]
9.08 [Intentionally Omitted]
9.09 [Intentionally Omitted]
9.10 Financial Covenants.
-------------------
(a) Consolidated Leverage Ratio. Kelsey-Hayes will not permit the
---------------------------
Consolidated Leverage Ratio to exceed .50 to 1.
(b) Consolidated Interest Coverage Ratio. Kelsey-Hayes will not permit
------------------------------------
the Consolidated Interest Coverage Ratio for (i) the period of two
consecutive fiscal quarters of Kelsey-Hayes ending on July 31, 1993 to be
less than 3.00 to 1, (ii) the period of three consecutive fiscal quarters
of Kelsey-Hayes ending on October 31, 1993 to be less than 3.00 to 1 and
(iii) any period of four consecutive fiscal quarters of Kelsey-Hayes ending
after October 31, 1993 to be less than 3.00 to 1.
(c) Consolidated Adjusted Net Worth. Kelsey-Hayes will not at any
-------------------------------
time permit Consolidated Adjusted Net Worth to be less than $425,000,000
plus 25% of the consolidated net income of Kelsey-Hayes and its
----
Subsidiaries for each fiscal quarter of Kelsey-Hayes from and including the
fiscal quarter ending on April 30, 1995 to and including the fiscal quarter
ending on or most recently ended prior to such time (for which purpose a
consolidated net loss shall be deemed to be consolidated net income of
zero).
9.11 [Intentionally Omitted]
9.12 Lines of Business. Kelsey-Hayes will not, and will not permit
-----------------
any of its Subsidiaries to, engage to any significant extent in any line or
lines of business activity other than the business of manufacturing,
distributing and selling automotive brake and control systems and components and
related products.
9.13 Transactions with Affiliates. Except as expressly permitted by
----------------------------
this
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67
Agreement, Kelsey-Hayes will not, and will not permit any of its Subsidiaries
to, directly or indirectly:
(a) make any Investment in an Affiliate of Kelsey-Hayes;
(b) transfer, sell, lease, assign or otherwise dispose of any Property
to any such Affiliate;
(c) merge into or consolidate with or purchase or acquire Property
from any such Affiliate; or
(d) enter into any other transaction directly or indirectly with or
for the benefit of any such Affiliate (including, without limitation,
Guarantees and assumptions of obligations of any such Affiliate);
provided that:
--------
(i) any Affiliate of Kelsey-Hayes who is an individual may serve as a
director, officer or employee of Kelsey-Hayes or any of its Subsidiaries
and receive reasonable compensation for his or her services in such
capacity;
(ii) Kelsey-Hayes and its Subsidiaries may enter into transactions
(other than Investments by Kelsey-Hayes or any of its Subsidiaries in any
Affiliate of Kelsey-Hayes) providing for the leasing of Property, the
rendering or receipt of services or the purchase or sale of inventory and
other Property in the ordinary course of business if the monetary or
business consideration arising therefrom would be substantially as
advantageous to Kelsey-Hayes and its Subsidiaries as the monetary or
business consideration which would obtain in a comparable transaction with
a Person not an Affiliate of Kelsey-Hayes;
(iii) [Intentionally Omitted];
(iv) Kelsey-Hayes may make Investments to the extent permitted by
Section 9.05 hereof;
(v) Kelsey-Hayes may, to the extent not otherwise prohibited hereby or
by the other Basic Documents, effect the transactions expressly
contemplated by the Reorganization Agreement, the Tax Sharing Agreement,
the Compensation Claims Payment Guarantee, the Headquarters Sublease, the
Assignment Agreements, the Deeds, the Kelsey-Hayes Management Services
Agreement, the Kelsey-Hayes Tax Sharing Agreement and the Distributorship
Agreement; and
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68
(vi) Kelsey-Hayes may pay Management Fees.
Without limiting the generality of the foregoing, Kelsey-Hayes will
not, and will not permit any of its Subsidiaries, to enter into any tax sharing
or similar arrangement (other than the Tax Sharing Agreement and the Kelsey-
Hayes Tax Sharing Agreement) with Varity or any other Subsidiary of Varity.
9.14 Use of Proceeds. Kelsey-Hayes will use the proceeds of the
---------------
Loans hereunder solely for general corporate purposes (in each case, in
compliance with all applicable legal and regulatory requirements); provided
--------
that neither the Agent, nor the Co-Agent nor any Bank shall have any
responsibility as to the use of any of such proceeds.
9.15 [Intentionally Omitted]
9.16 [Intentionally Omitted]
9.17 [Intentionally Omitted]
Section 10. Events of Default. If one or more of the following events
-----------------
(herein called "Events of Default") shall occur and be continuing:
-----------------
(a) Kelsey-Hayes shall default in the payment when due (whether at
stated maturity or upon mandatory or optional prepayment) of any principal
of any Loan or any Reimbursement Obligation; or Kelsey-Hayes shall default
in the payment when due (whether at stated maturity or upon mandatory or
optional prepayment) of any interest on any Loan or any Reimbursement
Obligation, any fee or any other amount payable by it hereunder or under
any other Basic Document and such default shall continue unremedied for at
least three Business Days; or
(b) One or more of Kelsey-Hayes and its Subsidiaries shall default in
the payment when due of any principal of or interest on any of its
Indebtedness aggregating $2,500,000 or more (other than the Indebtedness
referred to in paragraph (a) above), or in the payment when due of any
amount under any Interest Rate Protection Agreement providing for
termination or liquidation payments exceeding $2,500,000; or one or more of
Varity and its Subsidiaries (other than Kelsey-Hayes and its Subsidiaries)
shall default in the payment when due of any principal of or interest on
any of its Indebtedness under any note, agreement, indenture or other
document evidencing or relating to Indebtedness of $10,000,000 or more or
under one or more notes, agreements, indentures or other documents
evidencing or relating to Indebtedness aggregating $20,000,000 or more, or
in the payment when due of any amount under any Interest Rate Protection
Agreement providing for termination or liquidation payments exceeding
$10,000,000; or any event
Credit Agreement
----------------
<PAGE>
69
specified in any note, agreement, indenture or other document evidencing or
relating to any such Indebtedness or any event specified in any Interest
Rate Protection Agreement shall occur if the effect of such event is to
cause, or (with the giving of any notice or the lapse of time or both) to
permit the holder or holders of such Indebtedness (or a trustee or agent on
behalf of such holder or holders) to cause, such Indebtedness to become
due, or to be prepaid in full (whether by redemption, purchase, offer to
purchase or otherwise), prior to its stated maturity or to have the
interest rate thereon reset to a level so that securities evidencing such
Indebtedness trade at a level specified in relation to the par value
thereof or, in the case of an Interest Rate Protection Agreement, to permit
termination or liquidation payments under any such Interest Rate Protection
Agreement to become due; or
(c) Any representation, warranty or certification made or deemed made
herein or in any other Basic Document (or in any modification or supplement
hereto or thereto) by any Obligor, or any certificate furnished to any Bank
or the Agent pursuant to the provisions hereof or thereof, shall prove to
have been false or misleading as of the time made, deemed made or furnished
in any material respect; or
(d) Kelsey-Hayes shall default in the performance of any of its
obligations under any of Sections 9.01(i), 9.01(n) (insofar as any notice
required to be delivered under said Section relates to a Default that is
also an Event of Default), 9.05, 9.06, 9.10, 9.12 or 9.14 hereof; or any
Obligor shall default in the performance of any of its other obligations in
this Agreement or any other Basic Document and such default (if remediable)
shall continue unremedied for a period of 30 days after notice thereof to
Kelsey-Hayes by the Agent or any Bank (through the Agent); or
(e) Any Obligor or any Varity Specified Subsidiary shall admit in
writing its inability to, or be generally unable to, pay its debts as such
debts become due; or
(f) Any Obligor or any Varity Specified Subsidiary shall (i) apply for
or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee, examiner or liquidator of itself or of all or
a substantial part of its Property, (ii) make a general assignment for the
benefit of its creditors, (iii) commence a voluntary case under the
Bankruptcy Code, (iv) file a petition seeking to take advantage of any
other law relating to bankruptcy, insolvency, reorganization, liquidation,
dissolution, arrangement or winding-up, or composition or readjustment of
debts, (v) fail to controvert in a timely and appropriate manner, or
acquiesce in writing to, any petition filed against it in an involuntary
case under the Bankruptcy Code, (vi) take any corporate action for the
purpose of effecting any of the foregoing or (vii) take any action under
the laws of its jurisdiction of organization analogous to any of the
foregoing; or
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70
(g) A proceeding or case shall be commenced, without the application
or consent of any Obligor or any Varity Specified Subsidiary, in any court
of competent jurisdiction, seeking (i) its reorganization, liquidation,
dissolution, arrangement or winding-up, or the composition or readjustment
of its debts, (ii) the appointment of a receiver, custodian, trustee,
examiner, liquidator or the like of such Obligor or Varity Specified
Subsidiary or of all or any substantial part of its Property, or (iii)
similar relief in respect of such Obligor or Varity Specified Subsidiary
under any law relating to bankruptcy, insolvency, reorganization, winding-
up, or composition or adjustment of debts, and such proceeding or case
shall continue undismissed, or an order, judgment or decree approving or
ordering any of the foregoing (other than an order for relief in an
involuntary case under the Bankruptcy Code) shall be entered and continue
unstayed and in effect, for a period of 60 or more days; or an order for
relief against any Obligor or any Varity Specified Subsidiary shall be
entered in an involuntary case under the Bankruptcy Code; or any analogous
order against any Obligor or any Varity Specified Subsidiary shall be
entered under the laws of its jurisdiction of organization; or
(h) A final judgment or judgments for the payment of money in excess
of $2,500,000 in the aggregate (exclusive of judgment amounts fully covered
by insurance where the insurer has admitted liability in respect of such
judgment) or in excess of $5,000,000 in the aggregate (regardless of
insurance coverage) shall be rendered by one or more courts, administrative
tribunals or other bodies having jurisdiction against one or more of Kelsey
-Hayes and its Subsidiaries and the same shall not be discharged (or
provision shall not be made for such discharge), or a stay of execution
thereof shall not be procured, within 30 days from the date of entry
thereof and the relevant Persons against whom such judgment or judgments
shall have been rendered shall not, within said period of 30 days, or such
longer period during which execution of the same shall have been stayed,
appeal therefrom and cause the execution thereof to be stayed during such
appeal; or a final judgment or judgments for the payment of money in excess
of $10,000,000 in the aggregate (exclusive of judgment amounts fully
covered by insurance where the insurer has admitted liability in respect of
such judgment) or in excess of $20,000,000 in the aggregate (regardless of
insurance coverage) shall be rendered by one or more courts, administrative
tribunals or other bodies having jurisdiction against one or more of the
Obligors and/or Varity Specified Subsidiaries and the same shall not be
discharged (or provision shall not be made for such discharge), or a stay
of execution thereof shall not be procured, within 30 days from the date of
entry thereof and the relevant Persons against whom such judgment or
judgments shall have been rendered shall not, within said period of 30
days, or such longer period during which execution of the same shall have
been stayed, appeal therefrom and cause the execution thereof to be stayed
during such appeal; or
(i) An event or condition specified in Section 9.01(i) hereof shall
occur or exist
Credit Agreement
----------------
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71
with respect to any Plan or Multiemployer Plan and, as a result of such
event or condition, together with all other such events or conditions,
Kelsey-Hayes or any ERISA Affiliate shall incur or in the opinion of the
Majority Banks shall be reasonably likely to incur a liability to a Plan, a
Multiemployer Plan or PBGC (or any combination of the foregoing) which, in
the determination of the Majority Banks, could reasonably be expected to
have a Material Adverse Effect of the type referred to in clause (b), (c),
(d) or (e) of the definition of Material Adverse Effect; or
(j) A reasonable basis shall exist for the assertion against Kelsey-
Hayes or any of its Subsidiaries of (or there shall have been asserted
against Kelsey-Hayes or any of its Subsidiaries) claims or liabilities,
whether accrued, absolute or contingent, based on or arising from the
generation, storage, transport, handling or disposal of Hazardous Materials
by Kelsey-Hayes or any of its Subsidiaries or Affiliates, or any
predecessor in interest of Kelsey-Hayes or any of its Subsidiaries or
Affiliates, or relating to any site or facility owned, operated or leased
by Kelsey-Hayes or any of its Subsidiaries or Affiliates, which claims or
liabilities (insofar as they are payable by Kelsey-Hayes or any of its
Subsidiaries but after deducting any portion thereof which is reasonably
expected to be paid by other creditworthy Persons liable therefor) are
reasonably likely to be determined adversely to Kelsey-Hayes or any of its
Subsidiaries, and the amount thereof is, either individually or in the
aggregate, reasonably likely to have a Material Adverse Effect of the type
referred to in clause (b), (c), (d) or (e) of the definition of Material
Adverse Effect; or
(k) Varity shall fail to own, beneficially and of record (free and
clear of all Liens and other encumbrances), and control all of the issued
and outstanding capital stock of MF Delaware; or MF Delaware shall fail to
own, beneficially and of record (free and clear of all Liens and other
encumbrances), and control all of the issued and outstanding capital stock
of K-H; or K-H shall fail to own, beneficially and of record (free and
clear of all Liens and other encumbrances), and control all of the issued
and outstanding capital stock of Kelsey-Hayes;
THEREUPON: (1) in the case of an Event of Default other than one referred to in
paragraph (f) or (g) of this Section 10 with respect to any Obligor, (A) the
Agent may and, upon request of Majority Banks, shall, by notice to Kelsey-Hayes,
terminate the Commitments and they shall thereupon terminate, and (B) the Agent
may and, upon request of Banks holding at least 66-2/3% of the aggregate unpaid
principal amount of the Loans and Reimbursement Obligations, shall, by notice to
the Company declare the principal amount then outstanding of, and the accrued
interest on, the Loans, the Reimbursement Obligations and all other amounts
payable by the Obligors hereunder and under the Notes (including, without
limitation, any amounts payable under Section 5.05 or 5.06 hereof) to be
forthwith due and payable, whereupon such amounts shall be immediately due and
payable without presentment, demand, protest or other formalities of any
Credit Agreement
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<PAGE>
72
kind, all of which are hereby expressly waived by each Obligor; and (2) in the
case of the occurrence of an Event of Default referred to in paragraph (f) or
(g) of this Section 10 with respect to any Obligor, the Commitments shall
automatically be terminated and the principal amount then outstanding of, and
the accrued interest on, the Loans, the Reimbursement Obligations and all other
amounts payable by the Obligors hereunder and under the Notes (including,
without limitation, any amounts payable under Section 5.05 or 5.06 hereof) shall
automatically become immediately due and payable without presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by Kelsey-Hayes.
In addition, if the Agent (or the Majority Banks through the Agent) so
requests by notice to Kelsey-Hayes upon or following a declaration by the Agent
pursuant to the preceding paragraph that the principal amount then outstanding
of, and accrued interest on, the Loans and Reimbursement Obligations and all
other amounts payable by Kelsey-Hayes hereunder and under the Notes have become
due and payable, Kelsey-Hayes shall (and, in the case of any Event of Default
referred to in paragraph (f) or (g) of this Section 10 with respect to Kelsey-
Hayes, forthwith, without any demand or the taking of any other action by the
Agent or such Banks) provide cover for the Letter of Credit Liabilities by
paying to the Agent immediately available funds in an amount equal to the then
aggregate undrawn amount of all Letters of Credit, which funds shall be held by
the Agent in the Collateral Account subject to and in accordance with Section
11.11 hereof.
Notwithstanding anything else in this Agreement to the contrary, but
only so long as no Default (other than a Default or Event of Default described
in clause (b) below) shall have occurred and be continuing or would result
therefrom, (a) nothing in this Agreement shall prohibit Kelsey-Hayes or any of
its Subsidiaries from (i) paying dividends or other distributions on its capital
stock to K-H, (ii) paying interest on or principal of any Indebtedness owing to
Varity or any of its Subsidiaries (other than Kelsey-Hayes and its
Subsidiaries), (iii) making loans or advances to Varity or any of its
Subsidiaries (other than Kelsey-Hayes and its Subsidiaries) or (iv) transferring
any of its Properties to Varity or any of its Subsidiaries (other than Kelsey-
Hayes and its Subsidiaries) and (b) no such payment, loan, advance or transfer
shall constitute a Default, or an Event of Default resulting from such a
Default, by Kelsey-Hayes in the performance of its obligations under any of
Sections 9.05(a) and 9.05(c) hereof; provided that this paragraph shall not
preclude any such transaction from resulting in a Default under any other
Section of this Agreement.
Section 11. The Agent.
----------
11.01 Appointment, Powers and Immunities. Each Bank hereby
----------------------------------
irrevocably (subject to Section 11.08 hereof) appoints and authorizes the Agent
to act as its agent hereunder and under the other Basic Documents with such
powers as are specifically delegated to the Agent by the terms of this Agreement
and of the other Basic Documents, together with such other powers
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73
as are reasonably incidental thereto. The Agent (which term as used in
this sentence and in Section 11.05 and the first sentence of Section 11.06
hereof shall include reference to its affiliates and its own and its affiliates'
officers, directors, employees and agents): (a) shall have no duties or
responsibilities except those expressly set forth in this Agreement and in the
other Basic Documents, and shall not by reason of this Agreement or any other
Basic Document be a trustee for any Bank; (b) shall not be responsible to the
Banks for any recitals, statements, representations or warranties contained in
this Agreement or in any other Basic Document, or in any certificate or other
document referred to or provided for in, or received by any of them under, this
Agreement or any other Basic Document, or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement, any
Note or any other Basic Document or any other document referred to or provided
for herein or therein or for any failure by Kelsey-Hayes or any other Person to
perform any of its obligations hereunder or thereunder; (c) shall not be
required to initiate or conduct any litigation or collection proceedings
hereunder or under any other Basic Document except to the extent expressly
instructed by the majority Banks with respect to the Varity Guarantee; and (d)
shall not be responsible for any action taken or omitted to be taken by it
hereunder or under any other Basic Document or under any other document or
instrument referred to or provided for herein or therein or in connection
herewith or therewith, except for its own gross negligence or willful
misconduct. The Agent may employ agents and attorneys-in-fact and shall not be
responsible for the negligence or misconduct of any such agents or attorneys-in-
fact selected by it in good faith. The Agent may deem and treat the payee of
any Note as the holder thereof for all purposes hereof unless and until a notice
of the assignment or transfer thereof shall have been filed with the Agent,
together with the consent of Kelsey-Hayes to such assignment or transfer (to the
extent provided in Section 12.06(b) hereof).
11.02 Reliance by Agent. The Agent shall be entitled to rely upon
-----------------
any certification, notice or other communication (including, without limitation,
any thereof by telephone, telecopy, telex, telegram or cable) believed by it to
be genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Agent. As to any
matters not expressly provided for by this Agreement or any other Basic
Document, the Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder or thereunder in accordance with instructions
given by the Majority Banks or, if provided herein, in accordance with the
instructions given by all of the Banks as is required in such circumstance, and
such instructions of such Banks and any action taken or failure to act pursuant
thereto shall be binding on all of the Banks.
11.03 Defaults. The Agent shall not be deemed to have knowledge or
--------
notice of the occurrence of a Default unless the Agent has received notice from
a Bank, Kelsey-Hayes or Varity specifying such Default and stating that such
notice is a "Notice of Default". In the event that the Agent receives such a
notice of the occurrence of a Default, the Agent shall give prompt notice
thereof to the Banks (and shall give each Bank prompt notice of each such non-
payment).
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74
The Agent shall (subject to Sections 11.01, 11.07 and 12.04 hereof) take such
action with respect to such Default as shall be directed by the Majority Banks,
provided that, unless and until the Agent shall have received such directions,
--------
the Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default as it shall deem advisable in
the best interest of the Banks except to the extent that this Agreement
expressly requires that such action be taken, or not be taken, only with the
consent or upon the authorization of the Majority Banks or all of the Banks.
11.04 Rights as a Bank. With respect to its Commitments and the
----------------
Loans made by it, Chase (and any successor acting as Agent) in its capacity as a
Bank hereunder shall have the same rights and powers hereunder as any other Bank
and may exercise the same as though it were not acting as the Agent, and the
term "Bank" or "Banks" shall, unless the context otherwise indicates, include
the Agent in its individual capacity. Chase (and any successor acting as Agent)
and its affiliates may (without having to account therefor to any Bank) accept
deposits from, lend money to, make investments in and generally engage in any
kind of banking, trust or other business with the Obligors (and any of their
Subsidiaries or Affiliates) as if it were not acting as the Agent, and Chase and
its affiliates may accept fees and other consideration from the Obligors (and
any of their Subsidiaries or Affiliates) for services in connection with this
Agreement or otherwise without having to account for the same to the Banks.
11.05 Indemnification. The Banks agree to indemnify the Agent and
---------------
the Co-Agent (to the extent not reimbursed under Section 12.03 hereof, but
without limiting the obligations of Kelsey-Hayes under said Section 12.03)
ratably in accordance with the aggregate principal amount of the Loans and
Reimbursement Obligations held by the Banks (or, if no Loans or Reimbursement
Obligations are at the time outstanding, ratably in accordance with their
respective Commitments), for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever that may be imposed on, incurred by or
asserted against (including by any Bank) the Agent or the Co-Agent, as the case
may be, arising out of or by reason of any investigation in or in any way
relating to or arising out of this Agreement or any other Basic Document or any
other documents contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby (including, without limitation, the
costs and expenses that Kelsey-Hayes is obligated to pay under Section 12.03
hereof, but excluding, in the case of the Agent, unless a Default has occurred
and is continuing, normal administrative costs and expenses incident to the
performance of its agency duties hereunder) or the enforcement of any of the
terms hereof or thereof or of any such other documents, provided that no Bank
--------
shall be liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the party to be indemnified.
11.06 Non-Reliance on Agent and Other Banks. Each Bank agrees that
-------------------------------------
it has, independently and without reliance on the Agent, the Co-Agent or any
other Bank, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of
Credit Agreement
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75
Kelsey-Hayes and its Subsidiaries and decision to enter into this Agreement and
that it will, independently and without reliance upon the Agent, the Co-Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement. Neither the Agent nor the Co-
Agent shall be required to keep itself informed as to the performance or
observance by any Obligor of this Agreement or any of the other Basic Documents
or any other document referred to or provided for herein or therein or to
inspect the Properties or books of Kelsey-Hayes or any of its Subsidiaries.
Except for notices, reports and other documents and information expressly
required to be furnished to the Banks by the Agent hereunder, neither the Agent
nor the Co-Agent shall have any duty or responsibility to provide any Bank with
any credit or other information concerning the affairs, financial condition or
business of Kelsey-Hayes or any of its Subsidiaries (or any of their affiliates)
that may come into the possession of the Agent, the Co-Agent or any of their
respective affiliates.
11.07 Failure to Act. Except for action expressly required of the
--------------
Agent hereunder and under the other Basic Documents, the Agent shall in all
cases be fully justified in failing or refusing to act hereunder and thereunder
unless it shall receive further assurances to its satisfaction from the Banks of
their indemnification obligations under Section 11.05 hereof against any and all
liability and expense that may be incurred by it by reason of taking or
continuing to take any such action.
11.08 Resignation or Removal of Agent. Subject to the appointment
-------------------------------
and acceptance of a successor Agent as provided below, the Agent may resign at
any time by giving notice thereof to the Banks and Kelsey-Hayes, and the Agent
may be removed at any time with or without cause by the Majority Banks. Upon
any such resignation or removal, the Majority Banks shall have the right to
appoint a successor Agent. If no successor Agent shall have been so appointed
by the Majority Banks and shall have accepted such appointment within 30 days
after the retiring Agent's giving of notice of resignation or the Majority
Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of
the Banks, appoint a successor Agent, that shall be a bank which has an office
in New York, New York and which has a combined capital and surplus of at least
$300,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation or removal hereunder as
Agent, the provisions of this Section 11 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as the Agent.
11.09 Consents under Basic Documents. Except as otherwise provided
------------------------------
in Section 12.04 hereof with respect to this Agreement, the Agent may, with the
prior consent of the Majority Banks (but not otherwise), consent to any
modification, supplement or waiver under any
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76
of the Basic Documents, provided that, without the consent of each Bank, the
--------
Agent shall not (except as otherwise provided herein or in the Varity Guarantee)
release Varity from any of its obligations under the Varity Guarantee.
11.10 Co-Agent. The Co-Agent shall not have any rights or
--------
obligations under this Agreement except in its capacity as a "Bank" hereunder.
11.11 Letter of Credit Collateral Account.
-----------------------------------
(a) In the event that Kelsey-Hayes shall be required pursuant to
Section 2.11(b) hereof or the penultimate paragraph of Section 10 hereof to
provide cover for Letter of Credit Liabilities, the Agent will establish with
Chase a separate cash collateral account (the "Collateral Account") in the name
------------------
and under the control of the Agent into which there shall be deposited from time
to time certain amounts required or contemplated to be paid to the Agent as
provided in Section 2.11(b) hereof and the penultimate paragraph of Section 10
hereof or otherwise.
(b) As collateral security for the prompt payment in full when due
(whether at stated maturity, by acceleration or otherwise) of its obligations
hereunder, Kelsey-Hayes hereby pledges and grant to the Agent, for the benefit
of the Banks and the Agent as provided herein, a security interest in all of its
right, title and interest in and to the Collateral Account and the balances from
time to time in the Collateral Account (and the investments and reinvestments
therein provided for below). The balances from time to time in the Collateral
Account shall not constitute payment of any obligations hereunder until applied
by the Agent as provided herein. Anything in this Agreement to the contrary
notwithstanding, funds held in the Collateral Account shall be subject to
withdrawal only as provided in this Section 11.11.
(c) Amounts on deposit in the Collateral Account shall be invested
and reinvested by the Agent in such Permitted Investments as Kelsey-Hayes shall
specify to the Agent from time to time (provided that the approval of the Agent
shall be required for investments and reinvestments to be made during any period
while an Event of Default has occurred and is continuing), which investments and
reinvestments shall be held in the Collateral Account in the name and be under
the control of the Agent.
(d) At any time following the occurrence and during the continuance
of an Event of Default, the Agent may (and, if instructed by the Majority Banks,
shall) in its (or their) discretion at any time and from time to time elect to
liquidate any such investments and reinvestments and credit the proceeds thereof
to the Collateral Account and apply or cause to be applied such proceeds and any
other balances in the Collateral Account to the payment of the obligations of
Kelsey-Hayes in respect of the Letters of Credit and thereafter to the other
obligations of Kelsey-Hayes hereunder and under the Notes.
Credit Agreement
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77
(e) On any date on which the aggregate amount of funds standing to
the credit of the Collateral Account as cover for Letter of Credit Liabilities
exceeds the sum of the aggregate principal amount of all Loans plus the
aggregate amount of Letter of Credit Liabilities, the Agent shall promptly
deliver to Kelsey-Hayes, against receipt but without any recourse, warranty or
representation whatsoever, a portion of the balance in the Collateral Account
equal to such excess.
(f) Kelsey-Hayes shall pay to the Agent from time to time such fees
as the Agent normally charges for similar services in connection with the
Agent's administration of the Collateral Account and investments and
reinvestments of funds therein.
Section 12. Miscellaneous.
-------------
12.01 Waiver; Independence of Covenants. No failure on the part of
---------------------------------
the Agent or any Bank to exercise and no delay in exercising, and no course of
dealing with respect to, any right, power or privilege under this Agreement or
any Note shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege under this Agreement or any Note
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law. Each covenant contained herein,
except as otherwise expressly provided herein, shall be given independent
effect. Without limiting the foregoing, the fact that any covenant contained
herein permits an action to be taken or a condition to exist does not, except as
otherwise expressly provided herein, preclude such action or condition from
being a Default under any other covenant contained herein that prohibits, either
directly or indirectly, such action or condition.
12.02 Notices. All notices, requests and other communications
-------
provided for herein (including, without limitation, any modifications of, or
waivers, requests or consents under, this Agreement) shall be given or made in
writing (including, without limitation, by telecopy) delivered to the intended
recipient at the "Address for Notices" specified below its name on the signature
pages hereof; or, as to any party, at such other address as shall be designated
by such party in a notice to each other party. Except as otherwise provided in
this Agreement, all such communications shall be deemed to have been duly given
when transmitted by telecopier or personally delivered or, in the case of a
mailed notice, upon receipt, in each case given or addressed as aforesaid.
12.03 Expenses, Etc. Kelsey-Hayes agrees to pay or reimburse each of
-------------
the Banks and the Agent for paying: (a) all reasonable out-of-pocket costs and
expenses of the Agent (including, without limitation, the reasonable fees and
expenses of Milbank, Tweed, Hadley & McCloy, special New York counsel to the
Banks), in connection with (i) the negotiation, preparation, execution and
delivery of this Agreement and the other Basic Documents and the extensions of
credit hereunder and (ii) any modification, supplement or waiver of any of the
terms of this Agreement or any of the other Basic Documents; (b) all costs and
expenses of each Bank
Credit Agreement
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78
and the Agent (including, without limitation, reasonable fees and expenses of
counsel) in connection with (i) any enforcement or collection proceedings
resulting from any Default, (ii) the enforcement of this Section 12.03 or (iii)
the negotiation of any restructuring or "work-out" (whether or not consummated)
of the obligations of any Obligor under any of the Basic Documents (it being
agreed, in the case of this clause (iii), that Kelsey-Hayes shall not be
responsible for the fees and expenses of more than one counsel unless in such
restructuring or "work-out" there are issues of local law or the Banks and the
Agent shall have materially different interests, provided that such counsel
shall be satisfactory to each Bank and the Agent in the exercise of its
reasonable judgment); and (c) all transfer, mortgage, mortgage recording,
intangibles, documentary, stamp or other similar taxes, assessments or charges
levied by any governmental or revenue authority in respect of this Agreement or
any of the other Basic Documents or any other document referred to herein or
therein and all costs, expenses, taxes, assessments and other charges incurred
in connection with any filing, registration, recording or perfection of any
security interest contemplated by any Basic Document or any other document
referred to therein.
Kelsey-Hayes hereby agrees to indemnify the Agent and each Bank and
their respective directors, officers, employees, attorneys, advisors and agents
from, and hold each of them harmless against, any and all losses, liabilities,
claims, damages or expenses incurred by any of them (including, without
limitation, any and all losses, liabilities, claims, damages or expenses
incurred by the Agent to any Bank, whether or not the Agent or any Bank is a
party thereto) arising out of or by reason of any investigation or litigation or
other proceedings (including any threatened investigation or litigation or other
proceedings) relating to the negotiation, preparation, execution and delivery of
this Agreement and the other Basic Documents or the extensions of credit
hereunder or any actual or proposed use by Kelsey-Hayes or any of its
Subsidiaries of the proceeds of any of the extensions of credit hereunder or the
failure of any representation or warranty made in Section 8.04 hereof to be true
in any material respect, including, without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such investigation or
litigation or other proceedings (but excluding any such losses, liabilities,
claims, damages or expenses incurred by reason of the gross negligence or
willful misconduct of the Person to be indemnified or by reason of the failure
of the Agent or any Bank to make any payment required to be made by it under
this Agreement or by reason of any actual conflict of interest arising with
respect to its other customers), and each Obligor party hereto hereby agrees not
to assert any claim against the Agent, any Bank, any of their affiliates or any
of their respective directors, officers, employees, attorneys and agents, on any
theory of liability, for special, indirect, consequential or punitive damages
arising out of or otherwise relating to any of the transactions contemplated
herein or in any other Basic Document. Without limiting the generality of the
foregoing, Kelsey-Hayes will indemnify the Agent and each Bank from, and hold
the Agent and each Bank harmless against, any losses, liabilities, claims,
damages or expenses described in the preceding sentence (but excluding, as
provided in the preceding sentence, any loss, liability, claim, damage or
expense incurred by reason of the gross negligence or willful
Credit Agreement
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79
misconduct of the Person to be indemnified) arising under any Environmental Law
as a result of the past, present or future operations of Kelsey-Hayes or any of
its Subsidiaries (or any predecessor in interest to Kelsey-Hayes or any of its
Subsidiaries), or the past, present or future condition of any site or facility
owned, operated or leased by Kelsey-Hayes or any of its Subsidiaries (or any
such predecessor in interest), or any Release or threatened Release of any
Hazardous Materials from any such site or facility.
12.04 Amendments, Etc. Except as otherwise expressly provided in
---------------
this Agreement, any provision of this Agreement may be modified or supplemented
only by an instrument in writing signed by Kelsey-Hayes, the Agent and the
Majority Banks, or by Kelsey-Hayes and the Agent acting with the consent of the
Majority Banks, and any provision of this Agreement may be waived by the
Majority Banks or by the Agent acting with the consent of the Majority Banks;
provided that: (a) no modification, supplement or waiver shall, unless by an
--------
instrument signed by all of the Banks or by the Agent acting with the consent of
all of the Banks (i) increase or extend the term of any of the Commitments, or
extend the time or waive any requirement for the reduction or termination of any
of the Commitments, (ii) extend any date fixed for the payment of principal of
or interest on any Loan, the Reimbursement Obligations or any fee hereunder
(other than any fee payable solely for account of the Agent or the Issuing
Bank), (iii) reduce the amount of any such payment of principal or Reimbursement
Obligations, (iv) reduce the rate at which interest is payable thereon or any
fee is payable hereunder (other than any fee payable solely for account of the
Agent or the Issuing Bank), (v) increase the rights or reduce the obligations of
Kelsey-Hayes to prepay Loans, (vi) alter the terms of any of Sections 4.02, 4.07
and 5 hereof and this Section 12.04, (vii) modify the definition of the term
"Majority Banks", or modify in any other manner the number or percentage of the
Banks required to make any determinations or waive any rights hereunder or to
modify any provision hereof, or (viii) waive any of the conditions precedent set
forth in Section 7 hereof; and (b) any modification of any of the rights or
obligations of the Agent, the Co-Agent or the Issuing Bank hereunder shall
require the consent of the Agent, the Co-Agent or the Issuing Bank (as the case
may be).
12.05 Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
12.06 Assignments and Participations.
------------------------------
(a) No Obligor party hereto may assign any of its rights or
obligations hereunder or under the Notes without the prior consent of all of the
Banks and the Agent.
(b) Each Bank may, at any time or from time to time, assign to one or
more other Persons all or any portion of its Loans, Note, Commitment and Letter
of Credit Interest (but only with the consent of, in the case of an outstanding
Commitment, Kelsey-Hayes and the Agent and, in the case of a Commitment or a
Letter of Credit Interest, the Issuing Bank, but otherwise
Credit Agreement
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80
without the consent of any thereof); provided that (i) no such consent by
--------
Kelsey-Hayes or the Agent shall be required in the case of any assignment to
another Bank; (ii) any such partial assignment shall be in an amount at least
equal to $5,000,000; (iii) each such assignment by a Bank of any of its Loans,
Note, Commitment or Letter of Credit Interest shall be made in such manner so
that the same portion of such Loans, Note, Commitment and Letter of Credit
Interest is assigned to the respective assignee; and (iv) no consent required to
be given by Kelsey-Hayes under this paragraph shall be unreasonably withheld or
delayed. Upon execution and delivery by the assignee to Kelsey-Hayes, the Agent
and the Issuing Bank of an instrument in writing pursuant to which such assignee
agrees to become a "Bank" hereunder (if not already a Bank) having the
Commitment, Loans and Letter of Credit Interest specified in such instrument,
and upon consent thereto by Kelsey-Hayes, the Agent and the Issuing Bank, to the
extent required above, the assignee shall have, to the extent of such assignment
(unless otherwise provided in such assignment with the consent of Kelsey-Hayes,
the Agent and the Issuing Bank), the obligations, rights and benefits of a Bank
hereunder holding the Commitment, Loans and Letter of Credit Interest (or
portions thereof) assigned to it (in addition to the Commitment, Loans and
Letter of Credit Interest, if any, theretofore held by such assignee) and the
assigning Bank shall, to the extent of such assignment, be released from the
Commitment (or portion thereof) so assigned. Upon each such assignment the
assigning Bank shall pay the Agent an assignment fee of $3,000.
(c) A Bank may, at any time or from time to time (but only with the
consent of Kelsey-Hayes, which consent shall not be unreasonably withheld or
delayed), sell or agree to sell to one or more other Persons a participation in
all or any part of any Loans or Letter of Credit Interest held by it, or in its
Commitment, in which event each purchaser of a participation (a "Participant")
-----------
shall, except as otherwise provided in Section 4.07(c) hereof, not have any
rights or benefits under this Agreement or any Note or any other Basic Document
(the Participant's rights against such Bank in respect of such participation to
be those set forth in the agreements executed by such Bank in favor of the
Participant). All amounts payable by Kelsey-Hayes to any Bank under Section 5
hereof in respect of the Loans and Letter of Credit Interest held by it, and its
Commitment, shall be determined as if such Bank had not sold or agreed to sell
any participations in such Loans, Letter of Credit Interest and Commitment, and
as if such Bank were funding each of such Loan, Letter of Credit Interest and
Commitment in the same way that it is funding the portion of such Loan, Letter
of Credit Interest and Commitment in which no participations have been sold. In
no event shall a Bank that sells a participation agree with the Participant to
take or refrain from taking any action hereunder or under any other Basic
Document except that such Bank may agree with the Participant that it will not,
without the consent of the Participant, agree to (i) increase or extend the
term, or extend the time or waive any requirement for the reduction or
termination, of such Bank's Commitment, (ii) extend any date fixed for the
payment of principal of or interest on the related Loan or Loans, Reimbursement
Obligations or any portion of any fee hereunder payable to the Participant,
(iii) reduce the amount of any such payment of principal, (iv) reduce the rate
at which interest is payable thereon, or any fee hereunder payable to the
Participant, to a level below the rate at which the Participant is entitled
Credit Agreement
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81
to receive such interest or fee, (v) increase the rights or reduce the
obligations of Kelsey-Hayes to prepay the related Loans or (vi) consent to any
modification, supplement or waiver hereof or of any of the other Basic Documents
to the extent that the same, under Section 11.09 or 12.04 hereof, requires the
consent of each Bank.
(d) In addition to the assignments and participations permitted by
the foregoing provisions of this Section 12.06, any Bank may assign and pledge
all or any portion of its Loans and its Notes to any Federal Reserve Bank as
collateral security pursuant to Regulation A and any Operating Circular issued
by such Federal Reserve Bank. No such assignment shall release the assigning
Bank from its obligations hereunder.
(e) A Bank may furnish any information concerning Kelsey-Hayes or any
of its Subsidiaries in the possession of such Bank from time to time to
assignees and participants (including prospective assignees and participants),
subject, however, to the provisions of Section 12.12(b) hereof.
(f) Anything in this Section 12.06 to the contrary notwithstanding,
neither Kelsey-Hayes nor any of its Subsidiaries or Affiliates may acquire
(whether by assignment, participation or otherwise), and no Bank shall assign or
participate to Kelsey-Hayes or any of its Subsidiaries or Affiliates, any
interest in any Commitment, Loan or Reimbursement Obligation without the prior
consent of each Bank.
12.07 Survival. The obligations of Kelsey-Hayes under Sections 5.01,
--------
5.05, 5.06, 5.07 and 12.03 hereof and the obligations of the Banks under Section
11.05 hereof shall survive the repayment of the Loans and Reimbursement
Obligations and the termination of the Commitments. In addition, each
representation and warranty made, or deemed to be made by a notice of any
extension of credit (whether by means of a Loan or a Letter of Credit), herein
or pursuant hereto shall survive the making of such representation and warranty,
and no Bank shall be deemed to have waived, solely by reason of making any
extension of credit hereunder (whether by means of a Loan or a Letter of
Credit), any Default which may arise by reason of such representation or
warranty proving to have been false or misleading, notwithstanding that such
Bank or the Agent may have had notice or knowledge or reason to believe that
such representation or warranty was false or misleading at the time such
extension of credit was made.
12.08 Captions. The table of contents and captions and section
--------
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this
Agreement.
12.09 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
Credit Agreement
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82
12.10 Governing Law; Submission to Jurisdiction. This Agreement and
-----------------------------------------
the Notes shall be governed by, and construed in accordance with, the law of the
State of New York. Each Obligor party hereto hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Southern District of
New York and of any New York state court sitting in New York City for the
purposes of all legal proceedings arising out of or relating to this Agreement
or the transactions contemplated hereby. Each Obligor party hereto irrevocably
waives, to the fullest extent permitted by applicable law, any objection which
it may now or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that any such proceeding brought in such a
court has been brought in an inconvenient forum.
12.11 Waiver of Jury Trial. EACH OF THE OBLIGORS PARTY HERETO, THE
--------------------
AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
12.12 Treatment of Certain Information; Confidentiality.
-------------------------------------------------
(a) Kelsey-Hayes acknowledges that from time to time financial
advisory, investment banking and other services may be offered or provided to
Kelsey-Hayes or one or more of its Subsidiaries (in connection with this
Agreement or otherwise) by any Bank or by one or more subsidiaries or affiliates
of such Bank and Kelsey-Hayes hereby authorizes each Bank to share any
information delivered to such Bank by Kelsey-Hayes and its Subsidiaries pursuant
to this Agreement, or in connection with the decision of such Bank to enter into
this Agreement, to any such subsidiary or affiliate, it being understood that
any such subsidiary or affiliate receiving such information shall be bound by
the provisions of paragraph (b) below as if it were a Bank hereunder.
(b) Each Bank and the Agent agrees (on behalf of itself and each of
its affiliates, directors, officers, employees and representatives) to use
reasonable precautions to keep confidential, in accordance with their customary
procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices, any non-public information
supplied to it by Kelsey-Hayes pursuant to this Agreement, provided that nothing
--------
herein shall limit the disclosure of any such information (i) to the extent
required by statute, rule, regulation or judicial process, (ii) to counsel for
any of the Banks or the Agent, (iii) to bank examiners, auditors or accountants,
(iv) to the Agent or any other Bank (or to Chase Securities, Inc.), (v) in
connection with any litigation to which any one or more of the Banks or the
Agent is a party, (vi) to a subsidiary or affiliate of such Bank as provided in
paragraph (a) above or (vii) to any assignee or participant (or prospective
assignee or participant) so long as such assignee or participant (or prospective
assignee or participant) first executes and delivers to the respective Bank a
Confidentiality Agreement substantially in the form of Exhibit F hereto;
provided, further,
-------- -------
Credit Agreement
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83
that in no event shall any Bank or the Agent be obligated or required to return
any materials furnished by Kelsey-Hayes. The obligations of each Bank under
this Section 12.12 shall supersede and replace the obligations of such Bank
under the confidentiality letter in respect of this financing signed and
delivered by such Bank to Kelsey-Hayes prior to the date hereof.
12.13 Release of Collateral. Upon this Second Amendment and
---------------------
Restatement becoming effective pursuant to Section 7.01 hereof, the Amended and
Restated Guarantee and Security Agreement (as defined in the 1993 Credit
Agreement, and hereinafter, the "1993 Security Agreement") and the Liens created
-----------------------
thereby, will terminate and be of no further force and effect. In addition, the
Banks and the Agent agree thereupon to provide promptly such releases,
termination statements and other documents as Kelsey-Hayes may reasonably
request in order to release the Liens of the 1993 Security Agreement and the
Agent will redeliver to K-H without representation and warranty certificates
representing the "Pledged Stock" (as defined in the 1993 Security Agreement).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
KELSEY-HAYES COMPANY
By /s/ Frederick J. Chapman
Title: Treasurer
By /S/ Glenn Dong
Title: Assistant Treaurer
Address for Notices:
Kelsey-Hayes Company
11878 Hubbard Drive
Livonia, Michigan 48150
Attention: Glenn Dong
Telecopier No.: 313-513-4475
Telephone No.: 313-513-4304
Credit Agreement
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84
BANKS
Commitment THE CHASE MANHATTAN BANK
---------- (NATIONAL ASSOCIATION),
$18,750,000 as a Bank and as Issuing Bank
By /s/ George Hansen
Title: Vice President
Lending Office for all Loans:
The Chase Manhattan Bank
(National Association)
1 Chase Manhattan Plaza
New York, New York 10081
Address for Notices:
The Chase Manhattan Bank
(National Association)
1 Chase Manhattan Plaza
New York, New York 10081
Attention: George Hansen
Telecopier No.: 212-552-1457
Telephone No.: 212-552-7674
Credit Agreement
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<PAGE>
85
Commitment THE BANK OF NOVA SCOTIA
----------
$18,750,000
By /s/ A.S. Norsworthy
Title: Assistant Agent
Lending Office for all Loans:
The Bank of Nova Scotia
55 Park Place
Atlanta, Georgia 30303
Address for Notices:
The Bank of Nova Scotia
55 Park Place
Atlanta, Georgia 30303
Attention: Joe Legista
Telecopier No.: 404-888-8998
Telephone No.: 404-877-1562
with a copy to:
--------------
The Bank of Nova Scotia
181 West Madison Street
Suite 3700
Chicago, Illinois 60602
Attention: David Scott
Telecopier No.: 312-201-4108
Telephone No.: 312-201-4116
Credit Agreement
----------------
<PAGE>
86
Commitment COMERICA BANK
----------
$18,750,000
By /s/ Susan A. Claiborne
Title: Vice President
Lending Office for all Loans:
Comerica Bank
1 Detroit Center
500 Woodward Avenue
Detroit, Michigan 48226-3265
Address for Notices:
Comerica Bank
1 Detroit Center
500 Woodward Avenue
Detroit, Michigan 48226-3265
Attention: Susan A. Claiborne
Telecopier No.: 313-222-3776
Telephone No.: 313-222-9182
Credit Agreement
----------------
<PAGE>
87
Commitment MARINE MIDLAND BANK
----------
$18,750,000
By /s/ Hugh C. McLean
Title: Vice President
Lending Office for all Loans:
Marine Midland Bank
Regional Commercial Banking
One Marine Midland Center
Buffalo, New York 14203
Address for Notices:
Marine Midland Bank
Regional Commercial Banking
One Marine Midland Center
Lobby Level
Buffalo, New York 14203
Attention: Hugh C. McLean
Telecopier No.: 716-855-0384
Telephone No.: 716-841-2630
Credit Agreement
----------------
<PAGE>
88
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
as Agent
By /s/ George Hansen
Title: Vice President
Address for Notices to
the Agent:
The Chase Manhattan Bank
(National Association)
4 Metrotech Center
13th Floor
Brooklyn, New York 11245
Telecopier No.: 718-242-6910
Telephone No.: 718-242-7979
Attention: New York Agency
Credit Agreement
----------------
<PAGE>
89
THE BANK OF NOVA SCOTIA,
as Co-Agent
By /s/ A.S. Norsworthy
Title: Assistant Agent
Address for Notices to
the Co-Agent:
The Bank of Nova Scotia
600 Peachtree Street NE
Suite 2700
Atlanta, Georgia 30308
Attention: Joe Legista
Telecopier No.: 404-888-8998
Telephone No.: 404-877-1562
with a copy to:
--------------
The Bank of Nova Scotia
181 West Madison Street
Suite 3700
Chicago, Illinois 60602
Attention: David Scott
Telecopier No.: 312-201-4108
Telephone No.: 312-201-4116
Credit Agreement
----------------
<PAGE>
EXHIBIT A-1
[Form of Syndicated Note]
PROMISSORY NOTE
$_______________ May 1, 1995
New York, New York
FOR VALUE RECEIVED, KELSEY-HAYES COMPANY, a Delaware corporation
("Kelsey-Hayes"), hereby promises to pay to __________________ (the "Bank"), for
-------------- ----
account of its respective Applicable Lending Offices provided for by the Credit
Agreement referred to below, at the principal office of The Chase Manhattan Bank
(National Association) at 1 Chase Manhattan Plaza, New York, New York 10081, the
principal sum of _______________ Dollars (or such lesser amount as shall equal
the aggregate unpaid principal amount of the Syndicated Loans made by the Bank
to Kelsey-Hayes under the Credit Agreement), in lawful money of the United
States of America and in immediately available funds, on the dates and in the
principal amounts provided in the Credit Agreement, and to pay interest on the
unpaid principal amount of each such Syndicated Loan, at such office, in like
money and funds, for the period commencing on the date of such Syndicated Loan
until such Syndicated Loan shall be paid in full, at the rates per annum and on
the dates provided in the Credit Agreement.
The date, amount, Type, interest rate and duration of Interest Period
(if applicable) of each Syndicated Loan made by the Bank to Kelsey-Hayes, and
each payment made on account of the principal thereof, shall be recorded by the
Bank on its books and, prior to any transfer of this Note, endorsed by the Bank
on the schedule attached hereto or any continuation thereof, provided that the
--------
failure of the Bank to make any such recordation or endorsement shall not affect
the obligations of Kelsey-Hayes to make a payment when due of any amount owing
under the Credit Agreement or hereunder in respect of the Syndicated Loans made
by the Bank.
This Note is one of the Syndicated Notes referred to in the Second
Amended and Restated Credit Agreement dated as of December 15, 1992 amended and
restated as of May 1, 1995 (as modified and supplemented and in effect from time
to time, the "Credit Agreement") between Kelsey-Hayes, the lenders named
----------------
therein, The Chase Manhattan Bank (National Association), as Agent, and The Bank
of Nova Scotia, as Co-Agent, and evidences Syndicated Loans made by the Bank
thereunder. Terms used but not defined in this Note have the respective
meanings assigned to them in the Credit Agreement.
The Credit Agreement provides for the acceleration of the maturity of
this Note upon the occurrence of certain events and for prepayments of
Syndicated Loans upon the terms
Revolving Credit Note
---------------------
<PAGE>
and conditions specified therein.
Except as permitted by Section 12.06 of the Credit Agreement, this
Note may not be assigned by the Bank to any other Person.
This Note shall be governed by, and construed in accordance with, the
law of the State of New York.
KELSEY-HAYES COMPANY
By____________________________
Title:
Revolving Credit Note
---------------------
<PAGE>
SCHEDULE OF SYNDICATED LOANS
This Note evidences Syndicated Loans made, Continued or Converted
under the within-described Credit Agreement to Kelsey-Hayes, on the dates, in
the principal amounts, of the Types, bearing interest at the rates and having
Interest Periods (if applicable) of the durations set forth below, subject to
the payments, Continuations, Conversions and prepayments of principal set forth
below:
<TABLE>
<CAPTION>
Amount
Date Paid,
Made, Duration Prepaid,
Continued Principal Type of Continued Unpaid
or Amount of Interest Interest or Principal Notation
Converted of Loan Loan Rate Period Converted Amount Made by
---------- --------- ---- -------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
Revolving Credit Note
---------------------
<PAGE>
EXHIBIT A-2
[Form of Money Market Note]
PROMISSORY NOTE
May 1, 1995
New York, New York
FOR VALUE RECEIVED, KELSEY-HAYES COMPANY, a Delaware corporation
("Kelsey-Hayes"), hereby promises to pay to __________________ (the "Bank"), for
----
account of its respective Applicable Lending Offices provided for by the Credit
Agreement referred to below, at the principal office of The Chase Manhattan Bank
(National Association) at 1 Chase Manhattan Plaza, New York, New York 10081, the
aggregate unpaid principal amount of the Money Market Loans made by the Bank to
Kelsey-Hayes under the Credit Agreement, in lawful money of the United States of
America and in immediately available funds, on the dates and in the principal
amounts provided in the Credit Agreement, and to pay interest on the unpaid
principal amount of each such Money Market Loan, at such office, in like money
and funds, for the period commencing on the date of such Money Market Loan until
such Money Market Loan shall be paid in full, at the rates per annum and on the
dates provided in the Credit Agreement.
The date, amount, Type, interest rate and maturity date of each Money
Market Loan made by the Bank to Kelsey-Hayes, and each payment made on account
of the principal thereof, shall be recorded by the Bank on its books and, prior
to any transfer of this Note, endorsed by the Bank on the schedule attached
hereto or any continuation thereof, provided that the failure of the Bank to
--------
make any such recordation or endorsement shall not affect the obligations of
Kelsey-Hayes to make a payment when due of any amount owing under the Credit
Agreement or hereunder in respect of the Money Market Loans made by the Bank.
This Note is one of the Money Market Notes referred to in the Second
Amended and Restated Credit Agreement dated as of December 15, 1992 amended and
restated as of May 1, 1995 (as modified and supplemented and in effect from time
to time, the "Credit Agreement") between Kelsey-Hayes, the lenders named
----------------
therein, The Chase Manhattan Bank (National Association), as Agent, and The Bank
of Nova Scotia, as Co-Agent, and evidences Money Market Loans made by the Bank
thereunder. Terms used but not defined in this Note have the respective
meanings assigned to them in the Credit Agreement.
The Credit Agreement provides for the acceleration of the maturity of
this Note upon the occurrence of certain events and for prepayments of Money
Market Loans upon the terms and conditions specified therein.
Revolving Credit Note
---------------------
<PAGE>
Except as permitted by Section 12.06 of the Credit Agreement, this
Note may not be assigned by the Bank to any other Person.
This Note shall be governed by, and construed in accordance with, the
law of the State of New York.
KELSEY-HAYES COMPANY
By____________________________
Title:
Revolving Credit Note
---------------------
<PAGE>
SCHEDULE OF LOANS
This Note evidences Money Market Loans made under the within-described
Credit Agreement to Kelsey-Hayes, on the dates, in the principal amounts, of the
Types, bearing interest at the rates and maturing on the dates set forth below,
subject to the payments and prepayments of principal set forth below:
<TABLE>
<CAPTION>
Principal Type Maturity Amount Unpaid
Date Amount of Interest Date of Paid or Principal Notation
Made of Loan Loan Rate Loan Prepaid Amount Made by
---------- --------- ---- -------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
Revolving Credit Note
---------------------
<PAGE>
EXHIBIT B
[Form of Borrowing Base Certificate]
BORROWING BASE CERTIFICATE
KELSEY-HAYES COMPANY
Calendar Month
ended __________, 199__
Reference is made to the Second Amended and Restated Credit Agreement
dated as of December 15, 1992 as amended and restated as of May 1, 1995 (as
modified and supplemented and in effect from time to time, the "Credit
------
Agreement") between Kelsey-Hayes Company ("Kelsey-Hayes"), the Banks party
------------
thereto, The Chase Manhattan Bank (National Association), as agent for said
Banks, and The Bank of Nova Scotia, as Co-Agent. Terms used herein and in the
Annexes hereto but not defined herein have the respective meanings given to such
terms in the Credit Agreement. This Certificate is delivered with respect to
the calendar month identified above (the last day of such calendar month is
hereinafter referred to as the "Specified Date").
--------------
Pursuant to Section 9.01(j) of the Credit Agreement, the undersigned,
a Senior Financial Officer of Kelsey-Hayes, hereby certifies that (a) Annex 1
hereto is a true and accurate calculation of the Borrowing Base as at the
Specified Date, determined in accordance with the requirements of the Credit
Agreement, and (b) Annex 2 hereto is a true and accurate description of the
aging of all Eligible Receivables as at the Specified Date.
All Inventory covered by this Certificate has been produced in
compliance with all applicable laws, including, without limitation, the minimum
wage and overtime requirements of the Fair Labor Standards Act of 1938, as
amended.
IN WITNESS WHEREOF, the undersigned, in the undersigned's capacity as
_______________ of Kelsey-Hayes, has caused this Certificate to be delivered on
behalf of Kelsey-Hayes this ____ day of __________, 199__.
______________________________
Name:
Borrowing Base Certificate
--------------------------
<PAGE>
ANNEX 1
KELSEY-HAYES COMPANY
Borrowing Base Certificate
Calendar Month
ended __________, 199__
RECEIVABLES
A. Aggregate amount of all Receivables
payable to a Principal Obligor $__________
B. Aggregate amount of all Receivables
referred to in item (A) above that do not
constitute Eligible Receivables as a result
of paragraphs (a) through (j) of the
definition of Eligible Receivables $__________
C. Aggregate amount of all otherwise ineligible
Receivables included in Eligible Receivables
as a result of the proviso to the definition of
Eligible Receivables $__________
D. Aggregate amount of all Eligible Receivables
(item (A) minus item (B) plus item (C)) $__________
----
E. 80% of item (D) $__________
INVENTORY
F. Aggregate value (valued at the lower of
cost or market in accordance with GAAP,
except that cost shall be determined on a
first-in-first-out basis) of all
Inventory $__________
Annex 1 to Borrowing Base Certificate
-------------------------------------
<PAGE>
G. Aggregate value of all Inventory referred
to in item (F) above that does not
constitute Eligible Inventory as a result
of paragraphs (a) through (f) of the definition
of Eligible Inventory $__________
H. Aggregate amount of all Eligible
Inventory (item (F) minus item (G)) $__________
-----
I. 50% of item (H) $__________
COVERED AMOUNT
K. The aggregate amount of funds
standing to the credit of the Collateral
Account as cover for Letter of Credit
Liabilities on the Specified Date $__________
L. The aggregate amount of Letter of Credit
Liabilities on the Specified Date $__________
M. The lesser of item (K) and item (L) $__________
BORROWING BASE
N. BORROWING BASE equals the sum
of item (E) plus item (J) plus item (M) $__________
---- ----
AVAILABILITY
O. Aggregate principal amount of Loans
outstanding on the Specified Date $__________
P. Repeat item L $__________
Q. AVAILABILITY equals item (N) minus
-----
item (O) minus item (P) $__________
-----
Annex 1 to Borrowing Base Certificate
-------------------------------------
<PAGE>
ANNEX 2
KELSEY-HAYES COMPANY
Borrowing Base Certificate
Calendar Month
ended __________, 199__
Aging Report for Eligible Receivables
<TABLE>
<CAPTION>
Aggregate amount of all
Eligible Receivables Portion Current Portion 1-30 Portion 31-60
----------------------- --------------- ------------ -------------
<S> <C> <C> <C>
</TABLE>
Annex 2 to Borrowing Base Certificate
-------------------------------------
<PAGE>
EXHIBIT C-1
[Form of Legal Opinion of Cahill Gordon & Reindel]
May 1, 1995
Each of the Banks party
to the Credit Agreement
referred to below
The Chase Manhattan Bank
(National Association),
as Agent for said Banks
1 Chase Manhattan Plaza
New York, New York 10081
The Bank of Nova Scotia,
as Co-Agent
Ladies and Gentlemen:
We have acted as counsel to Kelsey-Hayes Company ("Kelsey-Hayes") in
connection with the Second Amended and Restated Credit Agreement dated as of
December 15, 1992, amended and restated as of May 1, 1995 (as so amended and
restated, the "Credit Agreement") between Kelsey-Hayes, the Banks party thereto,
The Chase Manhattan Bank (National Association), in its capacity as agent for
said Banks (the "Agent"), and The Bank of Nova Scotia, as Co-Agent, providing
for, among other things, the making of loans, and the issuance of or acquisition
of interests in letters of credit, by the Banks in an aggregate principal or
face amount not to exceed $75,000,000. All capitalized terms used but not
defined herein have the respective meanings given to such terms in the Credit
Agreement.
In rendering the opinions expressed below, we have examined:
(i) the Credit Agreement;
(ii) the Notes (collectively with the document referred to in clause
(i) above, the "Credit Documents"); and
Legal Opinion of Counsel to Kelsey-Hayes
----------------------------------------
<PAGE>
(iii) such corporate records of Kelsey-Hayes and such other documents
as we have deemed necessary as a basis for the opinions expressed below.
In our examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
with authentic original documents of all documents submitted to us as copies.
When relevant facts were not independently established, we have relied upon
statements of governmental officials and upon representations made in or
pursuant to the Credit Documents and certificates of appropriate representatives
of Kelsey-Hayes.
In rendering the opinions expressed below, we have assumed, with
respect to all of the documents referred to in this opinion letter, that
(except, to the extent set forth in the opinions expressed below, as to Kelsey-
Hayes):
(i) such documents have been duly authorized by, have been duly
executed and delivered by, and constitute legal, valid, binding and
enforceable obligations of, all of the parties to such documents;
(ii) all signatories to such documents have been duly authorized; and
(iii) all of the parties to such documents are duly organized and
validly existing and have the power and authority (corporate or other) to
execute, deliver and perform such documents.
Based upon and subject to the foregoing and subject also to the
comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinions
expressed below, we are of the opinion that:
1. Each Credit Document (assuming, in the case of the Notes, execution
and delivery thereof for value) constitutes the legal, valid and binding
obligation of Kelsey-Hayes, enforceable against Kelsey-Hayes in accordance
with its terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
the rights of creditors generally and except as the enforceability of the
Credit Documents is subject to the application of general principles of
equity (regardless of whether considered in a proceeding in equity or at
law), including, without limitation, (a) the possible unavailability of
specific performance, injunctive relief or any other equitable remedy and
(b) concepts of materiality, reasonableness, good faith and fair dealing.
2. No authorization, approval or consent of, and no filing or
registration with, any governmental or regulatory authority or agency of
the United States of America or the State of New York is required on the
part of Kelsey-Hayes for the execution, delivery or performance by Kelsey-
Hayes of the Credit Documents to which Kelsey-Hayes is a party or for any
borrowings or the application for and assumption of liability in respect of
any
Legal Opinion of Counsel to Kelsey-Hayes
----------------------------------------
<PAGE>
letter of credit by Kelsey-Hayes under the Credit Agreement.
3. The execution, delivery and performance by Kelsey-Hayes of, and the
consummation by Kelsey-Hayes of the transactions contemplated by, the
Credit Documents do not and will not (a) violate any provision of the
charter or by-laws of Kelsey-Hayes, (b) violate any applicable law, rule or
regulation (other than any law, rule or regulation applicable to the Banks
or the Agent by virtue of the nature of their respective businesses) or (c)
result in a breach of, constitute a default under, require any consent
under, or result in the acceleration or required prepayment of any
indebtedness pursuant to the terms of, any of the agreements and
instruments listed in Schedule I hereto, or result in the creation or
imposition of any Lien upon any Property of Kelsey-Hayes pursuant to the
terms of any such agreement or instrument.
The foregoing opinions are subject to the following comments and
qualifications:
A. The enforceability of Section 12.03 of the Credit Agreement may be
limited by (i) laws rendering unenforceable indemnification contrary to
Federal or state securities laws and the public policy underlying such laws
and (ii) laws limiting the enforceability of provisions exculpating or
exempting a party, or requiring indemnification of a party for, liability
for its own action or inaction, to the extent the action or inaction
involves gross negligence, willful misconduct or unlawful conduct.
B. The enforceability of provisions in the Credit Documents to the
effect that terms may not be waived or modified except in writing may be
limited under certain circumstances.
C. We express no opinion as to (i) the effect of the laws of any
jurisdiction in which any Bank is located (other than New York) that limit
the interest, fees or other charges such Bank may impose, (ii) Section
4.07(c) of the Credit Agreement and (iii) the second sentence of Section
12.10 of the Credit Agreement, insofar as such sentence relates to the
subject matter jurisdiction of the United States District Court for the
Southern District of New York to adjudicate any controversy related to the
Credit Documents.
D. We express no opinion as to the applicability to the obligations
under the Credit Documents of Kelsey-Hayes (or the enforceability of such
obligations) of Section 548 of the Bankruptcy Code, Article 10 of the New
York Debtor and Creditor Law or any other provisions of law relating to
fraudulent conveyances, transfers or obligations.
The foregoing opinions are limited to matters involving the Federal
laws of the United States and the law of the State of New York, and we do not
express any opinion as to the laws of any other jurisdiction.
At the request of our client, this opinion letter is, pursuant to
Section 7.01(c) of the
Legal Opinion of Counsel to Kelsey-Hayes
----------------------------------------
<PAGE>
Credit Agreement, provided to you by us in our capacity as counsel to Kelsey-
Hayes and may not be relied upon by any Person for any purpose other than in
connection with the transactions contemplated by the Credit Agreement without,
in each instance, our prior written consent.
Very truly yours,
Legal Opinion of Counsel to Kelsey-Hayes
----------------------------------------
<PAGE>
EXHIBIT C-2
[Form of Legal Opinion of General Counsel of Kelsey-Hayes]
May 1, 1995
Each of the Banks party
to the Credit Agreement
referred to below
The Chase Manhattan Bank
(National Association),
as Agent for said Banks
1 Chase Manhattan Plaza
New York, New York 10081
The Bank of Nova Scotia,
as Co-Agent
Ladies and Gentlemen:
I am the General Counsel of Kelsey-Hayes Company ("Kelsey-Hayes"), and
have acted as counsel to Kelsey-Hayes in connection with the Second Amended and
Restated Credit Agreement dated as of December 15, 1992, amended and restated as
of May 1, 1995 (as so amended and restated, the "Credit Agreement") between
Kelsey-Hayes, the Banks party thereto, The Chase Manhattan Bank (National
Association), in its capacity as agent for said Banks (the "Agent"), and The
Bank of Nova Scotia, as Co-Agent, providing for, among other things, the making
of loans, and the issuance of or acquisition of interests in letters of credit,
by the Banks in an aggregate principal or face amount not to exceed $75,000,000.
All capitalized terms used but not defined herein have the respective meanings
given to such terms in the Credit Agreement.
In rendering the opinions expressed below, I have examined:
(i) the Credit Agreement;
(ii) the Notes (collectively with the document referred to in clause
(i) above, the
Legal Opinion of General Counsel of Kelsey-Hayes
------------------------------------------------
<PAGE>
"Credit Documents"); and
(iii) such corporate records of Kelsey-Hayes and such other documents
as I have deemed necessary as a basis for the opinions expressed below.
In my examination, I have assumed the genuineness of all signatures, the
authenticity of all documents submitted to me as originals and the conformity
with authentic original documents of all documents submitted to me as copies.
When relevant facts were not independently established, I have relied upon
statements of governmental officials and upon representations made in or
pursuant to the Credit Documents and certificates of appropriate representatives
of Kelsey-Hayes.
In rendering the opinions expressed below, I have assumed, with
respect to all of the documents referred to in this opinion letter, that
(except, to the extent set forth in the opinions expressed below, as to Kelsey-
Hayes):
(i) such documents have been duly authorized by, have been duly
executed and delivered by, and constitute legal, valid binding and
enforceable obligations of, all of the parties to such documents;
(ii) all signatories to such documents have been duly authorized; and
(iii) all of the parties to such documents are duly organized and
validly existing and have the power and authority (corporate or other) to
execute, deliver and perform such documents.
Based upon and subject to the foregoing and subject also to the
comments set forth below, and having considered such questions of law as I have
deemed necessary as a basis for the opinions expressed below, I am of the
opinion that:
1. Kelsey-Hayes is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.
2. Kelsey-Hayes has all requisite corporate power and authority to
execute and deliver, and to perform its obligations under, each Credit
Document to which it is a party. Kelsey-Hayes has all requisite corporate
power to borrow and apply for and assume liability in respect of letters of
credit under the Credit Agreement.
3. The execution, delivery and performance by Kelsey-Hayes of each
Credit Document to which it is a party, and the borrowings and the
application for and assumption of liability in respect of letters of credit
by Kelsey-Hayes under the Credit Agreement, have been duly authorized by
all necessary corporate action on the part of Kelsey-Hayes.
Legal Opinion of General Counsel of Kelsey-Hayes
------------------------------------------------
<PAGE>
4. Each Credit Document has been duly executed and delivered by Kelsey
-Hayes.
5. No authorization, approval or consent of, and no filing or
registration with, any governmental or regulatory authority or agency of
the State of Michigan or Ohio is required on the part of any Obligor for
the execution, delivery or performance by such Obligor of the Credit
Documents to which Kelsey-Hayes is a party or for any borrowings or the
application for and assumption of liability in respect of any letter of
credit by Kelsey-Hayes under the Credit Agreement.
6. The execution, delivery and performance by Kelsey-Hayes of, and the
consummation by Kelsey-Hayes of the transactions contemplated by, the
Credit Documents do not and will not (a) violate any order, writ,
injunction or decree of any court or governmental authority or agency or
any arbitral award of which I have knowledge (after due inquiry) applicable
to Kelsey-Hayes or (b) result in a breach of, constitute a default under,
require any consent under, or result in the acceleration or required
prepayment of any indebtedness pursuant to the terms of, any agreement or
instrument known to me after due inquiry to which Kelsey-Hayes is a party
or by which Kelsey-Hayes is bound or to which Kelsey-Hayes is subject, or
result in the creation or imposition of any Lien upon any Property of
Kelsey-Hayes pursuant to the terms of any such agreement or instrument.
7. I have no knowledge (after due inquiry) of any legal or arbitral
proceedings, or any proceedings by or before any governmental or regulatory
authority or agency, now pending or threatened against Kelsey-Hayes or any
of its Properties that, if adversely determined, could have a Material
Adverse Effect.
The foregoing opinions are limited to matters involving the Federal
laws of the United States, the law of the States of Ohio and Michigan and the
statutory corporate law of the State of Delaware, and I do not express any
opinion as to the laws of any other jurisdiction.
At the request of Kelsey-Hayes, this opinion letter is, pursuant to
Section 7.01(c) of the Credit Agreement, provided to you by me in my capacity as
General Counsel to Kelsey-Hayes and may not be relied upon by any Person for any
purpose other than in connection with the transactions contemplated by the
Credit Agreement without, in each instance, my prior written consent.
Very truly yours,
Legal Opinion of General Counsel of Kelsey-Hayes
------------------------------------------------
<PAGE>
EXHIBIT C-3
[Form of Legal Opinion of General Counsel to Varity]
May 1, 1995
Each of the Banks party
to the Credit Agreement
referred to below
The Chase Manhattan Bank
(National Association),
as Agent for said Banks
1 Chase Manhattan Plaza
New York, New York 10081
The Bank of Nova Scotia,
as Co-Agent
Ladies and Gentlemen:
I am the Vice President-Legal of Varity Corporation ("Varity"), and
have acted as counsel to Varity in connection with the Second Amended and
Restated Credit Agreement dated as of December 15, 1992, amended and restated as
of May 1, 1995 (as so amended and restated, the "Credit Agreement") between
Kelsey-Hayes Company ("Kelsey-Hayes"), the Banks party thereto, The Chase
Manhattan Bank (National Association), in its capacity as agent for said Banks
(the "Agent"), and The Bank of Nova Scotia, as Co-Agent, providing for, among
other things, the making of loans, and the issuance of or acquisition of
interests in letters of credit, by the Banks in an aggregate principal or face
amount not to exceed $75,000,000. All capitalized terms used but not defined
herein have the respective meanings given to such terms in the Credit Agreement.
In rendering the opinions expressed below, I have examined:
(i) the Varity Guarantee; and
Legal Opinion of General Counsel to Varity
------------------------------------------
<PAGE>
(ii) such corporate records of Varity and such other documents as I
have deemed necessary as a basis for the opinions expressed below.
In my examination, I have assumed the genuineness of all signatures, the
authenticity of all documents submitted to me as originals and the conformity
with authentic original documents of all documents submitted to me as copies.
When relevant facts were not independently established, I have relied upon
statements of governmental officials and upon representations made in or
pursuant to the Varity Guarantee and certificates of appropriate representatives
of Varity.
In rendering the opinions expressed below, I have assumed, with
respect to the Varity Guarantee, that (except, to the extent set forth in the
opinions expressed below, as to Varity):
(i) the Varity Guarantee has been duly authorized by, has been duly
executed and delivered by, and constitutes the legal, valid, binding and
enforceable obligation of, the Agent;
(ii) the signatory on behalf of the Agent has been duly authorized;
and
(iii) the Agent is duly organized and validly existing and has the
power and authority (corporate or other) to execute, deliver and perform
the Varity Guarantee.
Based upon and subject to the foregoing and subject also to the
comments set forth below, and having considered such questions of law as I have
deemed necessary as a basis for the opinions expressed below, I am of the
opinion that:
1. Varity is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
2. Varity has all requisite corporate power and authority to execute
and deliver, and to perform its obligations under, the Varity Guarantee.
3. The execution, delivery and performance by Varity of the Varity
Guarantee have been duly authorized by all necessary corporate action on
the part of Varity.
4. Varity has duly executed and delivered the Varity Guarantee and the
Varity Guarantee constitutes the legal, valid and binding obligation of
Varity, enforceable against Varity in accordance with its terms, except as
may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting the rights of creditors
generally and except as the enforceability of the Varity Guarantee is
subject to the application of general principles of equity (regardless of
whether considered in a proceeding in equity or at law), including, without
limitation, (a) the possible unavailability of specific performance,
injunctive relief or any other equitable remedy and
Legal Opinion of General Counsel to Varity
------------------------------------------
<PAGE>
(b) concepts of materiality, reasonableness, good faith and fair dealing
and except that the enforceability of provisions in the Varity Guarantee to
the effect that terms may not be waived or modified except in writing may
be limited in certain circumstances.
5. No authorization, approval or consent of, and no filing or
registration with, any governmental or regulatory authority or agency of
the United States of America or the States of New York or Delaware is
required on the part of Varity for the execution, delivery or performance
by Varity of the Varity Guarantee.
6. The execution, delivery and performance by Varity of, and the
consummation by Varity of the transactions contemplated by, the Varity
Guarantee do not and will not (a) violate any provision of the charter or
by-laws of Varity, (b) violate any applicable law, rule or regulation
(other than any law, rule or regulation applicable to the Banks or the
Agent by virtue of the nature of their respective businesses), (c) violate
any order, writ, injunction or decree of any court or governmental
authority or agency or any arbitral award of which I have knowledge (after
due inquiry) applicable to Varity or (d) result in a breach of, constitute
a default under, require any consent under, or result in the acceleration
or required prepayment of any indebtedness pursuant to the terms of, any
agreement or instrument to which any Varity is a party or by which Varity
is bound or to which Varity is subject.
7. I have no knowledge (after due inquiry) of any legal or arbitral
proceedings, or any proceedings by or before any governmental or regulatory
authority or agency, now pending or threatened against Varity or any of its
Properties that, if adversely determined, could have a Material Adverse
Effect.
The foregoing opinions are limited to matters involving the Federal
laws of the United States, the law of the State of New York and the statutory
corporate law of the State of Delaware, and I do not express any opinion as to
the laws of any other jurisdiction.
At the request of my client, this opinion letter is, pursuant to
Section 7.01(c) of the Credit Agreement, provided to you by me in my capacity as
Vice President-Legal of Varity and may not be relied upon by any Person for any
purpose other than in connection with the transactions contemplated by the
Credit Agreement without, in each instance, my prior written consent.
Very truly yours,
Legal Opinion of General Counsel to Varity
------------------------------------------
<PAGE>
EXHIBIT D
[Form of Legal Opinion of Milbank, Tweed, Hadley & McCloy]
May 1, 1995
Each of the Banks party
to the Credit Agreement
referred to below
The Chase Manhattan Bank
(National Association),
as Agent for said Banks
The Bank of Nova Scotia,
as Co-Agent
Ladies and Gentlemen:
We have acted as special New York counsel to the Banks in connection
with the Second Amended and Restated Credit Agreement dated as of December 15,
1992, amended and restated as of May 1, 1995 (as so amended and restated, the
"Credit Agreement") between Kelsey-Hayes Company, the banks party thereto, The
-----------------
Chase Manhattan Bank (National Association), in its capacity as agent for said
banks (the "Agent"), and The Bank of Nova Scotia, as Co-Agent, providing for,
-----
among other things, the making of loans, and the issuance of or acquisition of
interests in letters of credit, by the Banks in an aggregate principal or face
amount not to exceed $75,000,000. All capitalized terms used but not defined
herein have the respective meanings given to such terms in the Credit Agreement.
In rendering the opinions expressed below, we have examined:
(i) the Credit Agreement;
(ii) the Notes;
(iii) the Varity Guarantee (collectively with the documents referred
to in clauses
Legal Opinion of Milbank, Tweed, Hadley & McCloy
------------------------------------------------
<PAGE>
(i) and (ii) above, the "Credit Documents"); and
----------------
(iv) such corporate records of the Obligors and such other documents
as we have deemed necessary as a basis for the opinions expressed below.
In our examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
with authentic original documents of all documents submitted to us as copies.
When relevant facts were not independently established, we have relied upon
statements of governmental officials and upon representations made in or
pursuant to the Credit Documents and certificates of appropriate representatives
of the Obligors.
In rendering the opinions expressed below, we have assumed, with
respect to all of the documents referred to in this opinion letter, that:
(i) such documents have been duly authorized by, have been duly
executed and delivered by, and constitute legal, valid, binding and
enforceable obligations of, all of the parties to such documents;
(ii) all signatories to such documents have been duly authorized; and
(iii) all of the parties to such documents are duly organized and
validly existing and have the power and authority (corporate or other) to
execute, deliver and perform such documents.
Based upon and subject to the foregoing and subject also to the
comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinions
expressed below, we are of the opinion that each Credit Document (assuming, in
the case of the Notes, execution and delivery thereof for value) constitutes the
legal, valid and binding obligation of each Obligor party thereto, enforceable
against each such Obligor in accordance with its terms, except as may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights of creditors generally and except as the
enforceability of the Credit Documents is subject to the application of general
principles of equity (regardless of whether considered in a proceeding in equity
or at law), including, without limitation, (a) the possible unavailability of
specific performance, injunctive relief or any other equitable remedy and (b)
concepts of materiality, reasonableness, good faith and fair dealing.
The foregoing opinion is subject to the following comments and
qualifications:
A. The enforceability of Section 12.03 of the Credit Agreement may be
limited by (i) laws rendering unenforceable indemnification contrary to
Federal or state securities laws and the public policy underlying such laws
and (ii) laws limiting the enforceability of provisions exculpating or
exempting a party, or requiring indemnification of a party for,
Legal Opinion of Milbank, Tweed, Hadley & McCloy
------------------------------------------------
<PAGE>
liability for its own action or inaction, to the extent the action or
inaction involves gross negligence, willful misconduct or unlawful conduct.
B. The enforceability of provisions in the Credit Documents to the
effect that terms may not be waived or modified except in writing may be
limited under certain circumstances.
C. We express no opinion as to (i) the effect of the laws of any
jurisdiction in which any Bank is located (other than New York) that limit
the interest, fees or other charges such Bank may impose, (ii) Section
4.07(c) of the Credit Agreement and (iii) the second sentence of Section
12.10 of the Credit Agreement, insofar as such sentence relates to the
subject matter jurisdiction of the United States District Court for the
Southern District of New York to adjudicate any controversy related to the
Credit Documents.
D. We express no opinion as to the applicability to the obligations
under the Credit Documents of Kelsey-Hayes (or the enforceability of such
obligations) of Section 548 of the Bankruptcy Code, Article 10 of the New
York Debtor and Creditor Law or any other provisions of law relating to
fraudulent conveyances, transfers or obligations.
The foregoing opinion is limited to matters involving the Federal laws
of the United States and the law of the State of New York, and we do not express
any opinion as to the laws of any other jurisdiction.
This opinion letter is, pursuant to Section 7.01(d) of the Credit
Agreement, provided to you by us in our capacity as special New York counsel to
the Banks and may not be relied upon by any Person for any purpose other than in
connection with the transactions contemplated by the Credit Agreement without,
in each instance, our prior written consent.
Very truly yours,
Legal Opinion of Milbank, Tweed, Hadley & McCloy
------------------------------------------------
<PAGE>
EXHIBIT E
[Form of Varity Guarantee]
VARITY GUARANTEE
VARITY GUARANTEE dated as of May 1, 1995 between VARITY CORPORATION, a
corporation duly organized and validly existing under the laws of the State of
Delaware (the "Guarantor"); and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION),
---------
as agent for the lenders or other financial institutions or entities party, as
lenders, to the Credit Agreement referred to below (the "Banks") (in such
-----
capacity, together with its successors in such capacities, the "Agent").
-----
Kelsey-Hayes Company, a Delaware corporation ("Kelsey-Hayes"), certain
lenders, the Agent and The Bank of Nova Scotia, as co-agent, are parties to a
Second Amended and Restated Credit Agreement dated as of December 15, 1992 as
amended and restated as of May 1, 1995 (as modified and supplemented and in
effect from time to time, the "Credit Agreement"), providing, subject to the
----------------
terms and conditions thereof, for extensions of credit (by the making of
revolving credit loans and/or money market loans and the issuance and/or
acquisition of interests in letters of credit) to be made by said lenders to
Kelsey-Hayes in an aggregate principal or face amount not exceeding $75,000,000.
To induce said lenders to amend and restate the Credit Agreement and
to extend credit thereunder, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Guarantor has
agreed to guarantee the Guaranteed Obligations (as hereinafter defined).
Accordingly, the parties hereto agree as follows:
Section 1. Definitions. Terms defined in the Credit Agreement are used
-----------
herein as defined therein.
Section 2. The Guarantee.
-------------
2.01 The Guarantee. The Guarantor hereby guarantees to each Bank,
-------------
the Issuing Bank and the Agent and their respective successors and assigns the
prompt payment in full when due (whether at stated maturity, by acceleration or
otherwise) of the principal of and interest on the Loans made by the Banks to,
and the Note(s) held by each Bank of, Kelsey-Hayes and all other amounts from
time to time owing to the Banks or the Agent by Kelsey-Hayes under the Credit
Agreement and under the Notes and all Reimbursement Obligations and interest
thereon,
Varity Guarantee
----------------
<PAGE>
in each case strictly in accordance with the terms thereof (such obligations
being herein collectively called the "Guaranteed Obligations"). The Guarantor
----------------------
hereby further agrees that if Kelsey-Hayes shall fail to pay in full when due
(whether at stated maturity, by acceleration or otherwise) any of the Guaranteed
Obligations, the Guarantor will promptly pay the same, without any demand or
notice whatsoever, and that in the case of any extension of time of payment or
renewal of any of the Guaranteed Obligations, the same will be promptly paid in
full when due (whether at extended maturity, by acceleration or otherwise) in
accordance with the terms of such extension or renewal.
2.02 Obligations Unconditional. The obligations of the Guarantor
-------------------------
under Section 2.01 hereof are absolute and unconditional, irrespective of the
value, genuineness, validity, regularity or enforceability of the obligations of
Kelsey-Hayes under the Credit Agreement, the Notes or any other agreement or
instrument referred to herein or therein, or any substitution, release or
exchange of any other guarantee of or security for any of the Guaranteed
Obligations, and, to the fullest extent permitted by applicable law,
irrespective of any other circumstance whatsoever which might otherwise
constitute a legal or equitable discharge or defense of a surety or guarantor,
it being the intent of this Section 2.02 that the obligations of the Guarantor
hereunder shall be absolute and unconditional under any and all circumstances.
Without limiting the generality of the foregoing, it is agreed that the
occurrence of any one or more of the following shall not alter or impair the
liability of the Guarantor hereunder which shall remain absolute and
unconditional as described above:
(i) at any time or from time to time, without notice to the Guarantor,
the time for any performance of or compliance with any of the Guaranteed
Obligations shall be extended, or such performance or compliance shall be
waived;
(ii) any of the acts mentioned in any of the provisions of the Credit
Agreement or the Notes or any other agreement or instrument referred to
herein or therein shall be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under the Credit
Agreement or the Notes or any other agreement or instrument referred to
herein or therein shall be waived or any other guarantee of any of the
Guaranteed Obligations or any security therefor shall be released or
exchanged in whole or in part or otherwise dealt with; or
(iv) any lien or security interest granted to, or in favor of, the
Agent or any Bank or Banks as security for any of the Guaranteed
Obligations shall fail to be perfected.
The Guarantor hereby expressly waives diligence, presentment, demand of payment,
protest and all notices whatsoever, and any requirement that the Agent or any
Bank exhaust any right, power or remedy or proceed against Kelsey-Hayes under
the Credit Agreement or the Notes or any other
Varity Guarantee
----------------
<PAGE>
agreement or instrument referred to herein or therein, or against any other
Person under any other guarantee of, or security for, any of the Guaranteed
Obligations.
2.03 Reinstatement. The obligations of the Guarantor under this
-------------
Section 2 shall be automatically reinstated if and to the extent that for any
reason any payment by or on behalf of Kelsey-Hayes in respect of the Guaranteed
Obligations is rescinded or must be otherwise restored by any holder of any of
the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy
or reorganization or otherwise, and the Guarantor agrees that it will indemnify
the Agent and each Bank on demand for all reasonable costs and expenses
(including, without limitation, reasonable fees of counsel) incurred by the
Agent or such Bank in connection with such rescission or restoration, including
any such costs and expenses incurred in defending against any claim alleging
that such payment constituted a preference, fraudulent transfer or similar
payment under any bankruptcy, insolvency or similar law.
2.04 Subrogation. The Guarantor hereby waives all rights of
-----------
subrogation or contribution, whether arising by contract or operation of law
(including, without limitation, any such right arising under the Federal
Bankruptcy Code) or otherwise by reason of any payment by it of any Guaranteed
Obligations and further agrees with Kelsey-Hayes for the benefit of each of its
creditors (including, without limitation, each Bank and the Agent) that any such
payment by it shall constitute an equity investment by the Guarantor in Kelsey-
Hayes.
2.05 Remedies. The Guarantor agrees that, as between the Guarantor
--------
and the Banks, the obligations of Kelsey-Hayes under the Credit Agreement and
the Notes may be declared to be forthwith due and payable as provided in Section
10 of the Credit Agreement (and shall be deemed to have become automatically due
and payable in the circumstances provided in said Section 10) for purposes of
Section 2.01 hereof notwithstanding any stay, injunction or other prohibition
preventing such declaration (or such obligations from becoming automatically due
and payable) as against Kelsey-Hayes and that, in the event of such declaration
(or such obligations being deemed to have become automatically due and payable),
such obligations (whether or not due and payable by Kelsey-Hayes) shall
forthwith become due and payable by the Guarantor for purposes of said Section
2.01.
2.06 Continuing Guarantee. The guarantee in this Section 2 is a
--------------------
continuing guarantee, and shall apply to all Guaranteed Obligations whenever
arising.
Section 3. Covenants. The Guarantor agrees that, until the payment
---------
and satisfaction in full of the Guaranteed Obligations and the expiration or
termination of the Commitments and all Letter of Credit Liabilities of the Banks
under the Credit Agreement:
3.01 Certain Liens on Property of Varity. Varity shall not, and
-----------------------------------
shall not permit any of its Subsidiaries to, create, incur, assume or suffer to
exist any Lien upon any of the shares of capital stock of MF Delaware, K-H or
Kelsey-Hayes owned by any of them, whether now owned or hereafter acquired.
Varity Guarantee
----------------
<PAGE>
3.02 Corporate Separateness. Varity shall cause (a) the management,
-----------------------
business and affairs of Varity and each of its Subsidiaries to be conducted in
such manner so that (i) each of Varity and its Subsidiaries (other than MF
Delaware, K-H, Kelsey-Hayes and the Subsidiaries of Kelsey-Hayes) will be
treated as a corporate entity separate and distinct from MF Delaware, K-H,
Kelsey-Hayes and the Subsidiaries of Kelsey-Hayes and (ii) each of Varity, MF
Delaware and K-H will be treated as a corporate entity separate and distinct
from Kelsey-Hayes and its Subsidiaries and (b) each of Varity and its
Subsidiaries to have sufficient capital to conduct its business operations as
from time to time conducted.
3.03 Tax Sharing Agreements. Varity shall duly and punctually
----------------------
perform and comply with all of its obligations under the Tax Sharing Agreement
and the Kelsey-Hayes Tax Sharing Agreement.
3.04 Notice of Default. Promptly after the Guarantor knows or has
-----------------
reason to believe that any Default has occurred, the Guarantor shall, unless a
notice of such Default shall have theretofore been given to the Banks by Kelsey-
Hayes under Section 9.01 of the Credit Agreement, give to the Agent and each
Bank a notice of such Default specifying that such notice is a "Notice of
Default" and describing the same in reasonable detail and, together with such
notice or as soon thereafter as possible, a description of the action that the
Guarantor has taken or proposes to take with respect thereto.
Section 4. Miscellaneous.
-------------
4.01 No Waiver. No failure on the part of the Agent or any of its
---------
agents to exercise, and no course of dealing with respect to, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise by the Agent or any of its
agents of any right, power or remedy hereunder preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. The
remedies herein are cumulative and are not exclusive of any remedies provided by
law.
4.02 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the law of the State of New York.
4.03 Notices. All notices, requests, consents and demands hereunder
-------
shall be in writing and telecopied or delivered to the intended recipient at the
"Address for Notices" specified beneath its name on the signature pages hereof
or, as to any party, at such other address as shall be designated by such party
in a notice to each other party. Except as otherwise provided in this
Agreement, all such communications shall be deemed to have been duly given when
transmitted by telecopier or personally delivered or, in the case of a mailed
notice, upon receipt, in each case given or addressed as aforesaid.
4.04 Waivers, Etc. The terms of this Agreement may be waived,
------------
altered or amended only by an instrument in writing duly executed by the
Guarantor and the Agent (with the
Varity Guarantee
----------------
<PAGE>
consent of the Banks as specified in Section 11.09 of the Credit Agreement).
Any such amendment or waiver shall be binding upon the Agent and each Bank, each
holder of any of the Guaranteed Obligations and the Guarantor.
4.05 Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of the respective successors and assigns of the parties
hereto (provided that Guarantor shall not assign or transfer its rights
hereunder without the prior written consent of the Agent).
4.06 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
4.07 Severability. If any provision hereof is invalid and
------------
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(i) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of the Agent and the
Banks in order to carry out the intentions of the parties hereto as nearly as
may be possible and (ii) the invalidity or unenforceability of any provision
hereof in any jurisdiction shall not affect the validity or enforceability of
such provision in any other jurisdiction.
4.08 Credit Agreement. The Guarantor hereby agrees (for the express
-----------------
benefit of the Agent, the Issuing Bank, the Banks and Kelsey-Hayes) to take all
actions necessary to permit Kelsey-Hayes to comply with all covenants,
agreements and other obligations made or undertaken by Kelsey-Hayes in the
Credit Agreement. The Guarantor hereby agrees not to assert any claim against
the Agent, the Issuing Bank, any Bank, any of their affiliates, or any of their
respective directors, officers, employees, attorneys and agents, on any theory
of liability, for special, indirect, consequential or punitive damages arising
out of or otherwise relating to any of the transactions contemplated herein or
in any other Basic Document. The Guarantor hereby instructs the counsel
referred to in Section 7.01(c)(iii) of the Credit Agreement to deliver the
opinion referred to in said Section to the Banks, the Issuing Bank and the
Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Guarantee to
be duly executed and delivered as of the day and year first above written.
VARITY CORPORATION
By____________________________
Title:
By____________________________
Varity Guarantee
----------------
<PAGE>
Title:
Address for Notices:
Varity Corporation
World Headquarters
672 Delaware Avenue
Buffalo, New York 14209
Telecopy No.: 716-888-8010
Telephone No.: 716-888-8024
Attn: Frederick J. Chapman
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
as Agent
By____________________________
Title:
Address for Notices:
The Chase Manhattan Bank
(National Association)
4 Metrotech Center
13th Floor
Brooklyn, New York 11245
Telecopier No.: 718-242-6910
Telephone No.: 718-242-7979
Attention: New York Agency
Varity Guarantee
----------------
<PAGE>
EXHIBIT F
[Form of Confidentiality Agreement]
CONFIDENTIALITY AGREEMENT
[Date]
[Insert Name and
Address of Prospective
Participant or Assignee]
Re: Second Amended and Restated Credit Agreement dated as of December
15, 1992, amended and restated as of May 1, 1995 (as modified and
supplemented and in effect from time to time, the "Credit
Agreement"), between Kelsey-Hayes Company ("Kelsey-Hayes"), the
lenders named therein, The Chase Manhattan Bank (National
Association), as Agent and The Bank of Nova Scotia, as Co-Agent.
Ladies and Gentlemen:
As a Bank party to the Credit Agreement, we have agreed with Kelsey-
Hayes pursuant to Section 12.12 of the Credit Agreement to use reasonable
precautions to keep confidential, except as otherwise provided therein, all non-
public information supplied to us pursuant to the Credit Agreement.
As provided in said Section 12.12, we are permitted to provide you, as
a prospective [holder of a participation in the Loans (as defined in the Credit
Agreement)] [assignee Bank], with certain of such non-public information subject
to the execution and delivery by you, prior to receiving such non-public
information, of a Confidentiality Agreement in this form. Such information will
not be made available to you until your execution and return to us of this
Confidentiality Agreement.
Accordingly, in consideration of the foregoing, you agree (on behalf
of yourself and each of your affiliates, directors, officers, employees and
representatives) that (A) such information will not be used by you except in
connection with the proposed [participation][assignment] mentioned above and (B)
you shall use reasonable precautions, in accordance with your customary
procedures for handling confidential information and in accordance with safe and
sound banking practices, to keep such information confidential, provided that
nothing herein shall limit the disclosure of any such information (i) to the
extent required by statute, rule, regulation or judicial process, (ii) to your
counsel or to counsel for any of the Banks
Confidentiality Guarantee
-------------------------
<PAGE>
or the Agent, (iii) to bank examiners, auditors or accountants, (iv) to the
Agent or any other Bank, (v) in connection with any litigation to which you or
any one or more of the Banks or the Agent are a party, (vi) to a subsidiary or
affiliate of yours as provided in Section 12.12(a) of the Credit Agreement or
(vii) to any assignee or participant (or prospective assignee or participant) so
long as such assignee or participant (or prospective assignee or participant)
first executes and delivers to you a Confidentiality Agreement substantially in
the form hereof; provided, further, that in no event shall you be obligated to
-------- -------
return any materials furnished to you pursuant to this Confidentiality
Agreement.
Please indicate your agreement to the foregoing by signing as provided
below the enclosed copy of this Confidentiality Agreement and returning the same
to us.
Very truly yours,
[INSERT NAME OF BANK]
By___________________________
Title:
AGREED AS AFORESAID:
[INSERT NAME OF PROSPECTIVE
PARTICIPANT OR ASSIGNEE]
By___________________________
Title:
Confidentiality Guarantee
-------------------------
<PAGE>
EXHIBIT G-1
[Form of Money Market Quote Request]
[Date]
To: The Chase Manhattan Bank
(National Association), as Agent
From: Kelsey-Hayes Company
Re: Money Market Quote Request
Pursuant to Section 2.03 of the Second Amended and Restated Credit
Agreement dated as of December 15, 1992 as amended and restated as of May 1,
1995 (as modified and supplemented and in effect from time to time, the "Credit
------
Agreement") between Kelsey-Hayes Company, the Banks party thereto, The Chase
---------
Manhattan Bank (National Association), as agent for said Banks and The Bank of
Nova Scotia, as Co-Agent, we hereby give notice that we request Money Market
Quotes for the following proposed Money Market Borrowing(s):
<TABLE>
<CAPTION>
Quotation Date Interest Period
Borrowing Date [*1} Amount [*2] Type [*3] [*4]
-------------- -------------- ----------- --------- --------------
<S> <C> <C> <C> <C>
</TABLE>
Terms used herein have the meanings assigned to them in the Credit
Agreement.
KELSEY-HAYES COMPANY
By_________________________
Title:
__________________________
* All numbered footnotes appear on the last page of this Exhibit.
Money Market Quote Request
--------------------------
<PAGE>
__________________________
[1] For use if a Set Rate in a Set Rate Auction is requested to be submitted
before the Borrowing Date.
[2] Each amount must be $5,000,000 or a larger multiple of $1,000,000.
[3] Insert either "LIBO Margin" (in the case of LIBOR Market Loans) or "Set
Rate" (in the case of Set Rate Loans).
[4] One, two, three or six months, in the case of a LIBOR Market Loan or, in
the case of a Set Rate Loan, a period of not less than seven and not more
than 180 days after the making of such Set Rate Loan and ending on a
Business Day.
Money Market Quote Request
--------------------------
<PAGE>
EXHIBIT G-2
[Form of Money Market Quote]
To: The Chase Manhattan Bank
(National Association), as Agent
Attention:
Re: Money Market Quote to
Kelsey-Hayes Company ("Kelsey-Hayes")
------------
This Money Market Quote is given in accordance with Section 2.03(c) of
the Second Amended and Restated Credit Agreement dated as of December 15, 1992
as amended and restated as of May 1, 1995 (as modified and supplemented and in
effect from time to time, the "Credit Agreement") between Kelsey-Hayes, the
----------------
Banks party thereto, The Chase Manhattan Bank (National Association), as agent
for said Banks and The Bank of Nova Scotia, as Co-Agent. Terms defined in the
Credit Agreement are used herein as defined therein.
In response to Kelsey-Hayes' invitation dated __________, 199_, we
hereby make the following Money Market Quote(s) on the following terms:
1. Quoting Bank:
2. Person to contact at Quoting Bank:
3. We hereby offer to make Money Market Loan(s) in the following
principal amount[s], for the following Interest Period(s) and at the
following rate(s):
<TABLE>
<CAPTION>
Borrowing Quotation Interest
Rate Rate Amount [*2] Type [*3] Period [*4] Rate [*5}
<S> <C> <C> <C> <C> <C>
</TABLE>
provided that Kelsey-Hayes may not accept offers that would result in the
--------
undersigned making Money Market Loans pursuant hereto in excess of $___________
in the aggregate (the "Money Market Loan Limit").
-----------------------
__________________________
* All numbered footnotes appear on the last page of this Exhibit.
Money Market Quote
------------------
<PAGE>
We understand and agree that the offer(s) set forth above, subject to
the satisfaction of the applicable conditions set forth in the Credit Agreement,
irrevocably obligate[s] us to make the Money Market Loan(s) for which any
offer(s) (is/are) accepted, in whole or in part (subject to the third sentence
of Section 2.03(e) of the Credit Agreement and any Money Market Loan Limit
specified above).
Very truly yours,
[NAME OF BANK]
By_________________________
Authorized Officer
Dated: __________, ____
__________________________
[1] As specified in the related Money Market Quote Request.
[2] The principal amount bid for each Interest period may not exceed the
principal amount requested. Bids must be made for at least $5,000,000 (or a
larger multiple of $1,000,000).
[3] Indicate "LIBO Margin" (in the case of LIBOR Market Loans) or "Set Rate"
(in the case of Set Rate Loans).
[4] One, two, three or six months, in the case of a LIBOR Market Loan or, in
the case of a Set Rate Loan, a period of not less than seven and not more
than 180 days after the making of such Set Rate Loan and ending on a
Business Day, as specified in the related Money Market Quote Request.
[5] For a LIBOR Market Loan, specify margin over or under the London interbank
offered rate determined for the applicable Interest Period. Specify
percentage (rounded to the nearest 1/10,000 of 1%) and specify whether
"PLUS" or "MINUS". For a Set Rate Loan, specify rate of interest per annum
(rounded to the nearest 1/10,000 of 1%).
Money Market Quote
------------------
<PAGE>
EXHIBIT 10.1(k)
LOAN AGREEMENT,
dated as of December 30, 1986
as amended and restated as of June 8, 1994
as further amended and restated as of July 14, 1995
among
DAYTON WALTHER CORPORATION,
as the Borrower,
and
THE BANK OF NOVA SCOTIA
and
NBD BANK
as the Banks
and
THE BANK OF NOVA SCOTIA
as the Agent
<PAGE>
|| TABLE OF CONTENTS
PAGE
----
I. DEFINITIONS
1.1 Defined Terms.......................................1
1.2 Use of Defined Terms...............................18
1.3 Accounting and Financial Determinations............18
II. CREDIT COMMITMENT
2.1 Credit Commitment..................................18
2.2 Total Commitment Amount............................19
2.3 Credit Commitment Fee..............................19
2.4 Termination........................................19
2.5 Letter of Credit Fees..............................20
III. LOANS AND NOTES
3.1 Borrowing Procedure................................20
3.2 Notes..............................................20
3.3 Principal Payments and Prepayments.................21
3.4 Interest...........................................22
3.5 Post-Maturity Rates................................22
3.6 Payment Dates......................................22
3.7 Payments, Computations, etc........................23
3.8 Proration of Payments..............................24
3.9 Setoff.............................................24
3.10 Taxes..............................................24
IV. BNS BASE RATE AND LIBO RATE OPTIONS FOR THE LOANS
4.1 Elections..........................................25
4.2 LIBO Rate Lending Unlawful.........................27
4.3 Deposits Unavailable...............................28
4.4 Increased Costs, etc...............................28
4.5 Funding Losses.....................................29
V. LETTERS OF CREDIT
5.1 Issuance of Letters of Credit......................30
5.2 Other Provisions Relating to Letters of Credit.....30
5.3 Security Document Confirmation.....................34
VI. CONDITIONS PRECEDENT
6.1 Fifth Restatement Date.............................34
6.1.1 Resolutions, etc............................34
6.1.2 Opinion of Counsel..........................35
<PAGE>
PAGE
----
6.1.3 UCC-3 Financing Statements..................35
6.1.4 The Camden Guaranty.........................35
6.1.5 The Varity Guaranty.........................35
6.1.6 The Subordination Agreement.................35
6.2 All Loans and Letters of Credit....................35
6.2.1 Compliance with Warranties,
non-Default, etc.
6.2.2 Absence of Litigation, etc..................36
6.2.3 Loan Request................................36
6.2.4 Satisfactory Legal Form.....................36
6.2.5 Disclosure Schedule.........................36
VII. WARRANTIES, ETC.
7.1 Organization, etc.................................36
7.2 Due Authorization.................................37
7.3 Validity, etc.....................................37
7.4 Financial Information.............................37
7.5 Absence of Default................................38
7.6 Litigation, etc...................................38
7.7 Regulation U......................................38
7.8 Government Regulation.............................38
7.9 Burdensome Agreements.............................38
7.10 Taxes.............................................38
7.11 Pension and Welfare Plans.........................39
7.12 Labor Controversies...............................39
7.13 Senior Indebtedness...............................39
7.14 Subsidiaries......................................39
7.15 Patents, Trademarks, etc..........................39
7.16 Ownership of Properties; Liens....................40
7.17 Accuracy of Information...........................40
7.18 Environmental Warranties..........................40
VIII. COVENANTS
8.1 Certain Affirmative Covenants.....................42
8.1.1 Financial Information, etc.................42
8.1.2 Maintenance of Corporate Existences,
etc........................................47
8.1.3 Foreign Qualification......................47
8.1.4 Payment of Taxes, etc......................47
8.1.5 Insurance..................................47
8.1.6 Notice of Default, Litigation, etc.........48
-ii-
<PAGE>
PAGE
----
8.1.7 Performance of Loan Documents..............48
8.1.8 Books and Records..........................48
8.1.9 Environmental Covenant.....................48
8.2 Certain Negative Covenants........................49
8.2.1 Business Activities........................49
8.2.2 Indebtedness...............................49
8.2.3 Liens......................................51
8.2.4 Financial Condition........................52
8.2.5 Investments................................52
8.2.6 Restricted Payments, etc...................53
8.2.7 Rental Obligations.........................54
8.2.8 Fixed or Capital Assets....................54
8.2.9 Take or Pay Contracts......................54
8.2.10 Consolidation, Merger, etc.................54
8.2.11 Modification, etc. of Subordinated
Debt.......................................55
8.2.12 Transactions with Affiliates...............55
8.2.13 Sale or Discount of Receivables............55
8.2.14 Negative Pledges...........................56
8.2.15 Inconsistent Agreements....................56
IX. EVENTS OF DEFAULT
9.1 Events of Default.................................56
9.1.1 Financial Information, etc.................56
9.1.2 Non-Performance of Certain Covenants.......56
9.1.3 Default on Other Indebtedness..............57
9.1.4 Bankruptcy, Insolvency, etc................57
9.1.5 Impairment, etc. of Security...............58
9.1.6 Ownership of the Borrower..................58
9.1.7 Non-Performance of Other Obligations.......58
9.1.8 Breach of Warranty.........................58
9.1.9 Pension Plans..............................58
9.1.10 Judgments..................................58
9.1.11 Varity Indebtedness........................59
9.1.12 Judgment against Varity....................59
9.2 Action if Bankruptcy..............................59
9.3 Action if Other Event of Default..................59
9.4 Collateral Account................................60
X. THE AGENT
10.1 Actions..........................................60
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<PAGE>
PAGE
----
10.2 Funding Reliance, etc............................61
10.3 Exculpation......................................61
10.4 Successor........................................62
10.5 Loans by the Agent...............................62
10.6 Credit Decisions.................................62
10.7 Copies, etc......................................62
XI. MISCELLANEOUS
11.1 Waivers, Amendments, etc.........................63
11.2 Notices..........................................63
11.3 Costs and Expenses and Capital Adequacy..........63
11.4 Indemnification..................................64
11.5 Severability.....................................65
11.6 Cross-References.................................65
11.7 Headings.........................................65
11.8 Counterparts, Effectiveness, etc.................66
11.9 Governing Law....................................66
11.10 Confidentiality..................................66
11.11 Successors and Assigns...........................66
11.12 Waiver of Jury Trial.............................66
11.13 Not a Novation...................................67
EXHIBIT A - Note
EXHIBIT B - Camden Guaranty
EXHIBIT C - Loan Request
EXHIBIT D - Continuation/Conversion Notice
EXHIBIT E - Compliance Certificate
EXHIBIT F - Disclosure Schedule
EXHIBIT G - Opinion of Counsel
EXHIBIT H - Borrowing Base Certificate
EXHIBIT I - Varity Guaranty
EXHIBIT J - Subordination Agreement
||
-iv-
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT, dated as of December 30, 1986, as amended and restated
as of June 8, 1994, and as further amended and restated as of July 14, 1995,
among DAYTON WALTHER CORPORATION, an Ohio corporation (the "Borrower"), and THE
--------
BANK OF NOVA SCOTIA, a Canadian chartered bank acting through its Atlanta Agency
("BNS"), and NBD BANK, a national banking association ("NBD" and along with BNS
--- ---
individually a "Bank" and collectively the "Banks") and BNS acting as agent for
---- -----
the Banks (in such capacity, the "Agent"),
-----
W I T N E S S E T H:
WHEREAS, the Borrower, BNS and NBD are parties to the Loan Agreement, dated
as of December 30, 1986 and amended as of December 31, 1986 and March 31, 1987
and amended and restated as of December 1, 1987 and amended and restated as of
April 26, 1988 and April 29, 1988 and as further amended as of May 31, 1989,
March 6, 1990, October 30, 1990, January 31, 1991, July 31, 1991 and January 31,
1992, and as amended and restated as of June 9, 1993 and June 8, 1994 (as so
amended, the "Existing Agreement"), pursuant to which the Banks have made loans
------------------
to the Borrower from time to time and provided working capital; and
WHEREAS, the Borrower desires, and the Banks and the Agent are willing, on
the terms and conditions hereinafter set forth, to amend the Existing Agreement
to extend the Credit Commitment Expiration Date (such and other capitalized
terms being used herein with the meanings provided in Section 1.1) and to make
-----------
certain other changes as provided herein;
NOW, THEREFORE, the parties hereto hereby agree that the Existing
Agreement, together with all Exhibits thereto, is hereby amended and restated in
its entirety to read, effective as of the date (the "Fifth Restatement Date")
----------------------
when all of the conditions set forth in Section 6.1 have been satisfied, in the
-----------
form of this Agreement, together with all Exhibits hereto.
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.1 Defined Terms. The following terms (whether or not
-------------
underscored) when used in this Agreement, including its preamble and recitals,
shall, except where the context otherwise requires, have the following meanings
(such definitions to be equally applicable to the singular and plural forms
thereof):
"Account Debtor" means any party who is obligated on or under any Account
--------------
Receivable.
"Account Receivable" means any right of the Borrower or any Subsidiary to
------------------
payment for goods sold or leased or for services rendered.
"Affected Bank" means a Bank that notifies the Agent under Section 4.2 or
------------- -----------
Section 4.3 that it is so affected.
-----------
"Affiliate" of any Person means any other Person which, directly or
---------
indirectly, controls or is controlled by or under common control with such
Person (excluding any trustee under, or any committee with responsibility for
administering, any Plan). A Person shall be deemed to be "controlled by" any
other Person if such other Person possesses, directly or indirectly, power:
(a) to vote 10% or more of the securities having ordinary voting
power for the election of directors of such Person; or
(b) to direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.
"Agent" is defined in the preamble.
----- --------
"Agreement" means the Existing Agreement as amended and restated hereby as
---------
of the date hereof and in effect on the Fifth Restatement Date and as thereafter
from time to time amended.
-2-
<PAGE>
"Applicable Margin" means the percentage per annum set forth opposite the
-----------------
then-current rating given to Varity's debt by S&P and Moody's; provided that if
--------
the rating from each such agency would result in two different margins, the
higher of the two ratings shall determine the applicable margin:
<TABLE>
<CAPTION>
Rating by Rating by Applicable
S&P Moody's Margin
--------- --------- ----------
<S> <C> <C>
A- or better A3 or better 0.350%
BBB or better Baa2 or better 0.500%
BB or better Ba2 or better 0.625%
Less than BB Less than Ba2 0.875%
or unrated or unrated
</TABLE>
The Applicable Margin on the Fifth Restatement Date shall be 0.500%.
"Approval" means each and every approval, consent, filing and registration
--------
by or with any Federal, state or other regulatory authority necessary to
authorize or permit the execution, delivery or performance of this Agreement,
the Notes or any other Loan Document or for the validity or enforceability
hereof or thereof.
"Authorized Officer" means, relative to any Loan Party, those of its
------------------
officers whose signatures and incumbency shall have been certified to the Agent
and the Banks pursuant to Section 6.1.1.
-------------
"Bank" is defined in the preamble.
---- --------
"Bank Parties" is defined in Section 11.4.
------------ ------------
"BNS" is defined in the preamble.
--- --------
"BNS Base Rate" means at any time the greater of (i) rate of interest most
-------------
recently announced by the Agent in Atlanta as its base rate (of which
announcements the Agent shall give notice promptly to the Borrower and the
Banks) and (ii) the Federal Funds Rate plus 0.50%. The BNS Base Rate is not
necessarily intended to be the lowest rate of interest charged by the Agent
-3-
<PAGE>
in connection with extensions of credit. Changes in the rate of interest on that
portion of the Notes maintained as a BNS Rate Loan shall take effect
simultaneously with each change in the BNS Base Rate.
"BNS Rate Loan" is defined in Section 4.1.
------------- -----------
"Borrower" is defined in the preamble.
-------- --------
"Borrowing" means the Loans made by all Banks on any Business Day in
---------
accordance with Section 3.1.
-----------
"Borrowing Base" means, as at any date of determination thereof, an amount
--------------
equal to the sum of (x) eighty percent (80%) of the book value of all Eligible
Accounts Receivable shown on the most recent Borrowing Base Certificate provided
to the Agent and the Banks, plus (y) fifty percent (50%) of the value (at the
----
lower of cost determined on a LIFO basis or market, in accordance with GAAP) of
all Eligible Inventory, as shown on the schedule of Inventory accompanying the
most recent Borrowing Base Certificate provided to the Agent and the Banks.
"Borrowing Base Certificate" means a certificate, substantially in the form
--------------------------
of Exhibit I hereto.
---------
"Business Day" means:
------------
(a) any day which is neither a Saturday or Sunday nor a legal holiday
in the State of New York, Michigan or Georgia on which Banks are authorized
or required to be closed in New York City, Detroit or Atlanta; and
(b) relative to the date of
(i) making or continuing any portion of a Loan as, or converting
any portion of a Loan from or into a LIBO Rate Loan,
(ii) making any payment or prepayment of principal of or payment of
interest on the portion of the principal amount of a Loan being
maintained as a LIBO Rate Loan, and
-4-
<PAGE>
(iii) the Borrower's giving any notice (or the number of Business
Days to elapse prior to the effectiveness thereof) in connection with
any matter referred to in clause (b)(i) or (b)(ii),
------------- -------
a banking business day of the Agent at, and on which dealings in Dollars
are carried on in the interbank eurodollar market of, the Agent's LIBOR
Office.
"Camden" means Camden Casting Center, Incorporated, a corporation organized
------
under the laws of the State of Tennessee.
"Camden Guaranty" means the guaranty, dated as of the Fifth Restatement
---------------
Date, in the form of Exhibit B attached hereto, as from time to time thereafter
---------
amended, modified or otherwise supplemented.
"Cash Equivalent Investment" means at any time:
--------------------------
(a) any evidence of Indebtedness, maturing not more than one year
after such time, issued or guaranteed by either the United States
Government or Canadian federal or provincial governmental authorities;
(b) commercial paper, maturing not more than nine months from the
date of issue which is issued by a corporation (except an Affiliate of the
Borrower) organized under the laws of any State of the United States of
America or of the District of Columbia and rated A-1 by S&P or P-1 by
Moody's or which is issued by a Bank;
(c) any certificate of deposit or acceptance, maturing not more than
one year after such time, which is issued by a commercial banking
institution that is a member of the Federal Reserve System and has a
combined capital and surplus and undivided profits of not less than
$500,000,000 or which is issued by a Bank; and
(d) any repurchase agreement entered into with a Bank or other
commercial banking institution of the size referred to in clause (c)
----------
secured by any obligation of the type described in any of clauses (a)
-----------
through (c) having a market
---
-5-
<PAGE>
value at the time such repurchase agreement is entered into of not less
than 100% of the repurchase obligation of a Bank or other commercial
banking institution thereunder.
"CERCLA" means the Comprehensive Environmental Response, Compensation, and
------
Liability Act of 1980, as amended.
"CERCLIS" means the Comprehensive Environmental Response Compensation
-------
Liability Information System List.
"Code" means the Internal Revenue Code of 1986, and the regulations
----
thereunder, as from time to time in effect.
"Commitment Fee Margin" means the percentage per annum set forth below
---------------------
opposite the then-current rating given to Varity's debt by S&P and Moody's;
provided that if the rating from each such agency would result in two different
--------
margins, the higher of the two ratings shall determine the applicable margin:
<TABLE>
<CAPTION>
Rating Rating Commitment
by S&P by Moody's Fee Margin
------ ---------- ----------
<S> <C> <C>
A- or better A3 or better 0.125%
BBB or better Baa2 or better 0.175%
BB or better Ba2 or better 0.225%
Less than BB Less than Ba2 0.350%
or unrated or unrated
</TABLE>
The Commitment Fee Margin on the Fifth Restatement Date shall be 0.175%.
"Compliance Certificate" means a certificate duly executed by the chief
----------------------
executive or financial Authorized Officer of the Borrower in the form of Exhibit
-------
E attached hereto, with appropriate insertions, together with such changes as
-
the Banks may from time to time request for purposes of monitoring the
Borrower's compliance herewith.
"Consolidated Net Worth" means the consolidated net worth of the Borrower
----------------------
and its Subsidiaries computed in accordance with GAAP plus the then outstanding
----
principal amount of
-6-
<PAGE>
Intercompany Subordinated Debt (it being understood that such amount of
Intercompany Subordinated Debt shall not include capitalized interest on such
Debt).
"Continuation/Conversion Notice" means a notice of continuation or
------------------------------
conversion and certificate duly executed by the chief executive or financial
Authorized Officer of the Borrower substantially in the form of Exhibit D
---------
attached hereto.
"Contractual Obligation" means, relative to any Person, any provision of
----------------------
any security issued by such Person or of any Instrument or undertaking to which
such Person is a party or by which it or any of its property is bound.
"Credit Commitment" means, relative to any Bank, such Bank's obligation to
-----------------
make loans pursuant to Section 2.1 and to risk participate in Letters of Credit
-----------
up to the amount set forth opposite its name on the signature pages hereto as
such amount may be amended with the consent of such Bank.
"Credit Commitment Availability" means at any time the excess of
------------------------------
(a) the lesser of (i) the then Borrowing Base and (ii) the then Total
Commitment Amount
over
(b) the sum of
(i) the then aggregate outstanding principal amount of all
Loans
and
(ii) the then aggregate outstanding Letter of Credit
Liabilities.
"Credit Commitment Expiration Date" means July 10, 1996.
---------------------------------
"Credit Commitment Termination Date" is defined in Section 2.1.
---------------------------------- -----------
-7-
<PAGE>
"Debt-Equity Ratio" means, at any date, the ratio, expressed as a
-----------------
percentage, of:
(a) all consolidated Indebtedness of the Borrower and Subsidiaries
described in clauses (a) (b), (c) and (e) of the definition of the term
----------- --- --- ---
"Indebtedness" (other than Guaranties described in clause (e)(ii) of such
--------------
definition in respect of Indebtedness described in clause (d) of such
----------
definition);
to
--
(b) Consolidated Net Worth.
"Default" means any Event of Default or any condition or event which, after
-------
notice or lapse of time or both, would constitute an Event of Default.
"Dollar" and the sign "$" mean lawful money of the United States of
------ -
America.
"Domestic Office" means, relative to a Bank or any Person, the office of
---------------
such Person designated as such below its signature hereto or such other office
of such Person (or any successor or assign of such Person) within the United
States of America as may be designated from time to time by notice from such
Person to each other Person party hereto.
"Eligible Account Receivable" means an Account Receivable which meets each
---------------------------
of the following requirements: (i) if it arises from the sale or lease of
goods, such goods have been shipped or delivered to the Account Debtor under
such Account Receivable; (ii) it is a valid, legally enforceable obligation of
the Account Debtor thereunder, and is not subject to any offset, counterclaim or
other defense on the part of such Account Debtor or to any claim on the part of
such Account Debtor denying liability thereunder in whole or in part; (iii) it
is not subject to any Lien whatsoever (except any such Lien in favor of the
Agent or the Banks); (iv) it is evidenced by an invoice (dated within a
reasonable time after the date of shipment or performance and having payment
terms acceptable to the Required Banks) rendered to such Account Debtor, and is
not evidenced by any Instrument or
-8-
<PAGE>
chattel paper; (v) it is not owing by any Account Debtor that is a Subsidiary;
(vi) it is not owing by any Account Debtor whose obligations the Required Banks,
acting in their own discretion after consultation with the Borrower, shall have
notified the Borrower in writing are not deemed to constitute Eligible Accounts
Receivable; and (vii) payment thereon is not due more than sixty (60) days after
date of invoice and is not overdue by thirty (30) days or more. An Account
Receivable which is at any time an Eligible Account Receivable, but which
subsequently fails to meet any of the foregoing requirements, shall forthwith
cease to be an Eligible Account Receivable.
"Eligible Inventory" means any Inventory which meets each of the following
------------------
requirements: (i) it is in first class condition; (ii) in case of goods held
for sale or lease, it is (except as the Required Banks may otherwise consent in
writing) new and unused; and (iii) it is owned by the Borrower or any Subsidiary
and is not subject to any Lien whatsoever (except any such Lien in favor of the
Agent or the Banks). Any Inventory which is at any time Eligible Inventory, but
which subsequently fails to meet any of the foregoing requirements, shall
forthwith cease to be Eligible Inventory.
"Environmental Laws" means all applicable federal, state or local statutes,
------------------
laws, ordinances, codes, rules and regulations (including consent decrees and
administrative orders) relating to public health and safety and protection of
the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA also refer to any successor sections.
"ERISA Affiliate" means any corporation or trade or business that is a
---------------
member of any group of organizations (a) described in Section 414(b) or (c) of
the Code of which the Borrower is a member and (b) solely for purposes of
potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of
the Code and the lien created under Section 302(f) of ERISA and Section 412(n)
of the Code, described in Section 414(m) or (o) of the Code of which the
Borrower is a member.
-9-
<PAGE>
"Event of Default" is defined in Section 9.1.
---------------- -----------
"Existing Agreement" is defined in the first recital.
------------------ ----- -------
"Federal Funds Rate" means, for any day, a fluctuating interest rate per
------------------
annum equal to
(a) the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank of
New York, or
(b) if such rate is not so published for any day which is a Business
Day, the average of the quotations for such day on such transactions
received by the Agent from three federal funds brokers of recognized
standing selected by it.
"Fiscal Quarter" means any quarter of a Fiscal Year.
--------------
"Fiscal Year" means any period of twelve consecutive calendar months ending
-----------
on January 31.
"Fifth Restatement Date" is defined in the paragraph following the
----------------------
recitals.
--------
"F.R.S. Board" means the Board of Governors of the Federal Reserve System
------------
(or any successor).
"GAAP" means generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States of America, which are applicable as of the date
of determination.
"Guaranty" means any agreement, undertaking or arrangement by which any
--------
Person guarantees, endorses or otherwise becomes or is contingently liable upon
(by direct or indirect agreement,
-10-
<PAGE>
contingent or otherwise, to provide funds for payment, to supply funds to, or
otherwise to invest in, a debtor, or otherwise to assure a creditor against
loss) the debt, obligation or other liability of any other Person (other than by
endorsements of instruments in the course of collection), or guarantees the
payment of dividends or other distributions upon the shares of any other Person.
The amount of the obligor's obligation under any Guaranty shall (subject to any
limitation set forth therein) be deemed to be the outstanding principal amount
(or maximum outstanding principal amount, if larger) of the debt, obligation or
other liability thereby guaranteed.
"Hazardous Material" means
------------------
(a) any "hazardous substance", as defined by CERCLA;
(b) any "hazardous waste", as defined by the Resource Conservation
and Recovery Act, as amended;
(c) any petroleum product; or
(d) any pollutant or contaminant or hazardous, dangerous or toxic
chemical, material or substance within the meaning of any other applicable
federal, state or local law, regulation or ordinance (including consent
decrees and administrative orders) relating to or imposing liability
concerning any hazardous, toxic or dangerous waste, substance or material,
all as amended.
"hereof", "hereto", "hereunder" and similar terms refer to this Agreement
-----------------------------
and not to any particular Section or provision of this Agreement.
"including" means including without limiting the generality of any
---------
description preceding such term.
"Indebtedness" of any Person means, without duplication,
------------
(a) all obligations of such Person for borrowed money (including all
notes payable and drafts accepted representing extensions of credit and all
obligations evidenced
-11-
<PAGE>
by bonds, debentures, notes or other similar instruments) or on which
interest charges are customarily paid;
(b) all unpaid reimbursement obligations in respect of the face
amount of all letters of credit, whether or not drawn, issued for the
account of such Person;
(c) capitalized leases;
(d) all items other than as described in clause (a), (b) or (c)
---------- --- ---
which, in accordance with GAAP, would be included as liabilities on the
liability side of a balance sheet of such Person as of the date at which
Indebtedness is to be determined; and
(e) whether or not so included as liabilities in accordance with GAAP
(i) all indebtedness (excluding prepaid interest thereon)
secured by a Lien on property owned or being purchased by such Person
(including indebtedness arising under conditional sales or other title
retention agreements) whether or not such indebtedness shall have been
assumed by such Person, and
(ii) all Guaranties issued by such Person.
"Indemnified Liabilities" is defined in Section 11.4.
----------------------- ------------
"Instrument" means any document or writing (whether by formal agreement,
----------
letter or otherwise) under which any obligation is evidenced, assumed or
undertaken, or any right to any Lien is granted or perfected.
"Intangible Assets" of any Person means all licenses, franchises, patents,
-----------------
patent applications, trademarks, program rights, goodwill and research and
development expense or other like intangibles shown on a balance sheet of such
Person (excluding, in the case of the Borrower and Subsidiaries, goodwill and
other intangible assets in amounts not in excess of that shown on the balance
sheet referred to in Section 7.4).
-----------
-12-
<PAGE>
"Intercompany Subordinated Debt" means the subordinated Indebtedness of the
------------------------------
Borrower to Varity in the total principal amount of $24,370,000 evidenced by (i)
that certain Subordinated Note representing $14,370,000 in principal amount,
dated January 28, 1993, executed by the Borrower in favor of Varity and (ii)
that certain Subordinated Note representing $10,000,000 in principal amount,
dated July 1, 1995, executed by the Borrower in favor of Varity.
"Interest Coverage Ratio" means, at the close of any Fiscal Quarter for the
-----------------------
four consecutive Fiscal Quarters ending on such date, the ratio expressed as a
decimal of:
(a) the sum for such four Fiscal Quarters of
(i) Net Income,
plus
(ii) amounts deducted, in determining such Net Income, by the
Borrower and Subsidiaries representing (q) taxes other than federal
income taxes, (r) amortization of Intangible Assets, (s) Interest
Expense, (t) depreciation, and (u) non-cash charges taken as a result
of Financial Accounting Standards Board No. 106,
plus
(iii) any reserves charged to such Net Income, in connection
with the Borrower's loans to or investments in Wolverine Brass Works;
provided that the aggregate amount of such reserves so charged does
--------
not exceed $3,000,000;
to
--
(b) Interest Expense of the Borrower and Subsidiaries during such
period with respect to all Indebtedness of the Borrower and Subsidiaries
representing any borrowing or financing.
-13-
<PAGE>
"Interest Expense" means, for any Fiscal Quarter, the aggregate interest
----------------
expense of the Borrower and Subsidiaries for such Fiscal Quarter, including the
portion of any obligation under capital leases allocable to interest expense,
but excluding the portion of any debt discount that shall be amortized in such
period.
"Interest Period" means, relative to any LIBO Rate Loan, the period which
---------------
shall begin on (and include) the date on which such LIBO Rate Loan is made or
continued as, or converted into, a LIBO Rate Loan pursuant to Section 4.1, and,
-----------
unless the final maturity of such LIBO Rate Loan is accelerated, shall end on
(but exclude) the day which numerically corresponds to such date one, two, three
or six months thereafter, as the Borrower may select in its relevant notice
pursuant to Section 4.1; provided, however, that:
----------- -------- -------
(a) absent such selection, the Borrower shall be deemed to have
selected an Interest Period of three months;
(b) if there exists no numerically corresponding day in such month,
such Interest Period shall end on the last Business Day of such month;
(c) if such Interest Period which would otherwise end on a day which
is not a Business Day, such Interest Period shall end on the Business Day
next following such numerically corresponding day (unless such next
following Business Day is the first Business Day of a calendar month, in
which case such Interest Period shall end on the preceding Business Day);
and
(d) no Interest Period shall end later than the Credit Commitment
Expiration Date.
"Inventory" means goods held by the Borrower or any Subsidiary for sale or
---------
lease, or furnished or to be furnished by the Borrower or any Subsidiary under
any contract of service, or held by the Borrower or any Subsidiary as raw
materials, work in process or materials used or consumed in a business.
"Investment" means, relative to any Person:
----------
-14-
<PAGE>
(a) any loan or advance made by it to any other Person (excluding
commission, travel and similar advances to officers and employees made in
the ordinary course of business);
(b) any Guaranty by it; and
(c) any ownership or similar interest by it in any other Person;
and the amount of any Investment shall be the original principal or capital
amount thereof less all returns of principal or equity thereon (and without
adjustment by reason of the financial condition of such other Person).
"Letter of Credit" is defined in Section 5.1.
---------------- -----------
"Letter of Credit Liabilities" means, without duplication, at any time and
----------------------------
in respect of each Letter of Credit, the sum of (i) the unutilized face amount
of such Letter of Credit plus (ii) the aggregate unpaid amount of all
----
Reimbursement Obligations at the time due and payable in respect of drawings
made under such Letter of Credit.
"Liabilities" means all monetary obligations (including Reimbursement
-----------
Obligations) of the Borrower under this Agreement, the Notes and each other Loan
Document.
"LIBO Rate" means, relative to each Interest Period:
---------
(i) the rate per annum which appears on Telerate Page 3750 at
approximately 11:00 a.m., London time on the second Business Day prior to
the beginning of such Interest Period for dollar deposits in immediately
available funds. For purposes of calculating the LIBO Rate, "Telerate Page
3750" means the display page so designated on the Dow Jones Telerate
Service (or such other page as may replace that page on that service, or
such other service as may be nominated as the information vendor, for the
purpose of displaying London interbank offered rates of major banks). If
such rate appears on Telerate Page 3750, the "LIBO Rate" for such Interest
Period will be such rate; or
-15-
<PAGE>
(ii) if such rate does not appear on Telerate Page 3750 on such date,
the LIBO Rate will be the rate per annum at which dollar deposits in
immediately available funds are offered to the Agent's LIBOR Office two
Business Days prior to the beginning of such Interest Period by prime banks
in the interbank eurodollar market as at or about the relevant local time
of such LIBOR Office, for delivery on the first day of such Interest
Period, for the number of days comprised therein and in an amount equal to
the amount of the Agent's LIBO Rate Loan to be outstanding during such
Interest Period. "Relevant local time" shall mean 11:00 a.m., local time,
in London, when the LIBOR Office selected by the Agent to determine the
LIBO Rate is located in Europe, or 10:00 a.m., Nassau, Bahamas time, when
such LIBOR Office is located in North America.
"LIBO Rate Loan" is defined in Section 4.1.
-------------- -----------
"LIBO Rate (Reserve Adjusted)" means, relative to any portion of a Loan to
----------------------------
be made, continued or maintained as, or converted into, a LIBO Rate Loan for any
Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest
1/16 of 1%) determined pursuant to the following formula:
LIBO Rate = LIBO Rate
----------------------------
(Reserve Adjusted) 1 - LIBOR Reserve Percentage
The Agent shall determine the LIBO Rate (Reserve Adjusted) for each Interest
Period and promptly notify the Borrower and the Banks thereof (which
determination shall, in the absence of demonstrable error, be conclusive on the
Borrower) and, if requested by the Borrower, deliver a statement showing the
computation used by the Agent in determining any such rate.
"LIBOR Office" means, relative to any Bank, the office of such Bank
------------
designated as such below its signature hereto or such other domestic or foreign
office or offices of such Bank (as designated from time to time by notice from
such Bank to the Borrower and the Agent).
-16-
<PAGE>
"LIBOR Reserve Percentage" means, relative to each Interest Period, a
------------------------
percentage (expressed as a decimal) equal to the daily average during such
Interest Period of the percentages in effect on each day of such Interest
Period, as prescribed by the F.R.S. Board, for determining reserve requirements
applicable to "Eurocurrency Liabilities" pursuant to Regulation D or any other
applicable regulation of the F.R.S. Board which prescribes reserve requirements
applicable to "Eurocurrency Liabilities" as presently defined in Regulation D as
applicable to any Bank or any participant of any Bank with respect to such
participation.
"Lien" means any mortgage, pledge, hypothecation, charge, assignment,
----
deposit arrangement, encumbrance, lien (statutory or other), or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including any conditional sale or other title retention
agreement, any financing lease involving substantially the same economic effect
as any of the foregoing, and the filing of any financing statement under the
Uniform Commercial Code or comparable law of any jurisdiction).
"Loans" is defined in Section 2.1.
----- -----------
"Loan Document" means each Instrument from time to time executed and
-------------
delivered to the Agent or any Bank pursuant hereto, whether or not mentioned
herein, including the Notes, the Camden Guaranty and the Varity Guaranty.
"Loan Party" means any Person (other than the Agent or any Bank) obligated
----------
under any Loan Document; and "related Loan Party" means, relative to any Loan
------------------
Document, each Loan Party obligated thereunder.
"Loan Request" means a loan request and certificate duly executed by the
------------
chief executive or financial Authorized Officer of the Borrower substantially in
the form of Exhibit C attached hereto.
---------
"Management Fees" means all fees, salaries and other compensation, and all
---------------
out-of pocket expenses, paid, incurred or reimbursed by the Borrower or any of
its Subsidiaries to any Person that is an Affiliate of the Borrower in respect
of
-17-
<PAGE>
services rendered in connection with the management, supervision or financial
or business affairs of the Borrower or any of its Subsidiaries (including
without limitation, any loan or credit guarantee fee).
"Materially Adverse Effect" means, relative to any occurrence of whatever
-------------------------
nature (including any adverse determination in any litigation, arbitration or
governmental investigation or proceeding), a materially adverse effect on:
(a) the consolidated financial condition, operations or prospects of
the Borrower and Subsidiaries; or
(b) the ability of the Borrower or any other Loan Party to perform any
of its payment or other material obligations under this Agreement or any
Loan Document.
"Maturity" means, relative to any Loan, the date on which such Loan is
--------
stated to be due and payable, in whole or in part (in accordance with the Note
evidencing such Loan, this Agreement, or otherwise), or such earlier date when
such Loan (or any portion thereof) shall be or become due and payable, in whole
or in part, in accordance with the terms of this Agreement, whether by required
prepayment, declaration, or otherwise.
"Monthly Payment Date" means the last day of each calendar month or, if
--------------------
such day is not a Business Day, the next succeeding Business Day.
"Moody's" means Moody's Investors Service, Inc.
-------
"Multiemployer Plan" means a multiemployer plan defined as such in Section
------------------
3(37) of ERISA to which contributions have been made by the Borrower or any
ERISA Affiliate and which is covered by Title IV of ERISA.
"NBD" is defined in the preamble.
--- --------
"Net Income" means for any fiscal period the excess of:
----------
(a) the gross revenues from continuing operations of the Borrower and
Subsidiaries (but excluding any gain
-18-
<PAGE>
arising from the sale or disposition of any fixed or capital assets or from
any write-up of the book value of any assets);
over
(b) all of the operating and non-operating expenses of the Borrower
and Subsidiaries (including taxes on income).
"Note" means any promissory note of the Borrower, substantially in the form
----
of Exhibit A attached hereto (as such promissory note may be amended, endorsed,
---------
or otherwise modified from time to time) and all other promissory notes accepted
from time to time in substitution, replacement or renewal therefor.
"Organic Document" means, relative to any corporation, its certificate of
----------------
incorporation, its by-laws and all shareholder agreements, voting trusts and
similar arrangements applicable to any of its authorized shares of capital
stock.
"PBGC" means the Pension Benefit Guaranty Corporation, a United States
----
corporation and any entity succeeding to any or all of its functions under
ERISA.
"Pension Plan" means a "pension plan", as such term is defined in section
------------
3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer
plan as defined in section 4001(a)(3) of ERISA), and to which the Borrower or
any ERISA Affiliate, may have any liability, including any liability by reason
of having been a substantial employer within the meaning of section 4063 of
ERISA at any time during the five years preceding this Agreement, or by reason
of being deemed to be a contributing sponsor under section 4069 of ERISA.
"Percentage" means, relative to any Bank, the percentage set forth opposite
----------
its signature hereto as such percentage may be adjusted hereafter.
"Person" means any natural person, corporation, firm, association,
------
government, governmental agency or any other entity, whether acting in an
individual, fiduciary or other capacity.
-19-
<PAGE>
"Plan" means any Pension Plan or Welfare Plan.
----
"Properties" means any right or interest in or to property of any kind
----------
whatsoever, whether real, personal or mixed and whether tangible or intangible.
"Quarterly Payment Date" means the last day of any Fiscal Quarter or, if
----------------------
such day is not a Business Day, the next succeeding Business Day.
"Regulatory Change" means, relative to any Bank, any change after the date
-----------------
hereof in any (or the adoption after the date hereof of any new):
(a) United States Federal or state law or foreign law applicable to
such Bank; or
(b) rule, regulation, interpretation, directive or request (whether
or not having the force of law) applying to such Bank of any court or
governmental authority charged with the interpretation or administration of
any law referred to in clause (a) or of any fiscal, monetary or other
----------
authority having jurisdiction over such Bank.
"Reimbursement Obligation" is defined in Section 5.2(c).
------------------------ --------------
"Release" means a "release", as such term is defined in CERCLA.
-------
"Required Banks" means Banks whose Percentages aggregate 66-2/3% or more.
--------------
"Resource Conservation and Recovery Act" means the Resource Conservation
--------------------------------------
and Recovery Act, 42 U.S.C. Section 690, et seq., as in effect from time to
-- ---
time.
"S&P" means Standard & Poor's Corporation.
---
"Subordinated Debt" means:
-----------------
(a) the Intercompany Subordinated Debt; and
-20-
<PAGE>
(b) all other unsecured Indebtedness of the Borrower for money
borrowed which is Intercompany Indebtedness as that term is defined in the
Subordination Agreement.
"Subordination Agreement" means the Subordination Agreement, dated as of
-----------------------
the Fifth Restatement Date, executed by Varity in favor of the Agent and the
Banks in the form of Exhibit K attached hereto as from time to time thereafter
---------
amended, modified or supplemented with the consent of the Required Banks.
"Subsidiary" of any corporation means any other corporation more than 50%
----------
of the outstanding shares of capital stock of which having ordinary voting power
for the election of directors is owned directly or indirectly by such
corporation, and, except as otherwise indicated herein, references to
Subsidiaries shall refer to Subsidiaries of the Borrower.
"Taxes" is defined in Section 3.10.
----- ------------
"Third Restatement Date" means June 9, 1993.
----------------------
"Total Commitment Amount" is defined in Section 2.2.
----------------------- -----------
"type" means, relative to the outstanding principal amount of all or any
----
portion of a Loan, the portion thereof, if any, being maintained as a BNS Rate
Loan or a LIBO Rate Loan.
"Varity" means Varity Corporation, a Delaware corporation and the ultimate
------
corporate parent of the Borrower.
"Varity Guaranty" means the Guaranty, dated June 9, 1993, executed by
---------------
Varity in favor of the Agent and the Banks in the form of Exhibit J attached
---------
hereto as from time to time thereafter amended, modified or supplemented.
"Welfare Plan" means a "welfare plan", as such term is defined in section
------------
3(1) of ERISA.
SECTION 1.2 Use of Defined Terms . Terms for which meanings are provided
---------------------
in this Agreement shall, unless otherwise defined or the context otherwise
requires, have such meanings when used in Exhibit F attached hereto, each Loan
---------
Request, Continuation/
-21-
<PAGE>
Conversion Notice, Compliance Certificate, notice and other communication
delivered from time to time in connection with this Agreement or any Loan
Document.
SECTION 1.3 Accounting and Financial Determinations. Where the character
---------------------------------------
or amount of any asset or liability or item of income or expense is required to
be determined, or any accounting computation is required to be made, for the
purpose of this Agreement (including Section 8.2.4), such determination or
-------------
calculation shall, to the extent applicable and except as otherwise specified in
this Agreement, be made in accordance with the GAAP used in, and consistently
applied with, the financial statements referred to in Section 7.4.
-----------
ARTICLE II
CREDIT COMMITMENT
SECTION 2.1 Credit Commitment. Subject to the terms and conditions of
-----------------
this Agreement (including Article VI), each Bank severally and for itself alone
----------
agrees that it will, from time to time on any Business Day occurring during the
period commencing on the Fifth Restatement Date and continuing through the date
(the "Credit Commitment Termination Date") which is the earlier of the Credit
----------------------------------
Commitment Expiration Date or the date immediately preceding the termination of
the Credit Commitment pursuant to Section 2.4, make loans (the "Loans") to the
----------- -----
Borrower pursuant to Section 3.1 equal to its Percentage of the amount of the
-----------
Borrowing requested from the Banks on such Business Day; provided, however, that
-------- -------
the Banks shall not be obligated to make any Loan if, after giving effect
thereto, the Credit Commitment Availability would be less than zero and no Bank
shall have any obligation to make Loans hereunder or to risk participate in
Letters of Credit at any time outstanding in excess of its Credit Commitment.
Subject to the terms hereof, the Borrower may from time to time borrow, prepay
and reborrow amounts pursuant to the Credit Commitments.
SECTION 2.2 Total Commitment Amount. The aggregate amount of all Credit
-----------------------
Commitments (the "Total Commitment Amount") on any date prior to the Credit
-----------------------
Commitment Termination Date shall be
-22-
<PAGE>
$20,000,000 less all permanent reductions to such amount made voluntarily by the
Borrower in part (in integral multiples of $100,000) or in full on at least five
Business Days' prior notice to the Agent and the Banks for purposes of this
Section 2.2.
-----------
SECTION 2.3 Credit Commitment Fee. The Borrower agrees to pay the Agent
---------------------
for the account of each Bank for the period (including any portion thereof when
such Bank's Credit Commitment is suspended by reason of the Borrower's inability
to satisfy any condition of Article VI), commencing on the last day through
----------
which such fee has been paid pursuant to the Existing Agreement and continuing
through the Credit Commitment Termination Date, a commitment fee at the rate of
the Commitment Fee Margin on the average daily amount of the Credit Commitment
Availability. Such commitment fee shall be payable by the Borrower in arrears
to the Agent for the account of each Bank for the period from the Fifth
Restatement Date to the Credit Commitment Termination Date, on each Quarterly
Payment Date, commencing with the first such day following the Fifth Restatement
Date, and on the Credit Commitment Termination Date.
SECTION 2.4 Termination. The Credit Commitments shall terminate and each
-----------
Bank shall be relieved of its obligations to make any Loan and the Agent shall
be relieved of its obligation to issue any Letter of Credit:
(a) five Business Days after notice given, by the Borrower to the
Agent and the Banks, for purposes of this clause, at any time when no
Liabilities or Letters of Credit are outstanding;
(b) immediately and without further action upon the occurrence of any
Default described in Section 9.1.4; or
-------------
(c) immediately when any other Event of Default shall have occurred
and be continuing and any Liabilities shall be declared to be due and
payable pursuant to Section 9.3 or, in the absence of such declaration, the
-----------
Agent, upon direction of the Required Banks, shall so elect by notice to
the Borrower for purposes of this clause (c).
----------
-23-
<PAGE>
SECTION 2.5 Letter of Credit Fees.
---------------------
(a) The Borrower agrees to pay to the Agent, for the account of each
Bank, a letter of credit fee on the average daily amount available for
drawing under all outstanding Letters of Credit equal to the Applicable
Margin, payable in arrears on each Quarterly Payment Date.
(b) The Borrower agrees to pay to the Agent, for its own account,
such other fees and charges in connection with the issuance, amendment or
payment of Letters of Credit as the Borrower and the Agent shall agree, all
such fees and charges to be payable in arrears on each Monthly Payment Date
or as otherwise agreed between the Borrower and the Agent.
ARTICLE III
LOANS AND NOTES
SECTION 3.1 Borrowing Procedure. By furnishing a Loan Request to the
-------------------
Agent on or before 12:00 noon, Atlanta time, on not less than three (or on the
same day in the case of a BNS Rate Loan) nor more than five Business Days'
notice before the date of any Borrowing requested in such Loan Request, the
Borrower may from time to time request that a Borrowing be made by all Banks in
the aggregate in a minimum amount of $1,000,000 and an integral multiple of
$100,000 in excess thereof. Subject to the terms and conditions of this
Agreement, each Borrowing shall be made on the Business Day specified in the
Loan Request therefor. On such Business Day and subject to such terms and
conditions, each Bank shall provide the Agent with funds, on or before 11:00
a.m. (or 1:00 p.m. in the case of a BNS Rate Loan), Atlanta time, in an amount
equal to such Bank's Percentage of the requested Borrowing by transferring same
day or immediately available funds to such account as the Agent shall specify
from time to time by notice to the Banks. The proceeds of each Borrowing shall
be made available to the Borrower (albeit in the case of a Loan by any other
Bank, the Agent shall be required to make the proceeds thereof available only to
the extent received by it in same day funds from such other Bank) by wire
transfer of
-24-
<PAGE>
such proceeds to such transferees, or to such accounts of the Borrower, as the
Borrower shall have specified in the Loan Request therefor. No Bank's obligation
to make any Loan shall be affected by any other Bank's failure to make any Loan.
SECTION 3.2 Notes. All Loans made by each Bank shall be evidenced by a
-----
Note payable to the order of such Bank in a maximum principal amount equal to
such Bank's original Credit Commitment. The Borrower hereby irrevocably
authorizes each Bank to make or cause to be made, at or about the time of each
Loan made by it, an appropriate notation on the grid attached to such Bank's
Note (or on a continuation of such grid attached to such Bank's Note and made a
part thereof) or otherwise in the records of such Bank reflecting the unpaid
principal amount of all Loans. Each Bank shall make or cause to be made, at or
about the time of receipt of payment of any principal of its Note, an
appropriate notation on the grid attached thereto (or on such continuation) or
otherwise in the records of such Bank reflecting such payment. The aggregate
unpaid amount of Loans set forth on the grid attached to each Note (or on such
continuation) or otherwise in the records of such Bank shall be rebuttable
presumptive evidence of the principal amount thereof owing and unpaid. The
failure to record any such amount on such grid (or on such continuation) or
otherwise in the records of such Bank shall not limit or otherwise affect the
obligations of the Borrower hereunder or under such Note to make payments of
principal of or interest on such Note when due.
SECTION 3.3 Principal Payments and Prepayments. The Borrower will repay
----------------------------------
the outstanding principal amount of the Notes on or before the Credit Commitment
Termination Date. In addition, the Borrower:
(a) may make a voluntary prepayment in part in an aggregate principal
amount of not less than $1,000,000 and an integral multiple of $100,000 in
excess thereof, or in full of the outstanding principal amount of the Notes
from time to time at any time upon at least five Business Days' prior
notice to the Agent;
(b) shall, on each date when any reduction in the Total Commitment
Amount shall become effective pursuant to
-25-
<PAGE>
Section 2.2, make a mandatory prepayment of the Notes equal to an amount
-----------
such that the Credit Commitment Availability shall not be less than zero;
(c) shall, on each date when a Borrowing Base Certificate is due,
make a mandatory prepayment of the Notes equal to an amount such that the
Credit Commitment Availability shall not be less than zero;
Each prepayment of a Note made pursuant to this Section shall be without premium
or penalty, except as may be required by Section 4.5. All interest accrued on
-----------
the principal amount of the Notes prepaid shall be paid on the date of such
prepayment. No voluntary prepayment of principal of the Notes shall cause a
reduction in the Total Commitment Amount.
Each prepayment of a Note shall, except as the Borrower may otherwise have
notified the Agent, be applied, to the extent of such prepayment:
(x) first, to the principal amount thereof being maintained as a BNS
Rate Loan; and
(z) second, to the principal amount thereof being maintained as a
LIBO Rate Loan.
SECTION 3.4 Interest. The Borrower agrees to pay interest on the
--------
principal amount of the Notes from time to time unpaid prior to and at Maturity
(whether by required prepayment, declaration or otherwise) at a rate per annum:
(a) on that portion of the outstanding principal amount thereof
maintained from time to time as a BNS Rate Loan, equal to the sum of the
BNS Base Rate from time to time most recently announced, and
(b) on that portion of the outstanding principal amount thereof
maintained from time to time as one or more LIBO Rate Loans during each
applicable Interest Period, equal to the sum of the LIBO Rate (Reserve
Adjusted) for such Interest Period plus the Applicable Margin, and
-26-
<PAGE>
(c) if any LIBO Rate Loan is prepaid, or is converted to a BNS Rate
Loan prior to the expiration of the Interest Period then applicable
thereto, the unpaid principal amount of such LIBO Rate Loan so prepaid or
converted shall bear interest during the portion of such Interest Period
elapsed prior to such prepayment or conversion at the rate, if greater,
which would have been payable had such LIBO Rate Loan been maintained as a
BNS Rate Loan during the elapsed portion of such Interest Period.
SECTION 3.5 Post-Maturity Rates. After the Maturity of all or any
-------------------
portion of the principal amount of the Loans or after any other monetary
Liabilities shall have become due, the Borrower shall pay interest (after as
well as before judgment) on the principal amount of all types of Loans so
matured or on such other monetary Liabilities, as the case may be, at a rate per
annum which is determined by increasing, to the extent permitted by applicable
law, each of the applicable margins set forth in clauses (a), (b) and (c) of
----------- --- ---
Section 3.4 by 2% per annum for Loans so matured and at a rate per annum equal
-----------
to the BNS Base Rate plus 2-3/4% for such other monetary Liabilities.
SECTION 3.6 Payment Dates. Interest accrued on the Notes prior to
-------------
Maturity (as aforesaid) shall be payable, without duplication:
(a) on that portion of the outstanding principal amount of each
thereof maintained as a BNS Rate Loan, on each Monthly Payment Date,
commencing with the first such day following the date of such Notes;
(b) on that portion of the outstanding principal amount thereof
maintained as one or more LIBO Rate Loans, on the last day of each
applicable Interest Period (and, if such Interest Period shall exceed three
months, on the day in each third succeeding month numerically corresponding
to the commencement date of such Interest Period); and
(c) on that portion of the outstanding principal amount thereof
converted into a BNS Rate Loan or a LIBO Rate Loan on a day when interest
would not otherwise have been
-27-
<PAGE>
payable pursuant to clause (a) or (b), on the date of such conversion.
---------- ---
Interest on the Notes shall be payable at Maturity (as aforesaid) and,
thereafter, on demand. The Agent shall give prompt notice to the Borrower of
each computation of accrued interest before the due date thereof.
SECTION 3.7 Payments, Computations, etc. All payments by the Borrower
---------------------------
pursuant to this Agreement, the Notes, or any other Loan Document, whether in
respect of principal or interest, shall be made by the Borrower to the Agent for
the account of the holders of Notes pro rata according to their respective
--- ----
unpaid principal amounts. The payment of all fees referred to in Section 2.3
-----------
and Section 2.5(a) shall be made by the Borrower to the Agent for the account of
--------------
the Banks entitled thereto pro rata according to their Percentages. All other
--- ----
amounts payable to the Agent or any Bank under this Agreement or any other Loan
Document shall be paid to the Agent for the account of the Person entitled
thereto. All such payments required to be made to the Agent shall be made,
without set-off, deduction, or counterclaim, not later than 12:00 noon, Atlanta
time, on the date due, in same day or immediately available funds, to such
account as the Agent shall specify from time to time by notice to the Borrower.
Funds received after that time shall be deemed to have been received by the
Agent on the next following Business Day. The Agent shall promptly remit in
same day or immediately available funds to each Bank, or other holder of a Note
notified to the Agent, its share, if any, of such payments received by the Agent
for the account of such Bank or holder. All interest and fees shall be computed
on the basis of the actual number of days (including the first day but excluding
the last day) occurring during the period for which such interest or fee is
payable over a year comprised of 360 days. Whenever any payment to be made
shall otherwise be due on a day which is not a Business Day, such payment shall
(except as otherwise required by clause (d) of the definition of the term
----------
"Interest Period" with respect to payments then due of principal of or interest
----------------
on any Notes being maintained as LIBO Rate Loans) be made on the next succeeding
Business Day and such extension of time shall be included in computing interest,
if any, in connection with such payment.
-28-
<PAGE>
SECTION 3.8 Proration of Payments. If any Bank or other holder of a Note
---------------------
shall obtain any payment or other recovery (whether voluntary, involuntary, by
application of setoff, or otherwise) on account of principal of or interest on
any Loan in excess of its pro rata share of payments then or therewith obtained
--- ----
by all holders upon principal of and interest on all Loans, such Bank or other
holder shall purchase from the other Banks or holders such participations in
Loans held by them as shall be necessary to cause such purchasing Bank or other
holder to share the excess payment or other recovery ratably with each of them;
provided, however, that if all or any portion of the excess payment or other
-------- -------
recovery is thereafter recovered from such purchasing holder, the purchase shall
be rescinded and the purchase price restored to the extent of such recovery, but
without interest. The Borrower agrees that any Bank or other holder so
purchasing a participation from another Bank or holder pursuant to this Section
may, to the fullest extent permitted by law, exercise all its rights of payment
(including pursuant to Section 3.9) with respect to such participation as fully
-----------
as if such Bank or holder were the direct creditor of the Borrower in the amount
of such participation. If under any applicable bankruptcy, insolvency or other
similar law, any Bank receives a secured claim in lieu of a setoff to which this
Section applies, such Bank shall, to the extent practicable, exercise its rights
in respect of such secured claim in a manner consistent with the rights of the
Banks entitled under this Section to share in the benefits of any recovery on
such secured claim.
SECTION 3.9 Setoff. In addition to and not in limitation of any rights
------
of any Bank or other holder of any Note under applicable law, each Bank and each
other such holder shall, upon the occurrence of any Default described in Section
-------
9.1.4 or, with the consent of the Required Banks, upon the occurrence of any
-----
other Event of Default, have the right to set off, appropriate and apply to the
payment of the Liabilities owing to it any and all balances, credits, deposits,
accounts, or moneys of the Borrower then maintained with such Bank or other
holder; provided, however, that any such appropriation and application shall be
-------- -------
subject to the provisions of Section 3.8.
-----------
SECTION 3.10 Taxes. All payments by the Borrower of principal of, and
-----
interest on, the Loans and all other amounts
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<PAGE>
payable hereunder shall be made free and clear of and without deduction for any
present or future income, stamp, or other taxes, fees, duties, withholding or
other charges of any nature whatsoever imposed by any taxing authority, other
than taxes imposed on or measured by any Bank's net income or receipts (such
non-excluded items being hereinafter referred to as "Taxes"). In the event that
-----
any withholding or deduction from any payment to be made by the Borrower
hereunder is required in respect of any Taxes pursuant to any applicable law,
rule, or regulation, then the Borrower will:
(i) pay to the relevant authority the full amount required to be so
withheld or deducted;
(ii) promptly forward to the Agent an official receipt or other
documentation satisfactory to the Agent evidencing such payment to such
authority; and
(iii) pay to the Agent for the account of the Banks or the holders of
the Notes such additional amount or amounts as is necessary to ensure that
the net amount actually received by each Bank or the holder of each Note,
after giving effect to any credit against Taxes received by each such Bank
or holder as a result of such withholding or deduction, will equal the full
amount such Bank or such holder would have received had no such withholding
or deduction been required. Each such Bank and holder shall determine such
additional amount or amounts payable to it (which determination shall, in
the absence of demonstrable error, be conclusive and binding on the
Borrower).
Upon the request of the Borrower, each Bank and each subsequent holder of any
Note that is organized under the laws of a jurisdiction other than the United
States or any state thereof shall, prior to the due date of any payments under
the Notes, execute and deliver to the Borrower, on or about the first scheduled
payment date in each Fiscal Year, a United States Internal Revenue Service Form
1001 or Form 4224 (or any successor form), appropriately completed.
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<PAGE>
ARTICLE IV
BNS BASE RATE AND LIBO RATE
OPTIONS FOR THE LOANS
SECTION 4.1 Elections. The Loans comprising any Borrowing may be made as
---------
a loan having a fluctuating rate of interest determined by reference to the BNS
Base Rate ("BNS Rate Loans") or, at the Borrower's election made in accordance
--------------
with this Section, as a loan (a "LIBO Rate Loan") having for each particular
--------------
Interest Period a fixed rate of interest determined by reference to the LIBO
Rate (Reserve Adjusted), as specified in the Loan Request for such Loan. The
Borrower may from time to time by delivering to the Agent a
Continuation/Conversion Notice request, on not less than three nor more than
five Business Days' notice:
(a) that all, or any portion in a minimum amount of $1,000,000 or an
integral multiple of $100,000 in excess thereof, of the outstanding
principal amount of any Borrowing be converted from a BNS Rate Loan into a
LIBO Rate Loan or, subject to Section 4.5, from a LIBO Rate Loan into a BNS
-----------
Rate Loan; and
(b) on the expiration of the Interest Period applicable to any LIBO
Rate Loan, that all, or any portion in a minimum amount of $1,000,000 or an
integral multiple of $100,000 in excess thereof, of the outstanding
principal amount of such LIBO Rate Loan be continued as a LIBO Rate Loan or
be converted into a BNS Rate Loan (in the absence of the delivery of a
Continuation/Conversion Notice pursuant to this clause, the Borrower will
be deemed to have requested that such LIBO Rate Loan be converted into a
BNS Rate Loan);
provided, however, that:
-------- -------
(c) no portion of the outstanding principal amount of any Loans may
be continued as, or be converted into, LIBO Rate Loans if, after giving
effect to such action, the Interest Period applicable thereto shall extend
beyond the date of any prepayment required by Section 3.3, unless a
-----------
sufficient principal amount of such Loan is being maintained
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<PAGE>
as BNS Rate Loans to permit such prepayment to be applied in full to such
BNS Rate Loans;
(d) no portion of the outstanding principal amount of a Loan may be
continued as, or be converted into, a LIBO Rate Loan when any Default has
occurred and is continuing; and
(e) no portion of the outstanding principal amount of any Loans may
be made or continued as, or be converted into, BNS Rate Loans or LIBO Rate
Loans unless, after giving effect to such action, the principal amount of
Loans of each type outstanding from each Bank then being so made, continued
or converted shall be equal to such Bank's Percentage of the outstanding
principal amount of all Loans then being so made, continued or converted.
Each Continuation/Conversion Notice requesting that all, or any portion, of the
principal amount of the Loans be continued as, or be converted into, LIBO Rate
Loans shall specify the duration of the Interest Period commencing upon such
continuation or conversion.
Each Bank may, if it so elects, fulfill its commitment to make or continue
any portion of the principal amount of a Loan as, or to convert any portion of
the principal amount of a Loan into, one or more LIBO Rate Loans by causing a
foreign branch or Affiliate of such Bank to make any such LIBO Rate Loan;
provided, however, that in such event such LIBO Rate Loan shall be deemed to
have been made by such Bank, and the obligation of the Borrower to repay such
LIBO Rate Loan shall nevertheless be to such Bank and shall be deemed to be held
by it, to the extent of such LIBO Rate Loan, for the account of such foreign
branch or Affiliate.
Whenever any Bank makes any notations pursuant to Section 3.2 on the grid
-----------
attached to its Note (or on the continuation of such grid) or otherwise in the
records of such Bank and whenever such Bank converts a Loan into a BNS Rate Loan
or a LIBO Rate Loan, such Bank will make further notations on the grid attached
to such Note (or on such continuation) or otherwise in the records of such Bank
reflecting the portions of the outstanding
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<PAGE>
principal amounts thereof being maintained as a BNS Rate Loan and LIBO Rate
Loans.
The Borrower understands that, if it elects that any portion of the
principal amount of a Loan be made, continued as, or be converted into, a LIBO
Rate Loan, each Bank may (while being entitled to fund all or any portion of
such LIBO Rate Loan as it may see fit) wish to be able to fund such LIBO Rate
Loan by purchasing Dollar deposits in its LIBOR Office's interbank eurodollar
market. Accordingly, in connection with any determination to be made for
purposes of Section 4.2, 4.3, 4.4 or 4.5, it shall be conclusively assumed that
----------- --- --- ---
such Bank has elected to fund all LIBO Rate Loans by purchasing Dollar deposits
in such interbank eurodollar market.
SECTION 4.2 LIBO Rate Lending Unlawful. If as the result of any
--------------------------
Regulatory Change any Affected Bank shall determine (which determination shall
be conclusive and binding on the Borrower) that it is unlawful for the Bank to
make, continue or maintain a Loan as, or to convert a Loan into, one or more
LIBO Rate Loans, the obligation of such Bank under Section 4.1 to make, continue
-----------
or maintain any portion of the principal amount of a Loan as, or to convert such
Loan into, one or more LIBO Rate Loans shall, upon such determination (and
notice thereof to the Borrower), forthwith terminate, and such Bank shall, by
telephonic notice confirmed in writing to the Borrower and the Agent, declare
that such obligation has so terminated, and any portion of the principal amount
of a Loan then maintained as one or more LIBO Rate Loans by such Bank shall
automatically convert into a BNS Rate Loan. If circumstances subsequently
change so that such Bank shall no longer be so affected, such Bank shall by
notice to the Borrower and the Agent reinstate its obligation under Section 4.1
-----------
to make, continue a Loan as, or to convert a Loan into, LIBO Rate Loans.
SECTION 4.3 Deposits Unavailable. If prior to the date on which all or
--------------------
any portion of the principal amount of a Loan is to be made, continued as, or be
converted into, a LIBO Rate Loan, any Affected Bank shall determine for any
reason whatsoever (which determination shall be conclusive and binding on the
Borrower) that:
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<PAGE>
(a) Dollar certificates of deposit or Dollar deposits, as the case
may be, in the relevant amount and for the relevant Interest Period are not
available to such Bank in its relevant market; or
(b) by reason of circumstances affecting such Bank in its relevant
market, adequate means do not exist for ascertaining the interest rate
applicable hereunder to LIBO Rate Loans;
such Bank shall promptly give notice to the Borrower and the Agent of such
determination, and:
(c) the obligation of such Bank under Section 4.1 to make, continue
-----------
any portion of the principal amount of a Loan as, or to convert a Loan
into, one or more LIBO Rate Loans shall, upon such notification, forthwith
terminate; and
(d) the portion of a Loan then maintained as LIBO Rate Loans by such
Bank shall on the expiration of the Interest Period applicable thereto
automatically convert into a BNS Rate Loan.
If circumstances subsequently change so that such Bank shall no longer be so
affected, such Bank shall by notice to the Borrower and the Agent reinstate its
obligations under Section 4.1 to make, continue a Loan as, or convert a Loan
-----------
into, one or more LIBO Rate Loans.
SECTION 4.4 Increased Costs, etc. The Borrower further agrees to
--------------------
reimburse each Bank for any increase in the cost to such Bank of making,
continuing or maintaining (or of its obligation to make, continue or maintain)
any portion of the principal amount of a Loan as, or of converting (or of its
obligation to convert) any portion of the principal amount of a Loan into, a
LIBO Rate Loan and for any reduction in the amount of any sum receivable by such
Bank hereunder in respect of making, continuing or maintaining any portion of
the principal amount of a Loan as, or converting any portion of the principal
amount of a Loan into, a LIBO Rate Loan, in either case, from time to time by
reason of:
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<PAGE>
(a) to the extent not included in the calculation of the LIBO Rate
(Reserve Adjusted), any reserve, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit extended
by, such Bank, under or pursuant to any law, treaty, rule, regulation
(including any regulation of the F.R.S. Board) or requirement of any United
States federal, state or local or foreign governmental authority, agency or
regulatory body in effect on the date hereof, or as the result of any
Regulatory Change; or
(b) any Regulatory Change which shall subject such Bank to any tax
(other than taxes on net income and other than taxes excluded by Section
-------
3.10), levy, impost, charge, fee, duty, deduction or withholding of any
----
kind whatsoever or change the taxation of its Note made or maintained as a
LIBO Rate Loan and the interest thereon (other than any change which
affects, and to the extent that it affects, the taxation of net income).
In any such event, such Bank shall promptly notify the Borrower and the Agent
thereof in writing stating the reasons therefor and the additional amount
required fully to compensate such Bank for such increased cost or reduced
amount. Such additional amounts shall be payable on demand. A certificate as
to any such increased cost or reduced amount or any change therein (including
calculations thereof in reasonable detail) shall be submitted by such Bank to
the Borrower and the Agent and shall, in the absence of demonstrable error, be
conclusive on the Borrower.
SECTION 4.5 Funding Losses. In the event any Bank shall incur any loss
--------------
or expense (including any loss or expense incurred by reason of the liquidation,
or reemployment of deposits or other funds acquired by such Bank to make,
continue or maintain any portion of the principal amount of a Loan as, or to
convert any portion of the principal amount of a Loan into, a LIBO Rate Loan) as
a result of:
(a) payment or prepayment of the principal amount of any LIBO Rate
Loan on a date other than the scheduled last day of the Interest Period
applicable thereto, whether pursuant to Section 3.3 or otherwise;
-----------
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<PAGE>
(b) any conversion of all or any portion of the outstanding principal
amount of any LIBO Rate Loan to a BNS Rate Loan pursuant to Section 4.1 or
-----------
prior to the expiration of the Interest Period then applicable thereto (but
excluding in each case any loss or expense resulting therefrom to the
extent the Bank is reimbursed therefor by interest payable pursuant to
clause (d) of Section 3.4); or
---------- -----------
(c) a Loan not being made, continued as, or converted into, a LIBO
Rate Loan in accordance with a Loan Request or the Continuation/Conversion
Notice given therefor;
then, upon the request of such Bank, the Borrower shall pay directly to such
Bank such amount as will (in the reasonable determination of such Bank)
reimburse such Bank for such loss or expense. A certificate as to any such loss
or expense (including calculations thereof in reasonable detail) shall be
submitted by such Bank to the Borrower and the Agent and shall, in the absence
of demonstrable error, be conclusive on the Borrower.
ARTICLE V
LETTERS OF CREDIT
SECTION 5.1 Issuance of Letters of Credit . The Agent agrees, on the
------------------------------
terms of this Agreement, to issue letters of credit (such letters of credit, as
amended and in effect from time to time, being herein called "Letters of
----------
Credit") for the account of the Borrower during the period from and including
the Fifth Restatement Date to and including the date five Business Days
preceding the Credit Commitment Termination Date and each Bank agrees to take a
risk participation interest in accordance with its respective Percentage, to the
extent set forth in Section 5.2(h), in such Letters of Credit; provided that at
-------------- --------
no time shall the aggregate outstanding amount of the Letter of Credit
Liabilities of the Borrower together with the aggregate outstanding principal
amount of the Loans to the Borrower exceed the lesser of (a) the Borrowing Base
and (b) the Total Commitment Amount for the Borrower as then in effect; and
provided, further, that the aggregate Letter of Credit Liabilities at any time
-------- -------
outstanding for the Borrower shall not exceed $5,000,000.
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<PAGE>
Letters of Credit outstanding under the Existing Agreement on the Fifth
Restatement Date shall automatically become Letters of Credit outstanding
hereunder.
SECTION 5.2 Other Provisions Relating to Letters of Credit. The
----------------------------------------------
following additional provisions shall apply to the Letters of Credit:
(a) The Borrower shall give the Agent irrevocable written notice at
least two Business Days in advance thereof (but subject to Section 5.2(d)
--------------
hereof) when any Letter of Credit is proposed to be issued specifying the
date (which shall not be later than the date five Business Days preceding
the Credit Commitment Termination Date) each Letter of Credit is to be
issued and the proposed beneficiary thereof.
(b) Upon receipt from the beneficiary of any Letter of Credit of any
demand for payment under such Letter of Credit, the Agent shall promptly
notify the Borrower of the amount to be paid pursuant to such demand and
the respective payment date.
(c) At or prior to the time the Agent makes any payment under a
Letter of Credit, the Borrower shall make a payment (each payment being
herein called a "Reimbursement Obligation") to the Agent, in immediately
------------------------
available funds, in an amount equal to the amount of such payment. The
Borrower's obligation to make Reimbursement Obligations under this Section
-------
5.2(c) is absolute and unconditional and shall be unaffected by any
------
circumstance whatsoever, including the existence or assertion of any claim
or defense on the part of the Borrower against any Person, and such
Borrower further agrees that each Reimbursement Obligation required to be
made under this Section 5.2(c) shall be made without any offset, abatement,
--------------
withholding or reduction whatsoever; provided that, to the extent then
--------
available hereunder, the Borrower may use the proceeds of a Borrowing to
meet a Reimbursement Obligation. Any amount paid by the Agent for which no
Reimbursement Obligation shall have been received under this Section 5.2(d)
--------------
shall be due and payable
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<PAGE>
by the applicable Borrower on demand and shall bear interest at the BNS
Base Rate plus 2-3/4%.
----
(d) The issuance by the Agent of each Letter of Credit shall, in
addition to the conditions precedent set forth in Article VI hereof, be
----------
subject to the conditions precedent that such Letter of Credit shall be in
such form and contain such terms as shall be satisfactory to the Agent and
(if so determined to be appropriate by the Agent) the Borrower shall have
executed and delivered such other instruments and agreements relating to
such Letter of Credit as the Agent may reasonably request (including,
without limitation, an application therefor satisfactory in form and
substance to the Agent).
(e) Each Letter of Credit shall: (i) expire on or before the
Business Day next preceding the day six months after the Credit Commitment
Termination Date; (ii) be payable solely in Dollars; (iii) not be
transferable without the consent of the Agent; and (iv) be for purposes in
the ordinary course of business of the Borrower.
(f) The Borrower agrees with the Agent: (i) the Agent is authorized
to make payments under Letters of Credit upon the presentation of the
documents provided for therein and without regard to whether the Borrower
has failed to fulfill any of its obligations under any of the Loan
Documents or any Event of Default or Default has occurred; (ii) the Agent
shall be entitled to rely upon any certificate, notice, demand or other
communication (whether by cable, facsimile, telegram, telex or otherwise),
believed by it to be genuine and to have been signed or sent by the proper
Person or Persons, and upon advice of legal counsel selected by the Agent
(and no such reliance or failure shall place the Agent under any
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<PAGE>
liability to the Borrower or limit or otherwise affect the Borrower's
obligations under this Agreement); (iii) any action, inaction or omission
on the part of the Agent under or in connection with the Letters of Credit
or the related instruments or documents, if in good faith and in conformity
with such laws, regulations or customs as the Agent may reasonably deem to
be applicable, shall be binding upon the Borrower (and shall not place the
Agent under any liability to the Borrower or limit or otherwise affect the
Borrower's obligations under this Agreement); and (iv) notwithstanding any
change or modification in any Letter of Credit or any instruments or
documents called for thereunder, including waiver of noncompliance of any
such instruments or documents with the terms of any Letter of Credit, this
Agreement shall be binding on the Borrower with regard to such Letter of
Credit as so changed or modified, and to any action taken by the Agent
relative thereto.
(g) Without affecting any rights the Agent may have under applicable
law, the Borrower agrees that neither the Agent nor any of its officers or
directors shall be liable or responsible for, and the obligations of the
Borrower to the Agent hereunder shall not in any manner be affected by:
(x) the use which may be made of any Letter of Credit or the proceeds
thereof by the beneficiary or any other Person; (y) the validity,
sufficiency or genuineness of documents other than the Letter of Credit, or
of any endorsement(s) thereon, even if such documents should, in fact,
prove to be in any or all respects, invalid, insufficient, fraudulent or
forged or any statement therein proves to be untrue or inaccurate in any
respect whatsoever; or (z) any other circumstances whatsoever in making or
failing to make payment under any Letter of Credit, except that the
Borrower shall have a claim against the Agent, and the Agent shall be
liable to the Borrower, to the extent, but only to the extent, of any
direct, as opposed to consequential, damages suffered by the Borrower which
the Borrower proves are caused by the Agent's willful misconduct or gross
negligence in determining whether documents presented under any Letter of
Credit complied with the terms of such Letter of Credit or the Agent's
willful failure to pay under such Letter of Credit after the presentation
to it of documents strictly complying with the terms and conditions of such
Letter of Credit or the Agent's payment against a draft, demand,
certificate, or other document the form of which does not substantially
comply with the requirements of such Letter of Credit.
(h) If the Borrower shall fail pursuant to the terms and timing
provided in Section 5.2(c) to forthwith pay to
--------------
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<PAGE>
the Agent a Reimbursement Obligation by the close of business on the date
such amounts become due, then upon demand (by telex, facsimile, telecopy or
by telephone (confirmed in writing promptly thereafter)), by the Agent,
made upon each Bank before 1:00 p.m. (Atlanta time) on the first Business
Day following the day such amounts become due, such Bank shall on the same
day make available to the Agent, at its office as designated by the Agent,
immediately available funds in an amount equal to such Bank's ratable share
(according to its respective Percentage) of the amount of such unpaid
Reimbursement Obligation. If any such demand is made upon any Bank after
1:00 p.m. (Atlanta time), such Bank shall on the next Business Day make the
requested funds available to the Agent and such shall be treated as a BNS
Rate Loan. Notwithstanding anything herein or in any other Loan Document to
the contrary, the funding obligations of the Agent and the Banks set forth
in this Section 5.2 shall be binding regardless of whether or not the
-----------
conditions precedent in Article VI are satisfied at such time unless such
----------
funding obligations are the result of the gross negligence or wilful
misconduct of the Agent. If any Bank fails to effect any payment due from
it hereunder to the Agent, then interest shall accrue on the obligations of
such Bank to make such payment from and after the date such payment became
due until such obligation is paid in full at a rate per annum equal to the
Federal Funds Rate. Each Bank hereby indemnifies and holds harmless the
Agent from and against any and all losses, liabilities (including
liabilities for penalties), actions, suits, judgments, demands, damages,
costs and expenses (including, without limitation, reasonable attorneys'
fees and expenses) resulting from any failure on the part of such Bank to
provide, or from any delay in providing, the Agent with such Bank's
Percentage of the amount of any Reimbursement Obligation under any Letter
of Credit in accordance with the provisions of this Section 5.2(h).
--------------
(i) If any Letters of Credit are outstanding on the Credit Commitment
Termination Date, the Borrower shall on the Credit Commitment Termination
Date, pay to the Agent, immediately available funds in Dollars in an amount
equal to the maximum aggregate Letter of Credit Liabilities pursuant
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<PAGE>
to all such Letters of Credit. Such funds (together with interest thereon)
shall be held by the Agent in respect of such Letters of Credit and shall
be invested by the Agent and in the Agent's name as directed by the
Borrower from time to time in one or more types of Cash Equivalent
Investments pending application of such funds on account of the Company's
reimbursement obligations in respect of Letters of Credit or on account of
other Liabilities, as the case may be. The Borrower recognizes that any
losses or taxes with respect to such investments shall be borne solely by
the Borrower, and the Borrower agrees to hold the Agent and the Banks
harmless from any such losses or taxes. Upon the expiry of any Letter of
Credit, the Agent shall apply the balance of any such funds and interest
thereon held in respect of such Letter of Credit immediately in payment of
amounts, if any, owed by the Borrower hereunder. In the event that the
aggregate of such funds and interest thereon exceeds the aggregate Letter
of Credit Liabilities of the Borrower to the Agent and the Banks in respect
of such Letters of Credit and the balance of all other Indebtedness and
Liabilities owing by the Borrower to the Agent and the Banks under or in
respect of this Agreement, such excess shall, following satisfaction of all
such Indebtedness and Liabilities, promptly be paid to the Borrower unless
otherwise required by law.
SECTION 5.3 Letter of Credit Liabilities Confirmation. The Borrower
-----------------------------------------
hereby confirms and agrees with the Agent and the Banks that its Letter of
Credit Liabilities with respect to each Letter of Credit is a Liability
hereunder for all purposes of this Agreement.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Fifth Restatement Date. The occurrence of the Fifth
----------------------
Restatement Date shall be subject to the prior or concurrent satisfaction of
each of the following conditions precedent.
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<PAGE>
SECTION 6.1.1 Resolutions, etc. The Agent shall have received a
----------------
certificate, dated the Fifth Restatement Date, of the Secretary or an Assistant
Secretary of the Borrower as to
(a) resolutions of its Board of Directors then in full force and
effect authorizing the execution, delivery and performance of this
Agreement and each other Loan Document to be delivered by it hereunder, and
(b) the incumbency and signatures of those of its officers authorized
to act with respect to this Agreement and each Loan Document executed by
it, upon which certificate the Agent and the Banks may conclusively rely
until each shall have received a further certificate of the Secretary or an
Assistant Secretary of the Borrower cancelling or amending such prior
certificate.
SECTION 6.1.2 Opinion of Counsel. The Agent shall have received an
------------------
opinion, dated the Fifth Restatement Date, addressed to the Agent and the Banks
from counsel to the Loan Parties in the form of Exhibit G attached hereto.
---------
SECTION 6.1.3 UCC-3 Financing Statements. Within 30 days following the
--------------------------
Fifth Restatement Date, for the purpose of releasing certain collateral under
the Existing Agreement, the Agent shall have received and filed appropriate UCC-
3 financing statements in each location where required with respect to UCC-1
financing statements previously executed by the Borrower.
SECTION 6.1.4 The Camden Guaranty. The Agent shall have received a
-------------------
counterpart of the Camden Guaranty, duly executed on behalf of Camden.
SECTION 6.1.5 The Varity Guaranty. The Agent shall have received a
-------------------
counterpart of the Varity Guaranty, duly executed on behalf of Varity.
SECTION 6.1.6 The Subordination Agreement. The Subordination Agreement
---------------------------
duly executed on behalf of Varity.
SECTION 6.2 All Loans and Letters of Credit. The obligation of the Banks
-------------------------------
to make any Loan or of the Agent to issue any
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<PAGE>
Letter of Credit shall also be subject to the satisfaction of each of the
conditions precedent set forth in Sections 6.2.1 through 6.2.5.
-------------- -----
SECTION 6.2.1 Compliance with Warranties, non-Default, etc. The
--------------------------------------------
representations and warranties set forth in Article VII shall have been true and
-----------
correct as of the date initially made, and on the date (and after giving effect
to the incurrence) of such Loan or Letter of Credit:
(a) such representations and warranties (excluding, however, Section
-------
7.6 and the second sentence of Section 7.17) shall be true and correct with
--- ------------
the same effect as if then made; and
(b) no Default shall have then occurred and be continuing.
SECTION 6.2.2 Absence of Litigation, etc. No litigation, arbitration or
--------------------------
governmental investigation or proceeding shall be pending or, to the knowledge
of the Borrower, threatened against the Borrower or any Subsidiary or shall
affect the business, operations or prospects of any thereof which was not
disclosed by the Borrower to the Banks pursuant to Section 7.6 (or prior to the
-----------
date of the most recent extension of credit made hereunder, if any, pursuant to
Section 8.1.6), and no development not so disclosed shall have occurred in any
-------------
litigation, arbitration or governmental investigation or proceeding so
disclosed, which, in either event, in the informed opinion of the Required
Banks, could reasonably be expected to have a Materially Adverse Effect.
SECTION 6.2.3 Loan Request. The Agent shall have received a Loan Request
------------
for such Loan.
SECTION 6.2.4 Satisfactory Legal Form. All documents executed or
-----------------------
submitted pursuant hereto by or on behalf of the Borrower or any Subsidiary
shall be reasonably satisfactory in form and substance to the Agent and its
counsel; the Agent and its counsel shall have received all information, and such
counterpart originals or such certified or other copies of such materials, as
the Agent or its counsel may reasonably request; and all legal matters incident
to the transactions contemplated
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<PAGE>
by this Agreement shall be reasonably satisfactory to counsel to the Agent.
SECTION 6.2.5 Disclosure Schedule. The Agent shall have received a
-------------------
Disclosure Schedule from the Company to be attached hereto as Exhibit F
---------
containing information available as of the Fifth Restatement Date in form and
substance satisfactory to the Agent.
ARTICLE VIII
WARRANTIES, ETC.
The Borrower represents and warrants to the Banks as follows:
SECTION 7.1 Organization, etc. Each of the Borrower and each Subsidiary
-----------------
is a corporation validly organized and existing and in good standing under the
laws of the state of its incorporation, is duly qualified to do business and in
good standing as a foreign corporation in each jurisdiction where the nature of
its business makes such qualification necessary and where the failure to so
qualify would have a Materially Adverse Effect and has full power and authority
to own and hold under lease its property and conduct its business substantially
as presently conducted by it. The Borrower has full power and authority to
enter into and to perform its obligations under this Agreement and each Loan
Document and to obtain the Loans hereunder.
SECTION 7.2 Due Authorization. The execution and delivery by the
-----------------
Borrower of this Agreement and each Loan Document executed by it and the
performance by the Borrower of its obligations hereunder and thereunder and the
borrowings hereunder by the Borrower have been duly authorized by all necessary
corporate action, do not require any Approval, do not and will not conflict
with, result in any violation of, or constitute any default under, any provision
of any Organic Document or Contractual Obligation of the Borrower known to it
(or any other material Contractual Obligation) or any present law or
governmental regulation or court decree or order applicable to it and will not
result in or require the creation or imposition of any Lien in
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any of their properties pursuant to the provisions of any Contractual
Obligation.
SECTION 7.3 Validity, etc. This Agreement is, and each Loan Document
-------------
executed by the Borrower or any other Loan Party will on the due execution and
delivery thereof be, the legal, valid and binding obligation of the Borrower or
such Loan Party, as the case may be, enforceable in accordance with its terms,
subject, as to enforcement, only to bankruptcy, insolvency, reorganization,
moratorium or similar laws at the time in effect affecting the enforceability of
the rights of creditors generally, and except as to general equitable remedies.
SECTION 7.4 Financial Information. All balance sheets, the statements of
---------------------
operations, of shareholders' equity and of changes in financial position and
other financial information of the Borrower and Subsidiaries, including its
audited financial statements, dated January 31, 1995, which have been or shall
hereafter be furnished by or on behalf of the Borrower to the Bank for the
purposes of or in connection with this Agreement or any transaction contemplated
hereby (including the financial information referred to below) have been or will
be prepared in accordance with GAAP consistently applied throughout the periods
involved (except as disclosed therein) and do or will present fairly the
consolidated financial condition of the corporations covered thereby as at the
dates thereof and the results of their operations for the periods then ended.
On the date hereof, there has been no material adverse change since January
31, 1995 in the consolidated financial condition, operations or prospects of the
Borrower and its Subsidiaries, except as otherwise disclosed to the Banks prior
to the date hereof. On the date of each Loan made after the date hereof, there
will have been no material adverse change in the consolidated financial
condition, operations or prospects of the Borrower and Subsidiaries since
January 31, 1995, except as otherwise disclosed to the Banks prior to the date
hereof.
SECTION 7.5 Absence of Default. Neither the Borrower nor any Subsidiary
------------------
is in default:
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(a) in the payment of (or in the performance of any obligation
applicable to) any Indebtedness outstanding in a principal amount exceeding
$1,000,000; or
(b) under any law or governmental regulation or court decree or order
which could reasonably be expected to have a Materially Adverse Effect.
SECTION 7.6 Litigation, etc. Except as described in Item 2
--------------- ------
("Litigation") of Exhibit F attached hereto, no litigation, arbitration or
---------
governmental investigation or proceeding against the Borrower or any Subsidiary
or to which any of the properties of any thereof is subject is pending or, to
the knowledge of the Borrower, threatened which could reasonably be expected to
have a Materially Adverse Effect.
SECTION 7.7 Regulation U. The Borrower is not engaged principally, or as
------------
one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock, and less than 25% of the assets
of the Borrower consists of margin stock. Terms for which meanings are provided
in Regulation U of the F.R.S. Board or any regulations substituted therefor, as
from time to time in effect, are used in this Section with such meanings.
SECTION 7.8 Government Regulation. Neither the Borrower nor any
---------------------
Subsidiary is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or a "holding company", or a "subsidiary
company" of a "holding company", or an "affiliate" of a "holding company" or of
a "subsidiary company" of a "holding company", within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
SECTION 7.9 Burdensome Agreements. Neither the Borrower nor any
---------------------
Subsidiary is a party or subject to any Contractual Obligation or Organic
Document which has a Materially Adverse Effect.
SECTION 7.10 Taxes. The Borrower and all Subsidiaries have filed all tax
-----
returns and reports required by law to have been filed by them and have paid all
taxes and governmental charges thereby shown to be owing, except any such taxes
or charges which
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are being contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside on its
books.
SECTION 7.11 Pension and Welfare Plans. During the twelve-consecutive-
-------------------------
month period prior to the date of the execution and delivery of this Agreement
and prior to the date of any Borrowing hereunder, no steps have been taken to
terminate any Pension Plan which could reasonably be expected to result in
liability to the Borrower in excess of $1,000,000, and no contribution failure
has occurred with respect to any Pension Plan which could reasonably expect to
give rise to a Lien under section 302(f) of ERISA. No condition exists or event
or transaction has occurred with respect to any Pension Plan which could
reasonably be expected to result in the incurrence by the Borrower or any ERISA
Affiliate of any material liability, fine or penalty. Except as disclosed in
Item 3 ("Employee Benefit Plans") of Exhibit F attached hereto, the Borrower has
------ ---------
no material contingent liability with respect to any post-retirement benefit
under a Welfare Plan, other than liability for continuation coverage described
in Part 6 of Title I of ERISA.
SECTION 7.12 Labor Controversies. There are no labor controversies
-------------------
pending or, to the best of the Borrower's knowledge, threatened against the
Borrower or any Subsidiary, which, if adversely determined, could reasonably be
expected to have a Materially Adverse Effect.
SECTION 7.13 Senior Indebtedness. The principal of and interest on the
-------------------
Notes constitutes "Senior Indebtedness" as that or any similar term is or may be
used in any Instrument evidencing or applicable to any Subordinated Debt and the
Borrower does not have any other Senior Indebtedness other than the Liabilities;
the Borrower acknowledges that the Banks are entering into this Agreement and
are making their respective Loans in reliance upon the subordination provisions
of each such Instrument.
SECTION 7.14 Subsidiaries. The Borrower has no Subsidiaries which are
------------
not identified in Item 4 ("Existing Subsidiaries") of Exhibit F attached hereto.
------ ---------
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SECTION 7.15 Patents, Trademarks, etc. The Borrower owns and possesses
--------------------------
all such patents, patent rights, trademarks, trademark rights, trade names,
trade name rights, service marks, service mark rights and copyrights as the
Borrower considers necessary for the conduct of the businesses of the Borrower
and Subsidiaries as now conducted without any infringement upon rights of others
which could reasonably be expected to have a Materially Adverse Effect, other
than certain patterns, designs and molds owned by certain purchasers of the
Borrower's and/or Subsidiaries' products and available to the Borrower and/or
Subsidiaries for use in their businesses. There is no individual patent or
patent license used by the Borrower in the conduct of its business the loss of
which could reasonably be expected to have a Materially Adverse Effect.
SECTION 7.16 Ownership of Properties; Liens. Each of Borrower and each
------------------------------
Subsidiary has good and marketable title to or leasehold interests in all of its
material properties and assets, real and personal, of any nature whatsoever,
free and clear of all Liens except as permitted pursuant to Section 8.2.3.
-------------
SECTION 7.17 Accuracy of Information. All factual information heretofore
-----------------------
or contemporaneously furnished by or on behalf of the Borrower to the Agent and
the Banks in connection with this Agreement and the various transactions
contemplated hereby, to the best of the Borrower's knowledge, has been, and all
other such factual information hereafter furnished by or on behalf of the
Borrower to the Agent and the Banks will be, true and accurate in every material
respect on the date as of which such information is dated or certified and as of
the date of execution and delivery of this Agreement by the Banks and not
incomplete by omitting to state any material fact necessary to make such
information not misleading. All projections and pro forma financial information
contained in any materials furnished by or on behalf of the Borrower or any of
its Subsidiaries to the Agent and the Banks are based on good faith estimates
and assumptions by the management of the Borrower or the applicable Subsidiary,
it being recognized by the Agent and the Banks, however, that projections as to
future events are not to be viewed as fact and that actual results during the
period or periods covered by any such projections may differ from the projected
results and that the differences may be material.
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SECTION 7.18 Environmental Warranties. Except as could not reasonably be
------------------------
expected to have a Materially Adverse Effect and except as set forth in Item 9
------
("Environmental Matters") of Exhibit F:
---------
(a) all facilities and property (including underlying groundwater)
owned or leased by the Borrower or any of its Subsidiaries have been, and
continue to be, owned or leased by the Borrower and its Subsidiaries in
material compliance with all Environmental Laws;
(b) there have been no past, and there are no pending or, to the
knowledge of the Borrower, threatened
(i) written claims, complaints, notices or requests for
information received by the Borrower or any of its Subsidiaries with
respect to any alleged violation of any applicable Environmental Law,
or
(ii) written complaints, notices or inquiries to the Borrower or
any of its Subsidiaries regarding potential liability under any
applicable Environmental Law;
(c) there have been no reportable Releases of Hazardous Materials at,
on or under any property now owned or, to the knowledge of the Borrower,
previously owned or leased by the Borrower or any of its Subsidiaries prior
to or during the respective periods that the Borrower or any of its
Subsidiaries owned or leased such property that, singly or in the
aggregate, have, or could reasonably be expected to have, a Materially
Adverse Effect;
(d) the Borrower and its Subsidiaries have been issued and are in
material compliance with all permits, certificates, approvals, licenses and
other authorizations under applicable Environmental Laws and necessary for
their businesses;
(e) no property now or, to the knowledge of the Borrower, previously
owned or leased by the Borrower or any of its Subsidiaries is listed or
proposed for listing (with
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respect to owned property only) on the National Priorities List pursuant to
CERCLA, on the CERCLIS or on any similar state list of sites requiring
investigation or clean-up;
(f) there are no underground storage tanks, active or abandoned,
including petroleum storage tanks, on or under any property now or, to the
knowledge of the Borrower, previously owned or leased by the Borrower or
any of its Subsidiaries that, singly or in the aggregate, have, or could
reasonably be expected to have, a Materially Adverse Effect;
(g) to the knowledge of the Borrower and its Subsidiaries, neither
Borrower nor any of its Subsidiaries has directly transported or directly
arranged for the transportation of any Hazardous Material to any location
which is listed or proposed for listing on the National Priorities List
pursuant to CERCLA, on the CERCLIS or on any similar state list or which is
the subject of federal, state or local enforcement actions or other
investigations which could reasonably be expected to lead to material
claims against the Borrower or such Subsidiary thereof for any remedial
work, damage to natural resources or personal injury, including claims
under CERCLA;
(h) to the knowledge of the Borrower, there are no polychlorinated
biphenyls or friable asbestos present at any property now or previously
owned or leased by the Borrower or any Subsidiary of the Borrower in such
amounts or in such condition that, singly or in the aggregate, have, or
could reasonably be expected to have, a Materially Adverse Effect; and
(i) to the knowledge of the Borrower as of the Fifth Restatement
Date, no conditions exist at, on or under any property now or previously
owned or leased by the Borrower which, with the passage of time, or the
giving of notice or both, would give rise to any material liability under
any Environmental Law.
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<PAGE>
ARTICLE VIII
COVENANTS
SECTION 8.1 Certain Affirmative Covenants. The Borrower agrees with the
-----------------------------
Agent and the Banks that, until the Credit Commitments shall have terminated and
all of the Liabilities have been paid and performed in full:
SECTION 8.1.1 Financial Information, etc. The Borrower will furnish, or
--------------------------
will cause to be furnished, to the Agent and the Banks copies of the following
financial statements, reports and information:
(a) as soon as available and in any event within 45 days after the end
of each of the first three quarterly fiscal periods of each Fiscal Year of
the Borrower, consolidated and consolidating statements of operations,
changes in stockholder's equity and cash flows of the Borrower and its
Subsidiaries for such period and for the period from the beginning of the
respective Fiscal Year to the end of such period, and the related
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries as at the end of such period, setting forth in each case in
comparative form the corresponding consolidated and consolidating figures
for the corresponding period in the preceding Fiscal Year (it being
understood that the balance sheets may be compared with the figures for the
end of the preceding year), accompanied by a certificate of a chief
accounting or financial Authorized Officer, which certificate shall state
that said consolidated financial statements present fairly, in all material
respects, the consolidated financial position and results of operations of
the Borrower and its Subsidiaries, and said consolidating financial
statements present fairly, in all material respects, the respective
individual unconsolidated financial position and results of operations of
the Borrower and of each of its Subsidiaries, in each case in accordance
with generally accepted accounting principles, consistently applied, as at
the end of, and for, such period (subject to normal year-end audit
adjustment);
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<PAGE>
(b) as soon as available and in any event within 90 days after the end
of each Fiscal Year of the Borrower, consolidated and consolidating
statements of operations, changes in stockholder's equity and cash flows of
the Borrower and its Subsidiaries for such Fiscal Year and the related
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries as at the end of such Fiscal Year, setting forth in each case
in comparative form the corresponding consolidated and consolidating
figures for the preceding Fiscal Year, and accompanied (i) in the case of
said consolidated statements and balance sheet of the Borrower, by an
opinion thereon of independent certified public accountants of recognized
national standing, which opinion shall state that said consolidated
financial statements present fairly, in all material respects, the
consolidated financial condition and results of operations of the Borrower
and its Subsidiaries as at the end of, and for, such Fiscal Year in
accordance with generally accepted accounting principles, and a certificate
of such accountants stating that, in making the examination necessary for
their opinion, they obtained no knowledge, except as specifically stated,
of any Default insofar as it may relate to accounting matters, and (ii) in
the case of said consolidating statements and balance sheets, by a
certificate of a chief accounting or financial Authorized Officer, which
certificate shall state that said consolidating financial statements
present fairly, in all material respects, the respective individual
unconsolidated financial condition and results of operations of the
Borrower and of each of its Subsidiaries, in each case in accordance with
generally accepted accounting principles, consistently applied, as at the
end of, and for, such Fiscal Year;
(c) as soon as available and in any event within 45 days after the end
of each of the first three quarterly fiscal periods of each Fiscal Year of
Varity, consolidated statements of operations, changes in stockholder's
equity and cash flows of Varity and its Subsidiaries for such period and
for the period from the beginning of the respective Fiscal Year to the end
of such period, and the related consolidated balance sheet of Varity and
its Subsidiaries as at the end of such period, setting forth
in
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<PAGE>
each case in comparative form the corresponding figures for the
corresponding period in the preceding Fiscal Year (or, if Varity shall then
be subject to the reporting requirements of Section 13 of the Securities
Exchange Act of 1934, as amended, a copy of the report of Varity required
to be filed on Form 10-Q with respect to such quarterly fiscal period),
accompanied by a certificate of a senior financial officer of Varity, which
certificate shall state that said financial statements (or the financial
statements included in such Form 10-Q) present fairly the consolidated
financial condition and results of operations of Varity and its
Subsidiaries in accordance with generally accepted accounting principles,
consistently applied, as at the end of, and for, such period (subject to
normal year-end audit adjustments);
(d) as soon as available and in any event within 90 days after the end
of each Fiscal Year of Varity, consolidated statements of operations,
changes in stockholder's equity and cash flows of Varity and its
Subsidiaries for such Fiscal Year and the related consolidated balance
sheet of Varity and its Subsidiaries as at the end of such Fiscal Year,
setting forth in each case in comparative form the corresponding figures
for the preceding Fiscal Year (or, if Varity shall then be subject to the
reporting requirements of Section 13 of the Securities Exchange Act of
1934, as amended, a copy of the report of Varity required to be filed on
Form 10-K with respect to such Fiscal Year), accompanied by a certificate
of a senior financial officer of Varity, which certificate shall state that
said financial statements (or the financial statements included in such
Form 10-K) present fairly the consolidated financial condition and results
of operations of Varity and its Subsidiaries in accordance with generally
accepted accounting principles, consistently applied, as at the end of, and
for, such Fiscal Year;
(e) promptly upon their becoming available, copies of all registration
statements and regular periodic reports, if any, which either the Borrower
or Varity shall have filed with the SEC or any national securities
exchange;
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<PAGE>
(f) promptly upon the mailing thereof to the shareholders of Varity
generally, copies of all financial statements, reports and proxy statements
so mailed;
(g) as soon as possible, and in any event within 30 days after the
Borrower knows or has reason to believe that any of the events or
conditions specified below with respect to any Plan or Multiemployer Plan
has occurred or exists, a statement signed by a chief accounting or
financial Authorized Officer setting forth details respecting such event or
condition and the action, if any, that the Borrower or its ERISA Affiliate
proposes to take with respect thereto (and a copy of any report or notice
required to be filed with or given to PBGC by the Borrower or an ERISA
Affiliate with respect to such event or condition):
(i) any reportable event, as defined in Section 4043(b) of ERISA
and the regulations issued thereunder, with respect to a Plan, as to
which PBGC has not by regulation or administrative pronouncement
waived the requirements of Section 4043(a) of ERISA that it be
notified within 30 days of the occurrence of such event (providing
---------
that a failure to meet the minimum funding standard of Section 412 of
the Code or Section 302 of ERISA, including, without limitation, the
failure to make on or before its due date a required installment under
Section 412(m) of the Code or Section 302(e) of ERISA, shall be a
reportable event regardless of the issuance of any waivers in
accordance with Section 412(d) of the Code for any Plan and Borrower
shall give notice of any such failure that would give rise to a lien
at least 10 days before the due date for such contribution;
(ii) the distribution under Section 4041 of ERISA of a notice of
intent to terminate any Plan or any action taken by the Borrower or an
ERISA Affiliate to terminate any Plan;
(iii) the institution by PBGC of proceedings under Section 4042
of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan, or
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<PAGE>
the receipt by the Borrower or any ERISA Affiliate of a notice from a
Multiemployer Plan that such action has been taken by PBGC with
respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a Multiemployer Plan
by the Borrower or any ERISA Affiliate that results in a material
liability under Section 4201 or 4204 of ERISA (including the
obligation to satisfy secondary liability as a result of a purchaser
default) or the receipt by the Borrower or any ERISA Affiliate of
notice from a Multiemployer Plan that it is in reorganization or
insolvency pursuant to Section 4241 or 4245 of ERISA or that it
intends to terminate or has terminated under Section 4041A of ERISA;
(v) the institution of a proceeding by a fiduciary of any
Multiemployer Plan against the Borrower or any ERISA Affiliate to
enforce Section 515 of ERISA, which proceeding (x) is not dismissed
within 30 days and (y) if against an ERISA Affiliate, represents a
claim against such ERISA Affiliate for a minimum of $10,000,000; and
(vi) the adoption of an amendment to any Plan that, pursuant to
Section 401(a)(29) of the Code or Section 307 of ERISA, would result
in the loss of tax-exempt status of the trust of which such Plan is a
part if the Borrower or an ERISA Affiliate fails to timely provide
security to the Plan in accordance with the provisions of said
Sections;
(h) as soon as available and in any event within 20 days after the end
of each calendar month (or, if the end of such calendar month is the last
day of the Fiscal Year of the Borrower, within 30 days after the end of
such calendar month), a Borrowing Base Certificate as at the last day of
such calendar month;
(i) periodically at the request of the Agent or the Required Banks
(but, unless an Event of Default shall have
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occurred and be continuing, no more frequently than once during any fiscal
quarter of the Borrower), a report of an independent auditor satisfactory
to the Required Banks (which may be, or be affiliated with, one of the
Banks) with respect to the Account Receivables and Inventory components
included in the Borrowing Base as at the end of any monthly accounting
period which report shall indicate that, based upon a review by such
auditors of the Accounts Receivables (including, without limitation,
verification with respect to the amount, aging, identity and credit of the
respective account debtors and the billing practices of the Borrower and
its Subsidiaries) and Inventory (including, without limitation,
verification as to the value, location and respective types), the
information set forth in the Borrowing Base Certificate delivered by the
Borrower as at the end of such accounting period is accurate and complete
in all material respects;
(j) promptly after the Borrower knows or has reason to believe that
any Default has occurred, a notice of such Default specifying that such
notice is a "Notice of Default" and describing the same in reasonable
detail and, together with such notice or as soon thereafter as possible, a
description of the action that the Borrower has taken or proposes to take
with respect thereto; and
(k) from time to time such other information regarding the financial
condition, operations, business or prospects of the Borrower or any of its
Subsidiaries as any Bank or the Agent may reasonably request.
The Borrower will furnish to each Bank, at the time it furnishes each set of
financial statements pursuant to paragraph (a) or (b) above, a certificate of a
chief accounting or financial Authorized Officer (i) to the effect that no
Default has occurred and is continuing (or, if any Default has occurred and is
continuing, describing the same in reasonable detail and describing the action
that the Borrower has taken or proposes to take with respect thereto) and (ii)
setting forth in reasonable detail the computations necessary to determine
whether the Borrower is in compliance with Section 8.2.4 hereof as of the end of
-------------
the respective quarterly fiscal period or Fiscal Year.
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SECTION 8.1.2 Maintenance of Corporate Existences, etc. Except as
----------------------------------------
permitted by Section 8.2.10, the Borrower will cause to be done at all times all
--------------
things necessary to maintain and preserve the corporate existences of the
Borrower and each Subsidiary, and to comply in all material respects with all
applicable laws, rules, regulations and orders. The Borrower will continue to
own and hold directly, free and clear of all Liens (except as permitted by
Section 8.2.3), all of the outstanding shares of capital stock of each
-------------
Subsidiary.
SECTION 8.1.3 Foreign Qualification. The Borrower will, and will cause
---------------------
each Subsidiary to, cause to be done at all times all things necessary to be
duly qualified to do business and in good standing as a foreign corporation in
each jurisdiction where the nature of its business makes such qualification
necessary and where the failure to so qualify would have a Materially Adverse
Effect, and to comply in all material respects with all applicable laws, rules,
regulations and orders.
SECTION 8.1.4 Payment of Taxes, etc. The Borrower will, and will cause
---------------------
each Subsidiary to, pay and discharge, as the same may become due and payable,
all federal, state and local taxes, assessments and other governmental charges
or levies against or on any of its property, as well as claims of any kind
which, if unpaid, might become a material lien upon any one of its properties;
provided, however, that the foregoing shall not require the Borrower or any
Subsidiary to pay or discharge any such tax, assessment, charge, levy or lien so
long as it shall contest the validity thereof in good faith by appropriate
proceedings and shall set aside on its books adequate reserves in accordance
with GAAP with respect thereto.
SECTION 8.1.5 Insurance. The Borrower will, and will cause each
---------
Subsidiary to, maintain or cause to be maintained with responsible insurance
companies insurance with respect to its properties and business against such
casualties and contingencies and of such types and in such amounts as is
customary in the case of similar businesses and will, upon request of Agent,
furnish to the Agent at reasonable intervals a certificate of an Authorized
Officer setting forth the nature and extent of all insurance
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<PAGE>
maintained by the Borrower and Subsidiaries in accordance with this Section.
SECTION 8.1.6 Notice of Default, Litigation, etc. The Borrower will give
----------------------------------
notice immediately to the Agent and the Banks of:
(a) the occurrence of any Default;
(b) the occurrence of any litigation, arbitration or governmental
investigation or proceeding previously not disclosed by the Borrower to the
Agent and the Banks which has been instituted or, to the knowledge of the
Borrower, is threatened against the Borrower or any Subsidiary or to which
any of its properties is subject which could reasonably be expected to have
a Materially Adverse Effect;
(c) any material development which shall occur in any litigation,
arbitration or governmental investigation or proceeding previously
disclosed by the Borrower to the Agent and the Banks; and
(d) the occurrence of any event which could reasonably be expected to
have a Materially Adverse Effect.
SECTION 8.1.7 Performance of Loan Documents. The Borrower will, and will
-----------------------------
cause each Loan Party to, perform promptly and faithfully all of its obligations
under each Loan Document executed by it.
SECTION 8.1.8 Books and Records. The Borrower will, and will cause each
-----------------
Subsidiary to, keep books and records reflecting all of its business affairs and
transactions in accordance with GAAP and permit the Agent or any Bank or any of
their respective representatives, at reasonable times and intervals, to visit
all of its offices, discuss its financial matters with its officers and
independent accountants (and hereby authorizes such independent accountants to
discuss its financial matters with the Agent or any Bank or their respective
representatives whether or not any representative of the Borrower is present),
examine (and, at the expense of the Borrower, photocopy extracts from) any of
its books or other corporate records. The Borrower shall pay any
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fees of such accountants incurred in connection with such Person's exercise of
its rights pursuant to this Section.
SECTION 8.1.9 Environmental Covenant. The Borrower will, and will cause
----------------------
each of its Subsidiaries to:
(a) use and operate all of its facilities and properties in material
compliance with all Environmental Laws, keep all necessary permits,
approvals, certificates, licenses and other authorizations under applicable
Environmental Laws in effect and remain in material compliance therewith,
and handle all Hazardous Materials in material compliance with all
applicable Environmental Laws;
(b) immediately notify the Agent and provide copies upon receipt of
all written claims, complaints, notices or inquiries relating to the
condition of its facilities and properties or compliance with Environmental
Laws, and shall promptly cure and have dismissed with prejudice to the
satisfaction of the Agent any actions and proceedings relating to
compliance with Environmental Laws; and
(c) provide such information and certifications which the Agent may
reasonably request from time to time to evidence compliance with this
Section 8.1.9.
-------------
SECTION 8.2 Certain Negative Covenants. The Borrower agrees with the
--------------------------
Agent and the Banks that, until the Credit Commitments shall have terminated and
all of the Liabilities have been paid and performed in full:
SECTION 8.2.1 Business Activities. The Borrower will not, and will not
-------------------
permit any Subsidiary to:
(a) operate its business other than in the ordinary and usual course;
and
(b) engage in any type of business except the businesses currently
conducted and activities substantially related thereto.
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SECTION 8.2.2 Indebtedness. The Borrower will not, and will not permit
------------
any Subsidiary to, create, incur, assume or suffer to exist or otherwise become
or be liable in respect of any Indebtedness other than:
(a) Indebtedness in respect of the Notes and other Liabilities;
(b) all existing Indebtedness identified in Item 5 ("Ongoing
------
Indebtedness") of Exhibit F attached hereto;
---------
(c) principal of, interest and premium on and other monetary
obligations incurred by the Borrower under the terms of any Instrument
evidencing or applicable to Subordinated Debt; and Indebtedness
subordinated to the Liabilities on terms satisfactory to the Bank in
respect of accruals owing to Varity or any Affiliate or Subsidiary of
Varity by the Borrower or any Subsidiary in respect of services provided by
Varity or any Affiliate or Subsidiary of Varity to the Borrower or any
Subsidiary or obligations of the Borrower or any Subsidiary paid or
provided for by Varity or any Affiliate or Subsidiary of Varity;
(d) Indebtedness of the Borrower and Subsidiaries incurred to
finance, or assumed by the Borrower in connection with, any acquisition of
fixed or capital assets permitted by Section 8.2.8; provided, however, that
-------------
the aggregate principal amount of such Indebtedness
(i) incurred during any Fiscal Year shall not exceed $500,000,
plus the amount, if any, by which $500,000 exceeds the aggregate of
such Indebtedness incurred during the previous Fiscal Year, and
(ii) at any one time outstanding shall not exceed $3,000,000;
(e) Letters of Credit;
(f) Indebtedness of the Borrower and Subsidiaries incurred in the
ordinary course of business or in respect of expenses incurred in
refinancing Indebtedness permitted by
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this Section 8.2.2 (including open accounts extended for periods not in
-------------
excess of 90 days in connection with purchases of goods and services, but
excluding Indebtedness incurred through the borrowing of money or
Guarantees);
(g) Indebtedness in respect of taxes, assessments or governmental
charges, and Indebtedness in respect of claims for labor, materials or
supplies to the extent that payment thereof shall not at the time be
required to be made in accordance with the provisions of Section 8.1.4;
-------------
(h) Indebtedness to the extent not covered by insurance in respect of
judgments or awards which have been in force for less than the applicable
appeal period so long as execution is not levied thereunder (or in respect
of which the Borrower shall at the time in good faith be prosecuting an
appeal or proceedings for review and in respect of which a stay of
execution shall have been obtained pending such appeal or review) and which
does not at any time, in the aggregate, exceed $2,000,000;
(i) Indebtedness
(i) owing by any Subsidiary to the Borrower or any other
Subsidiary in respect of trade payables incurred in the ordinary
course of business arising out of the provision of goods and services,
(ii) owing by the Borrower to any Subsidiary and, provided that
no Event of Default shall have occurred and be continuing and the
Agent shall not have given notice to the Borrower for purposes of this
clause (i)(ii), owing by any Subsidiary to the Borrower in respect of
--------------
cash management occurring in the ordinary course of business, and
(iii) owing by any Subsidiary to any other Subsidiary in a
maximum aggregate principal amount at any time outstanding not in
excess of $500,000 for such Subsidiary; and
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(j) other Indebtedness of the Borrower or any Subsidiary at any time
outstanding in an aggregate principal amount not in excess of $500,000;
provided, however, that no Indebtedness otherwise permitted by clause (d) shall
-------- ------- ----------
be incurred if, after giving effect to the incurrence thereof, any Default shall
have occurred and be continuing.
SECTION 8.2.3 Liens . The Borrower will not, and will not permit any
------
Subsidiary to, create, incur, assume or suffer to exist any Lien upon any of its
property or assets, whether now owned or hereafter acquired, except:
(a) Liens which were granted prior to the date hereof in (and only
in) assets identified in Item 5 ("Ongoing Indebtedness") and Item 6
------ ------
("Liens") of Exhibit F attached hereto to secure any Indebtedness permitted
---------
by clause (b) of Section 8.2.2;
---------- -------------
(b) Liens in (and only in) fixed assets permitted to be acquired by
Section 8.2.8 granted to secure Indebtedness permitted by clause (d) of
------------- ----------
Section 8.2.2 to have been incurred to finance the acquisition of such
-------------
assets;
(c) statutory and common law banker's Liens on bank deposits;
(d) funds with respect to which the Borrower or any Subsidiary has
become a trustee pursuant to Section 4113.15(c) of the Ohio Revised Code
(or any successor provision);
(e) Liens for taxes, assessments or other governmental charges or
levies not at the time delinquent or thereafter payable without penalty or
being contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside on its
books;
(f) Liens of carriers, warehousemen, mechanics, materialmen and
landlords incurred in the ordinary course of business for sums not overdue
or being contested in good
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<PAGE>
faith by appropriate proceedings and for which adequate reserves shall have
been set aside on its books;
(g) Liens incurred in the ordinary course of business in connection
with workmen's compensation, unemployment insurance or other forms of
governmental insurance or benefits, or to secure performance of tenders,
statutory obligations, leases and contracts (other than for borrowed money)
entered into in the ordinary course of business or to secure obligations on
surety or appeal bonds;
(h) judgment Liens in existence less than 30 days after the entry
thereof or with respect to which execution has been stayed or the payment
of which is covered in full (subject to a customary deductible) by
insurance; and
(i) other Liens securing Indebtedness in an aggregate principal
amount not in excess of $200,000.
SECTION 8.2.4 Financial Condition. The Borrower will not permit:
-------------------
(a) the Interest Coverage Ratio to be less than 2.00 to 1.00;
(b) Consolidated Net Worth to be less than $30,000,000; and
(c) the Debt-Equity Ratio to be greater than 2.00 to 1.00.
SECTION 8.2.5 Investments. The Borrower will not, and will not permit
-----------
any Subsidiary to, make, incur, assume or suffer to exist any Investment in any
other Person, except:
(a) Cash Equivalent Investments; provided, however, that any
Investment which when made complies with the requirements of the definition
of the term "Cash Equivalent Investment" may continue to be held
notwithstanding that such Investment if made thereafter would not comply
with such requirements;
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<PAGE>
(b) Investments existing the date hereof and identified in Item 7
------
("Ongoing Investments") of Exhibit F attached hereto;
---------
(c) equity Investments existing at the date hereof of the Borrower in
its direct Subsidiaries identified in Item 4 ("Existing Subsidiaries") of
------
Exhibit F attached hereto;
---------
(d) Investments permitted as Indebtedness pursuant to Section 8.2.2;
-------------
and
(e) Investments made and existing in connection with any disposition
permitted by clause (c) of Section 8.2.10.
---------- --------------
SECTION 8.2.6 Restricted Payments, etc. On or after the date of this
------------------------
Agreement:
(a) the Borrower will not at any time after the date of this
Agreement apply, or permit any Subsidiary to apply, any of its funds,
property or assets to the purchase, redemption or other retirement of any
shares of capital stock of the Borrower;
(b) the Borrower will not, and will not permit any Subsidiary to, pay
or repay any principal of, or make any payment of interest on, redeem, or
defease, and neither the Borrower nor any Subsidiary will purchase or
otherwise acquire any interest in any Subordinated Debt; provided, however,
-------- -------
that the Borrower may, subject to the subordination provisions applicable
to any Subordinated Debt of the Borrower and the terms of the Subordination
Agreement, make payments of interest accrued thereon when due; and
(c) the Borrower will not, and will not permit any Subsidiary to,
make any deposit for any of the foregoing purposes;
(d) the Borrower will not, and will not permit any Subsidiary to, make any
payments to Varity, provided that for so long as no Default shall have
-------------
occurred and be continuing:
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<PAGE>
(i) the Borrower may make payments to Varity or its affiliates
for management fees;
(ii) the Borrower may make payments on dividends or other
distributions on its capital stock; and
(iii) subject to the consent of the Required Banks (which
consent shall not be unreasonably withheld), the Borrower may transfer
any of its Properties to Varity or any of Varity's Subsidiaries (other
than the Borrower and the Borrower's Subsidiaries);
(e) nothing in this Section shall be construed to restrict any
payment to an Affiliate expressly permitted to be made by, or expressly
excluded from the restrictions of, Section 8.2.12.
--------------
SECTION 8.2.7 Rental Obligations. The Borrower will not, and will not
------------------
permit any Subsidiary to, enter into at any time any arrangement which does not
constitute Indebtedness and which involves the leasing by the Borrower or any
Subsidiary from any lessor of any real or personal property (or any interest
therein), unless such arrangement is entered into by the Borrower or any
Subsidiary and, together with all other such arrangements which shall then be in
effect, will not require the payment of an aggregate amount of rentals by the
Borrower or any Subsidiary in excess of (excluding escalations resulting from a
rise in the consumer price or similar index) $2,000,000 for any Fiscal Year;
provided, however, that any calculation made for purposes of this Section shall
-------- -------
exclude any amounts required to be expended for maintenance and repairs,
insurance, taxes, assessments and other similar charges.
SECTION 8.2.8 Fixed or Capital Assets. The Borrower will not, and will
-----------------------
not permit any Subsidiary to, make any expenditures for fixed or capital assets,
unless such expenditure is made by the Borrower or a Subsidiary and, together
with all other such expenditures made by the Borrower and all Subsidiaries in
any Fiscal Year, does not aggregate in excess of $20,000,000 for the Fiscal Year
ending January 31, 1995 and $20,000,000 for the Fiscal Year ending January 31,
1996.
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SECTION 8.2.9 Take or Pay Contracts. The Borrower will not, and will not
---------------------
permit any Subsidiary to, enter into or be a party to any arrangement for the
purchase of materials, supplies, other property or services if such arrangement
by its express terms requires that payment be made by the Borrower or such
Subsidiary regardless of whether or not such materials, supplies, other property
or services are delivered or furnished to it.
SECTION 8.2.10 Consolidation, Merger, etc. The Borrower will not, and
--------------------------
will not permit any Subsidiary to, consolidate with or merge into or with any
other corporation, or purchase or otherwise acquire all or substantially all of
the assets of any Person (or of any division thereof) or sell, transfer, lease
or otherwise dispose of any part of its assets to any Person, except:
(a) dispositions of inventory, and dispositions and acquisitions of
non-material amounts of other assets, all in the ordinary course of
business;
(b) dispositions of assets in an aggregate amount for all
dispositions by the Borrower and Subsidiaries in any Fiscal Year not in
excess of $500,000; and
(c) the merger of any Subsidiary into the Borrower provided that the
Borrower is the surviving corporation.
SECTION 8.2.11 Modification, etc. of Subordinated Debt. The Borrower will
---------------------------------------
not amend any term or provision, including any subordination provision,
covenant, event of default or right of acceleration or any sinking fund
provision or term of required repayment or redemption (except any amendment
which extends the date or reduces the amount of any required repayment or
redemption), or any term with respect to payment of interest contained in or
applicable to any Instrument evidencing or applicable to any Subordinated Debt
of the Borrower.
SECTION 8.2.12 Transactions with Affiliates. Except as expressly
----------------------------
permitted by this Agreement, the Borrower will not, and will not permit any of
its Subsidiaries to, directly or indirectly:
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(a) make any Investment in an Affiliate of the Borrower;
(b) transfer, sell, lease, assign or otherwise dispose of any
Properties to any such Affiliate;
(c) merge into or consolidate with or purchase or acquire Properties
from any such Affiliate; or
(d) enter into any other transaction directly or indirectly with or
for the benefit of any such Affiliate (including, without limitation,
Guarantees and assumptions of obligations of any such Affiliate);
provided that:
--------
(i) any Affiliate of the Borrower who is an individual may serve as a
director, officer or employee of the Borrower or any of its Subsidiaries
and receive reasonable compensation for his or her services in such
capacity;
(ii) the Borrower and its Subsidiaries may enter into transactions
(other than Investments by the Borrower or any of its Subsidiaries in any
Affiliate of the Borrower) providing for the leasing of Properties, the
rendering or receipt of services or the purchase or sale of inventory and
other Properties in the ordinary course of business if the monetary or
business consideration arising therefrom would be substantially as
advantageous to the Borrower and its Subsidiaries as the monetary or
business consideration which would obtain in a comparable transaction with
a Person not an Affiliate of the Borrower;
(iii) the Borrower may make Investments to the extent permitted by
Section 8.2.10; and
--------------
(iv) the Borrower may pay Management Fees.
SECTION 8.2.13 Sale or Discount of Receivables. Except in connection
-------------------------------
with the disposition of accounts receivable permitted by clause (d) of Section
---------- -------
8.2.10, the Borrower will not, and will not permit any Subsidiary to, directly
------
or indirectly, sell with
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<PAGE>
recourse, or discount or otherwise sell for less than the face value thereof,
any of its notes or Account Receivables.
SECTION 8.2.14 Negative Pledges. The Borrower will not, and will not
----------------
permit any Subsidiary to, enter into any agreement (excepting this Agreement and
any Loan Document) prohibiting the creation or assumption of any Lien upon its
properties or assets, whether now owned or hereafter acquired.
SECTION 8.2.15 Inconsistent Agreements. The Borrower will not, and will
-----------------------
not permit any Subsidiary to, enter into any agreement containing any provision
which would be violated or breached by any borrowing by the Borrower made
hereunder or by the performance by the Borrower or any Subsidiary of their
respective obligations hereunder or under any Loan Document.
ARTICLE IX
EVENTS OF DEFAULT
SECTION 9.1 Events of Default. The term "Event of Default" shall mean
----------------- ----------------
each of the following events:
SECTION 9.1.1 Non Payment of Liabilities. The Borrower shall default in
--------------------------
the payment or prepayment when due of any principal of any Note, or the Borrower
shall default (and such default shall continue unremedied for a period of three
days) in the payment when due of interest on any Note, of any commitment fee or
of any other Liability.
SECTION 9.1.2 Non-Performance of Certain Covenants. The Borrower shall
------------------------------------
default in the due performance and observance of any of its obligations under:
(a) Section 8.1.2 or 8.2 (other than 8.2.4), and such default shall
------------- --- -----
continue unremedied after notice thereof shall have been given to the
Borrower by the Agent or the holder of a Note; or
(b) Section 8.2.4 and such default shall continue unremedied for
-------------
thirty Business Days after notice thereof
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shall have been given to the Borrower by the Agent or the holder of a Note.
SECTION 9.1.3 Default on Other Indebtedness. Any default shall occur
-----------------------------
under the terms applicable to any Indebtedness outstanding in a principal amount
exceeding $1,000,000 of the Borrower or any Subsidiary representing any
borrowing or financing or arising under any other material agreement, and such
default shall:
(a) consist of the failure to pay such Indebtedness at the maturity
thereof; or
(b) continue unremedied for a period of time sufficient to permit
acceleration of such Indebtedness; or
(c) continue unremedied (and not have been waived by the holder of
such Indebtedness) for more than 30 days after notice thereof shall have
been given to the Borrower by the Agent or the holder of any Note.
SECTION 9.1.4 Bankruptcy, Insolvency, etc. The Borrower, any Subsidiary
---------------------------
or Varity shall become insolvent or generally fail to pay, or admit in writing
its inability to pay, debts as they become due; or the Borrower, any Subsidiary
or Varity shall apply for, consent to, or acquiesce in, the appointment of a
trustee, receiver, sequestrator or other custodian for the Borrower, such
Subsidiary or Varity or any property of any thereof, or make a general
assignment for the benefit of creditors; or, in the absence of such application,
consent or acquiescence, a trustee, receiver, sequestrator or other custodian
shall be appointed for the Borrower, any Subsidiary or Varity or for a
substantial part of the property of any thereof and not be discharged within 60
days; or any bankruptcy, reorganization, debt arrangement, or other case or
proceeding under any bankruptcy or insolvency law, or any dissolution, winding
up or liquidation proceeding, shall be commenced in respect of the Borrower, any
Subsidiary or Varity, and, if such case or proceeding is not commenced by the
Borrower, such Subsidiary or Varity, such case or proceeding shall be consented
to or acquiesced in by the Borrower, such Subsidiary or Varity or shall result
in the entry of an order for relief or shall remain for 60 days undismissed; or
the Borrower,
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any Subsidiary or Varity shall take any corporate action to authorize, or in
furtherance of, any of the foregoing.
SECTION 9.1.5 Impairment, etc. of Security. Either the Camden Guaranty
----------------------------
or the Varity Guaranty shall terminate or cease to be the legally valid, binding
and enforceable obligation of the obligor thereunder; the Borrower, any
Subsidiary or Varity or any party by, through or on behalf of any of them shall
contest in any manner such validity, binding nature or enforceability (and, if
any such contest shall have been made in conjunction with any proceeding of the
nature described in Section 9.1.4, such contest shall continue for a period of
-------------
sixty days after the initiation thereof).
SECTION 9.1.6 Ownership of the Borrower. Varity shall cease to own,
-------------------------
directly or indirectly and free and clear of all Liens, all of the issued and
outstanding shares of capital stock of the Borrower.
SECTION 9.1.7 Non-Performance of Other Obligations. The Borrower or any
------------------------------------
other Loan Party shall default in the due performance and observance of any
other agreement contained herein or in any Loan Document, and such default shall
continue unremedied for a period of 30 days after notice thereof shall have been
given to the Borrower or such Loan Party, as the case may be, by the Agent or
the holder of a Note, except as provided herein.
SECTION 9.1.8 Breach of Warranty. Any warranty of the Borrower hereunder
------------------
or any Loan Party in any other Loan Document is or shall be incorrect when made,
and the Borrower or such Loan Party, as the case may be, shall not have taken
corrective measures with respect thereto satisfactory to the Required Banks
within 30 days after notice thereof to the Borrower or such Loan Party, as the
case may be, by the Agent or the holder of a Note.
SECTION 9.1.9 Pension Plans. Any of the following events shall occur
-------------
with respect to any Pension Plan
(a) the institution of any steps by the Borrower, any ERISA Affiliate
or any other Person to terminate a Pension Plan if, as a result of such
termination, the Borrower could
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<PAGE>
reasonably be expected to be required to make a contribution to such
Pension Plan, or could reasonably expect to incur a liability or obligation
to such Pension Plan, in excess of $1,000,000; or
(b) a contribution failure occurs with respect to any Pension Plan
sufficient to give rise to a Lien under Section 302(f) of ERISA.
SECTION 9.1.10 Judgments. A final judgment to the extent not covered by
---------
insurance which, with other such outstanding final judgments against the
Borrower and Subsidiaries, exceeds an aggregate of $1,000,000 shall be rendered
against the Borrower or any Subsidiary and if, within 60 days after entry
thereof, such judgment shall not have been discharged or otherwise satisfied or
execution thereof stayed pending appeal, or if, within 60 days after the
expiration of any such stay, such judgment shall not have been discharged or
otherwise satisfied.
SECTION 9.1.11 Varity Indebtedness. Varity shall fail to make any
-------------------
principal payment or payments in an amount in excess of $10,000,000
-- ------
individually, or $20,000,000 in the aggregate (or, in each case, the equivalent
dollar amount in any other currency), in respect of Indebtedness of Varity when
the same becomes due and payable (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) and such failure shall continue
after the applicable grace period, if any, specified in any Instrument relating
to any such Indebtedness; or any other event shall occur or condition shall
exist, and shall continue after the applicable grace period, if any, specified
in any Instrument relating to any such Indebtedness, if the effect of such event
or condition is to accelerate any such Indebtedness which is outstanding in an
aggregate principal amount in excess of $10,000,000 individually, or $20,000,000
in the aggregate (or, in each case, the equivalent dollar amount in any other
currency).
SECTION 9.1.12 Judgment against Varity. A final judgment to the extent
-----------------------
not covered by insurance which, with other such outstanding final judgments
against Varity, exceeds an aggregate of $25,000,000 shall be rendered against
Varity and if, within 60 days after entry thereof, such judgment shall not have
been discharged or otherwise satisfied or execution thereof stayed
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pending appeal, or if, within 60 days after the expiration of any such stay,
such judgment shall not have been discharged or otherwise satisfied.
SECTION 9.2 Action if Bankruptcy. If any Event of Default described in
--------------------
Section 9.1.4 shall occur, the outstanding principal amount of all outstanding
-------------
Notes and all other Liabilities shall be and become immediately due and payable,
without notice or demand.
SECTION 9.3 Action if Other Event of Default. If any Event of Default
--------------------------------
(other than an Event of Default described in Section 9.1.4) shall occur for any
-------------
reason, whether voluntary or involuntary, and be continuing, the Agent shall
upon request by the Required Banks, without notice or demand, declare all or any
portion of the outstanding principal amount of the Notes to be due and payable
and any or all other Liabilities to be due and payable, whereupon the full
unpaid amount of such Notes and any and all other Liabilities which shall be so
declared due and payable shall be and become immediately due and payable. The
Agent shall promptly advise the Borrower and the Banks of any such declaration,
but failure to do so shall not impair the effect of such declaration.
SECTION 9.4 Collateral Account. The Borrower hereby agrees, in addition
------------------
to the provisions of Section 9.2 and Section 9.3, that upon the occurrence and
----------- -----------
during the continuance of any Event of Default, it shall, if requested by the
Required Banks, pay (and, in the case of any Event of Default referred to in
Section 9.1.4, forthwith, without any demand or the taking of any other action
-------------
by the Agent or the Banks, pay) to the Agent an amount in immediately available
funds equal to the then aggregate amount of all Letter of Credit Liabilities,
which funds shall be held by the Agent in a cash collateral account at the Agent
and shall be subject to withdrawal only when and if such Event of Default shall
cease to exist or all Liabilities are thereafter paid in full.
ARTICLE X
THE AGENT
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SECTION 10.1 Actions. Each Bank and the holder of each Note authorizes
-------
the Agent to act on behalf of such Bank or holder under this Agreement and any
other Loan Document and, in the absence of other written instructions from the
Required Banks received from time to time by the Agent (with respect to which
the Agent agrees that it will, subject to the last two sentences of this
Section, comply in good faith except as otherwise advised by counsel), to
exercise such powers hereunder and thereunder as are specifically delegated to
or required of the Agent by the terms hereof and thereof, together with such
powers as may be reasonably incidental thereto. Each Bank agrees (which
agreement shall survive any termination of this Agreement) to indemnify the
Agent, pro rata according to such Bank's Percentage, from and against any and
--- ----
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses, or disbursements of any kind or nature whatsoever which
may at any time be imposed on, incurred by, or asserted against the Agent in any
way relating to or arising out of this Agreement, the Notes, and any other Loan
Document, including without limitation the reimbursement of the Agent for all
reasonable out-of-pocket expenses (including reasonable attorneys' fees) and the
reasonably allocated costs of in house counsel and legal staff incurred by the
Agent hereunder or in connection herewith or in enforcing the Liabilities of the
Borrower under this Agreement or any other Loan Document, in all cases as to
which the Agent is not reimbursed by the Borrower; provided that no Bank shall
--------
be liable for the payment of any portion of such Liabilities, losses, damages,
penalties, actions, judgments, suits, costs, expenses, or disbursements
determined by a court of competent jurisdiction in a final proceeding to have
resulted solely from the Agent's gross negligence or wilful misconduct. The
Agent shall not be required to take any action hereunder or under any other Loan
Document, or to prosecute or defend any suit in respect of this Agreement or any
other Loan Document, unless it is indemnified to its satisfaction by the Banks
against loss, costs, liability, and expense. If any indemnity in favor of the
Agent shall become impaired, it may call for additional indemnity and cease to
do the acts indemnified against until such additional indemnity is given.
SECTION 10.2 Funding Reliance, etc. Unless the Agent shall have been
-----------------------
notified by telephone, confirmed in writing, by
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<PAGE>
any Bank by 5:00 p.m., Atlanta time, on the day prior to a Borrowing that such
Bank will not make available the amount which would constitute its Percentage of
such Borrowing on the date specified therefor, the Agent may assume that such
Bank has made such amount available to the Agent and, in reliance upon such
assumption, make available to the Borrower a corresponding amount. If such
amount is made available by such Bank to the Agent on a date after the date of
such Borrowing, such Bank shall pay to the Agent on demand interest on such
amount at the daily average Federal funds rate quoted by the Agent for the
number of days from and including the date of such Borrowing to the date on
which such amount becomes immediately available to the Agent, together with such
other compensatory amounts as may be required to be paid by such Bank to the
Agent pursuant to the Rules for Interbank Compensation of the Council on
International Banking or the Clearinghouse Compensation Committee, as the case
may be, as in effect from time to time. A statement of the Agent submitted to
any Bank with respect to any amounts owing under this paragraph shall be
conclusive, in the absence of demonstrable error. If such amount is not in fact
made available to the Agent by such Bank within three Business Days after the
date of such Borrowing, the Agent shall be entitled to recover such amount, with
interest thereon at the rate per annum then applicable to the Loans comprising
such Borrowing, within five Business Days after demand, from the Borrower.
SECTION 10.3 Exculpation. Neither the Agent nor any of its directors,
-----------
officers, employees, or agents shall be liable to any Bank for any action taken
or omitted to be taken by it under this Agreement or any other Loan Document, or
in connection herewith or therewith, except for its own willful misconduct or
gross negligence, nor responsible for any recitals or warranties herein or
therein, nor for the effectiveness, enforceability, validity, or due execution
of this Agreement or any other Loan Document, nor to make any inquiry respecting
the performance by the Borrower of its obligations hereunder or thereunder.
Each Agent shall be entitled to rely upon advice of counsel concerning legal
matters and upon any notice, consent, certificate, statement, or writing which
they believe to be genuine and to have been presented by a proper Person.
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SECTION 10.4 Successor. The Agent may resign as such at any time upon at
---------
least 30 days' prior notice to the Borrower and all Banks. If the Agent at any
time shall resign, the Required Banks may appoint another Bank as a successor
Agent which shall thereupon become the Agent hereunder. If no successor Agent
shall have been so appointed by the Required Banks, and shall have accepted such
appointment, within 30 days after the retiring Agent's giving notice of
resignation, then the retiring Agent may, on behalf of the Banks, appoint a
successor Agent, which shall be one of the Banks or a commercial banking
institution organized under the laws of the United States and having a combined
capital and surplus of at least $500,000,000. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
be entitled to receive from the retiring Agent such documents of transfer and
assignment as such successor Agent may reasonably request, and shall thereupon
succeed to and become vested with all rights, powers, privileges, and duties of
the retiring Agent, and the retiring Agent shall be discharged from its duties
and obligations under this Agreement.
SECTION 10.5 Loans by the Agent. The Agent shall have the same rights
------------------
and powers with respect to
(i) the Loans made by it or any of its Affiliates, and
(ii) the Notes held by it or any of its Affiliates as any Bank and may
exercise the same as if it were not the Agent.
SECTION 10.6 Credit Decisions. Each Bank acknowledges that it has,
----------------
independently of the Agent and each other Bank, and based on the financial
information referred to in Section 7.4 and such other documents, information,
-----------
and investigations as it has deemed appropriate, made its own credit decision to
extend its Credit Commitment. Each Bank also acknowledges that it will,
independently of the Agent and each other Bank, and based on such other
documents, information, and investigations as it shall deem appropriate at any
time, continue to make its own credit decisions as to exercising or not
exercising from time to time any rights and privileges available to it under
this Agreement or any other Loan Document.
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SECTION 10.7 Copies, etc. The Agent shall give prompt notice to each
-----------
Bank of each notice or request required or permitted to be given to the Agent by
the Borrower pursuant to the terms of this Agreement. The Agent will distribute
to each Bank each Instrument received for its account and copies of all other
communications received by the Agent from the Borrower for distribution to the
Banks by the Agent in accordance with the terms of this Agreement.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Waivers, Amendments, etc. The provisions of this Agreement
------------------------
and of each Loan Document may from time to time be amended, modified or waived,
if such amendment, modification or waiver is in writing and consented to by the
Borrower and the Required Banks; provided, however, that no such amendment,
-------- -------
modification or waiver which would extend the due date for, or reduce the amount
of, any payment or prepayment of principal of or interest on any Note (or reduce
the principal amount of or rate of interest on any Note) shall be made without
the consent of the holder of such Note; and provided, further, that no such
-------- -------
amendment, modification or waiver which would increase the Credit Commitment of
any Bank shall be made without the consent of all of the Banks.
No failure or delay on the part of the Agent or any Bank or the holder of
any Note in exercising any power or right under this Agreement or any Loan
Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power or right preclude any other or further exercise
thereof or the exercise of any other power or right. No notice to or demand on
the Borrower in any case shall entitle it to any notice or demand in similar or
other circumstances.
No waiver or approval by the Agent or any Bank or the holder of any Note
under this Agreement or any Loan Document shall, except as may be otherwise
stated in such waiver or approval, be applicable to subsequent transactions. No
waiver or approval
-76-
<PAGE>
hereunder shall require any similar or dissimilar waiver or approval thereafter
to be granted hereunder.
SECTION 11.2 Notices. All notices and other communications provided to
-------
any party hereto under this Agreement or any Loan Document shall be in writing
or by telex and addressed or delivered to it at its address set forth below its
signature hereto or at such other address as may be designated by such party in
a notice to the other parties. Any notice, if mailed properly addressed postage
prepaid, shall be deemed given when received; any notice, if transmitted by
telecopy, shall be deemed given when transmitted.
SECTION 11.3 Costs and Expenses and Capital Adequacy. The Borrower
---------------------------------------
agrees to pay all expenses for the preparation of this Agreement, including
exhibits, and any amendments to this Agreement as may from time to time
hereafter be required and the reasonable fees and expenses of counsel for the
Agent from time to time incurred in connection with the preparation and
execution of this Agreement and all amendments from time to time made hereto,
the preparation and review of the form of any Instrument relevant to this
Agreement and the consideration of legal questions relevant hereto and thereto.
The Borrower also agrees to reimburse the Agent and the Banks upon demand for
all reasonable out-of-pocket expenses (including attorneys' fees and legal
expenses) incurred by the Agent and the Banks in enforcing the obligations of
the Borrower hereunder or under the Notes or any other Loan Document. The
obligations of the Borrower under this Section shall survive any termination of
this Agreement. If any Bank determines at any time that any applicable law or
governmental rule, regulation, order or request (whether or not having the force
of law) concerning capital adequacy, or any change in interpretation or
administration thereof by any governmental authority, central bank or comparable
agency, will have the effect of increasing the amount of capital required to be
maintained by such Bank based on the existence of the Bank's Credit Commitment
hereunder or its obligations hereunder, then the Borrower shall pay to such
Bank, upon its written demand therefor, such additional amounts as shall be
required to compensate such Bank for the increased cost or reduced rate of
return to such Bank as a result of such increase of capital. In determining
such additional amounts, each Bank will act reason-
-77-
<PAGE>
ably and in good faith and will use averaging and attribution methods which are
reasonable, provided that each Bank's determination of compensation owing under
this Section 11.3 shall, absent manifest error, be final and conclusive and
------------
binding on the Borrower. Any Bank, upon determining that any additional amounts
will be payable pursuant to this Section 11.3, will give prompt written notice
------------
thereof to the Borrower and the Agent within one year of the incurrence of such
costs, and shall as promptly as possible after the giving of such notice notify
the Borrower and the Agent of such additional amounts due hereunder, which
notice shall show the basis for calculation of such additional amounts, although
the failure to give any such notice shall not release or diminish any of the
Borrower's obligations to pay additional amounts pursuant to this Section 11.3.
------------
SECTION 11.4 Indemnification. In consideration of the execution and
---------------
delivery of this Agreement by each Bank and the extension of the Credit
Commitments, the Borrower hereby indemnifies, exonerates and holds the Agent and
each Bank and each of its officers, directors, employees, and agents (the "Bank
----
Parties") free and harmless from and against any and all actions, causes of
-------
action, suits, losses, costs, liabilities and damages, and expenses actually
incurred in connection therewith (irrespective of whether such Bank Party is a
party to the action for which indemnification hereunder is sought), including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
-----------------------
incurred by the Bank Parties or any of them as a result of, or arising out of,
or relating to
(i) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of any Loan;
(ii) the entering into and performance of this Agreement and any other
Loan Document by any of the Bank Parties; or
(iii) any investigation, litigation, or proceeding related to any
acquisition or proposed acquisition by the Borrower or any Subsidiary or
other Loan Party of all or any portion of the stock or all or substantially
all the assets
-78-
<PAGE>
of any Person, whether or not the Agent or such Bank is party thereto,
except for any such Indemnified Liabilities arising for the account of a
particular Bank Party by reason of the relevant Bank Party's gross negligence or
wilful misconduct, and if and to the extent that the foregoing undertaking may
be unenforceable for any reason, the Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
SECTION 11.5 Severability. Any provision of this Agreement or any Loan
------------
Document which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Agreement
or such Loan Document or affecting the validity or enforceability of such
provision in any other jurisdiction.
SECTION 11.6 Cross-References. References in this Agreement and in each
----------------
Loan Document to any Section or Article are, unless otherwise specified, to such
Section or Article of this Agreement or such Loan Document, as the case may be,
and references in any Section, Article or definition to any clause are, unless
otherwise specified, to such clause of such Section, Article or definition.
SECTION 11.7 Headings. The various headings of this Agreement and of
--------
each Loan Document are inserted for convenience only and shall not affect the
meaning or interpretation of this Agreement or such Instrument or any provisions
hereof or thereof.
SECTION 11.8 Counterparts, Effectiveness, etc. This Agreement may be
--------------------------------
executed by the parties hereto in several counterparts, each of which shall be
deemed to be an original and all of which shall constitute together but one and
the same agreement.
SECTION 11.9 Governing Law. This Agreement, the Notes and each other
-------------
Loan Document shall each be deemed to be a contract made under and governed by
the internal laws of the State of New
-79-
<PAGE>
York. For purposes of any action or proceeding involving this Agreement, the
Borrower hereby expressly submits to the jurisdiction of all Federal and state
courts located in the State of New York and consents that it may be served with
any process or paper by registered mail or by personal service within or without
the State of New York, provided a reasonable time for appearance is allowed.
SECTION 11.10 Confidentiality. The Agent and the Banks shall hold all
---------------
non-public information obtained pursuant to the requirements of this Agreement
which has been identified as such by the Borrower in accordance with their
customary procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices and in any event may make
disclosure to its examiners, affiliates, outside auditors, counsel and other
professional advisors in connection with this Agreement or as reasonably
required by any bona fide transferee or participant in connection with the
contemplated transfer of any Note or participation therein or as required or
requested by any governmental agency or representative thereof or pursuant to
legal process; provided that, unless specifically prohibited by applicable law
or court order, the Agent and each Bank shall notify the Borrower of any request
by any governmental agency or representative thereof (other than any such
request in connection with an examination of the financial condition of such
Person by such governmental agency) for disclosure of any such non-public
information prior to disclosure of such information; and further provided that
in no event shall the Agent and the Banks be obligated or required to return any
materials furnished by the Borrower.
SECTION 11.11 Successors and Assigns. This Agreement shall be binding
----------------------
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Borrower may not assign or transfer its
rights hereunder without the prior written consent of the Agent and the Banks.
SECTION 11.12 Waiver of Jury Trial. THE AGENT, THE BANKS AND THE
--------------------
BORROWER (EACH ON BEHALF OF ITSELF AND EACH LOAN PARTY) HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EACH MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS
-80-
<PAGE>
AGREEMENT OR ANY LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE BANKS, THE
BORROWER, OR ANY OTHER LOAN PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
THE AGENT AND THE BANKS TO ENTER INTO THIS AGREEMENT.
SECTION 11.13 Not a Novation. This Agreement shall not constitute a
--------------
novation and the execution by the Borrower of this Agreement shall not be
considered payment of the Borrower's obligations and liabilities incurred under
or evidenced by the Existing Agreement and the Notes dated June 9, 1993 issued
to BNS and NBD, respectively, thereunder. The "Loans" outstanding on the Fifth
Restatement Date under the Existing Agreement shall remain unpaid and
outstanding under this Agreement and shall be allocated among the Banks
according to their respective Percentages. Such Loans are evidenced by the
Notes dated June 9, 1993 and shall remain in existence thereunder.
-81-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year above written on which this Agreement is being amended and restated.
DAYTON WALTHER CORPORATION
By:/s/Glenn Dong
Title: Assistant Treasurer
By:________________________________
Title: Assistant Treasurer
Address: 2800 East River Road
Dayton, Ohio 45439
Attention: Henry T. Pollock
Telecopy No.: (513) 296-3138
(CORPORATE SEAL)
ATTEST:
/s/Kenneth L. Walker
Title: Secretary
Credit
Commitment Percentage THE BANK OF NOVA SCOTIA
---------- ----------
$10,000,000 50% By:/s/A.S. Norsworthy
Title: Assistant Agent
Domestic
Office
Address: 600 Peachtree Street N.E.
Suite 2700
Atlanta, Georgia 30308
-82-
<PAGE>
Attention: F.C.H. Ashby
Telecopy No.: (404) 888-8998
LIBOR Office: 600 Peachtree Street N.E.
Suite 2700
Atlanta, Georgia 30308
-83-
<PAGE>
$10,000,000 50% NBD BANK, a Michigan banking corporation
By:/s/Edward C. Hathaway
Title: Vice President
Domestic
Office
Address: 611 Woodward Avenue
Detroit, Michigan 48226
Attention: Victoria Decker
Telecopy No.: (313) 225-1671
LIBOR Office: 611 Woodward Avenue
Detroit, Michigan 48226
=========== ===
$20,000,000 100%
Total
Commitment
Amount
-84-
<PAGE>
EXHIBIT 10.1(k)(i)
EXHIBIT I
GUARANTY
THIS GUARANTY (this "Guaranty"), dated as of July 14, 1995, made by VARITY
--------
CORPORATION, a Delaware corporation (the "Guarantor"), in favor of each of the
---------
Lender Parties (as defined below);
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Dayton Walther Corporation, an Ohio corporation (the "Borrower"),
--------
and The Bank of Nova Scotia, a Canadian chartered bank acting through its
Atlanta Agency ("BNS"), and NBD Bank, a national banking association ("NBD")
--- ---
(BNS and NBD each individually a "Lender" and collectively the "Lenders"), and
BNS, as agent (together with any successor thereto in such capacity, the
"Agent") for the Lenders, have entered into that certain Loan Agreement, dated
as of December 30, 1986 and amended as of December 31, 1986 and March 31, 1987
and amended and restated as of December 1, 1987 and amended and restated as of
April 26, 1988 and April 29, 1988 and as further amended as of May 31, 1989,
March 6, 1990, October 30, 1990, January 31, 1991, July 31, 1991 and January 31,
1992, and as amended and restated as of June 9, 1993 and June 8, 1994, and as
further amended and restated as of July 14, 1995 (as so amended, the "Loan
----
Agreement");
---------
WHEREAS, as a condition precedent to the occurrence of the Fifth
Restatement Date under the Loan Agreement, the Guarantor is required to execute
and deliver this Guaranty;
WHEREAS, the Guarantor has duly authorized the execution, delivery and
performance of this Guaranty; and
WHEREAS, it is in the best interests of the Guarantor to execute this
Guaranty inasmuch as the Guarantor will derive substantial direct and indirect
benefits from the Loans made from time to time to the Borrower by the Lenders
pursuant to the Loan Agreement;
NOW THEREFORE, for good and valuable consideration the receipt of which is
hereby acknowledged, and in order to induce
<PAGE>
the Lenders to make Loans to the Borrower pursuant to the Loan Agreement, the
Guarantor agrees, for the benefit of each Lender Party, as follows:
1. Definitions.
-----------
1.1. Certain Terms. The following terms (whether or not underscored)
-------------
when used in this Guaranty, including its preamble and recitals, shall have the
following meanings (such definitions to be equally applicable to the singular
and plural forms thereof):
"Agent" is defined in the third recital.
----- -------------
"BNS" is defined in the first recital.
--- -------------
"Borrower" is defined in the first recital.
-------- -------------
"Guarantor" is defined in the preamble.
--------- --------
"Guaranty" is defined in the preamble.
-------- --------
"Lender" is defined in the third recital.
------ -------------
"Lender Party" means, as the context may require, any Lender or the Agent
------------
and each of its respective successors, transferees and assigns.
"Lenders" is defined in the third recital.
------- -------------
"Loan Agreement" is defined in the third recital.
-------------- -------------
"NBD" is defined in the second recital.
--- --------------
1.2. Loan Agreement Definitions. Unless otherwise defined herein or the
--------------------------
context otherwise requires, terms used in this Guaranty, including its preamble
and recitals, have the meanings provided in the Loan Agreement.
I-2
<PAGE>
2. Guaranty Provisions.
-------------------
2.1. Guaranty. The Guarantor hereby absolutely, unconditionally and
--------
irrevocably
(a) guarantees the full and punctual payment when due, whether at
stated maturity, by required prepayment, declaration, acceleration, demand
or otherwise, of all Liabilities of the Borrower now or hereafter existing
under the Loan Agreement, the Notes and each other Loan Document to which
the Borrower is or may become a party, whether for principal, interest,
fees, expenses or otherwise (including all such amounts which would become
due but for the operation of the automatic stay under Section 362(a) of
the United States Bankruptcy Code, 11 U.S.C. (S)362(a), and the operation
of Sections 502(b) and 506(b) of the United States Bankruptcy Code, 11
U.S.C. (S)502(b) and (S)506(b)), and
(b) indemnifies and holds harmless each Lender Party and each holder
of a Note for any and all costs and expenses (including reasonable
attorney's fees and expenses) incurred by such Lender Party or such
holder, as the case may be, in enforcing any rights under this Guaranty;
provided, however, that the Guarantor shall be liable under this Guaranty for
-------- -------
the maximum amount of such liability that can be hereby incurred without
rendering this Guaranty, as it relates to the Guarantor, voidable under
applicable law relating to fraudulent conveyance or fraudulent transfer, and not
for any greater amount. This Guaranty constitutes a guaranty of payment when
due and not of collection, and the Guarantor specifically agrees that it shall
not be necessary or required that any Lender Party or any holder of any Note
exercise any right, assert any claim or demand or enforce any remedy whatsoever
against the Borrower (or any other Person) before or as a condition to the
obligations of the Guarantor hereunder.
2.2. Acceleration of Guaranty. The Guarantor agrees that, in the event
------------------------
of the dissolution or insolvency of the Borrower or the Guarantor, or the
inability or failure of the Borrower or the Guarantor to pay debts as they
become due, or an assignment by the Borrower or the Guarantor for the benefit of
creditors, or
I-3
<PAGE>
the commencement of any case or proceeding in respect of the Borrower or the
Guarantor under any bankruptcy, insolvency or similar laws, and if such event
shall occur at a time when any of the Liabilities of the Borrower may not then
be due and payable, the Guarantor will pay to the Lenders forthwith the full
amount which would be payable hereunder by the Guarantor if all such Liabilities
were then due and payable.
2.3. Guaranty Absolute, etc. This Guaranty shall in all respects be a
----------------------
continuing, absolute, unconditional and irrevocable guaranty of payment, and
shall remain in full force and effect until all Liabilities of the Borrower have
been paid in full, all obligations of the Guarantor hereunder shall have been
paid in full and all Credit Commitments shall have terminated. The Guarantor
guarantees that the Liabilities of the Borrower will be paid strictly in
accordance with the terms of the Loan Agreement and each other Loan Document
under which they arise, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of any Lender Party or any holder of any Note with respect thereto. The
liability of the Guarantor under this Guaranty shall be absolute, unconditional
and irrevocable irrespective of:
(a) any lack of validity, legality or enforceability of the Loan
Agreement, any Note or any other Loan Document;
(b) the failure of any Lender Party or any holder of any Note
(i) to assert any claim or demand or to enforce any right or
remedy against the Borrower or any other Person (including any other
guarantor) under the provisions of the Loan Agreement, any Note, any
other Loan Document or otherwise, o r
(ii) to exercise any right or remedy against any other guarantor
of, or collateral securing, any Liabilities of the Borrower;
(c) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Liabilities
I-4
<PAGE>
of the Borrower, or any other extension, compromise or renewal of any Liability
of the Borrower;
(d) any reduction, limitation, impairment or termination of any
Liabilities of the Borrower for any reason, including any claim of waiver,
release, surrender, alteration or compromise, and shall not be subject to
(and the Guarantor hereby waives any right to or claim of) any defense or
setoff, counterclaim, recoupment or termination whatsoever by reason of
the invalidity, illegality, nongenuineness, irregularity, compromise,
unenforceability of, or any other event or occurrence affecting, any
Liabilities of the Borrower or otherwise;
(e) any amendment to, rescission, waiver, or other modification of,
or any consent to departure from, any of the terms of the Loan Agreement,
any Note or any other Loan Document;
(f) any addition, exchange, release, surrender or non-perfection of
any collateral, or any amendment to or waiver or release or addition of,
or consent to departure from, any other guaranty, held by any Lender Party
or any holder of any Note securing any of the Liabilities of the Borrower;
or
(g) any other circumstance which might otherwise constitute a
defense available to, or a legal or equitable discharge of, the Borrower,
any surety or any guarantor.
2.4. Reinstatement, etc. The Guarantor agrees that this Guaranty shall
------------------
continue to be effective or be reinstated, as the case may be, if at any time
any payment (in whole or in part) of any of the Liabilities is rescinded or must
otherwise be restored by any Lender Party or any holder of any Note, upon the
insol vency, bankruptcy or reorganization of the Borrower or otherwise, all as
though such payment had not been made.
2.5. Waiver, etc. The Guarantor hereby waives promptness, diligence,
-----------
notice of acceptance and any other notice with respect to any of the Liabilities
of the Borrower and this Guaranty and any requirement that the Agent, any other
Lender Party or any holder of any Note protect, secure, perfect or insure any
I-5
<PAGE>
security interest or Lien, or any property subject thereto, or exhaust any right
or take any action against the Borrower or any other Person (including any other
guarantor) or entity or any collateral securing the Liabilities of the Borrower.
2.6. Waiver of Subrogation. The Guarantor hereby irrevocably waives any
---------------------
claim or other rights which it may now or hereafter acquire against the Borrower
that arise from the existence, payment, performance or enforcement of the
Guarantor's obligations under this Guaranty or any other Loan Document,
including any right of subrogation, reimbursement, exoneration, or
indemnification, any right to participate in any claim or remedy of the Lender
Parties against the Borrower or any collateral which the Agent now has or
hereafter acquires, whether or not such claim, remedy or right arises in equity,
or under contract, statute or common law, including the right to take or receive
from the Borrower, directly or indirectly, in cash or other property or by set-
off or in any manner, payment or security on account of such claim or other
rights. If any amount shall be paid to the Guarantor in violation of the
preceding sentence and the Liabilities shall not have been paid in cash in full
and the Credit Commitments have not been terminated, such amount shall be deemed
to have been paid to the Guarantor for the benefit of, and held in trust for,
the Lender Parties and each holder of a Note, and shall immediately be paid to
the Lender Parties to be credited and applied against the Liabilities, whether
matured or unmatured in accordance with the terms of the Loan Agreement. The
Guarantor acknowledges that it will receive direct and indirect benefits from
the financing arrangements contemplated by the Loan Agreement and that the
waiver set forth in this Section 2.6 is knowingly made in contemplation of such
-----------
benefits.
2.7. Successors, Transferees and Assigns; Transfers of Notes, etc. This
------------------------------------------------------------
Guaranty shall:
(a) be binding upon the Guarantor, and its successors, transferees
and assigns; and
(b) inure to the benefit of and be enforceable by the Agent and each
other Lender Party.
I-6
<PAGE>
Without limiting the generality of the foregoing clause (b), any Lender may
----------
assign or otherwise transfer (in whole or in part) any Note or Loan held by it
to any other Person or entity, and such other Person or entity shall thereupon
become vested with all rights and benefits in respect thereof granted to such
Lender under any Loan Document (including this Guaranty) or otherwise, subject,
however, to any contrary provisions in such assignment or transfer, and to the
provisions of Section 11.11 and Article XI of the Loan Agreement.
3. Representations and Warranties. The Guarantor hereby represents and
------------------------------
warrants unto each Lender Party as set forth in this Section 3:
---------
3.1. Organization, etc. The Guarantor is a corporation validly organized
-----------------
and existing and in good standing under the laws of the state of its
incorporation, is duly qualified to do business and in good standing as a
foreign corporation in each jurisdiction where the nature of its business makes
such quali fication necessary and where the failure to so qualify would have a
Materially Adverse Effect and has full power and authority to own and hold under
lease its property and conduct its business substantially as presently conducted
by it. The Guarantor has full power and authority to enter into and to perform
its obligations under this Guaranty and each Loan Document.
3.2. Due Authorization. The execution and delivery by the Guarantor of
-----------------
this Guaranty and each Loan Document executed by it and the performance by the
Guarantor of its obligations hereunder and thereunder have been duly authorized
by all necessary corporate action, do not require any Approval, do not and will
not conflict with, result in any violation of, or constitute any default under,
any provision of any Organic Document or Contractual Obligation of the Guarantor
known to it (or any other material Contractual Obligation) or any present law or
govern mental regulation or court decree or order applicable to it and will not
result in or require the creation or imposition of any Lien in any of its
properties pursuant to the provisions of any Contractual Obligation.
3.3. Validity, etc. This Agreement is, and each Loan Document executed by
-------------
the Guarantor will on the due execution and
I-7
<PAGE>
delivery thereof be, the legal, valid and binding obligation of the Guarantor
enforceable in accordance with its terms, subject, as to enforcement, only to
bankruptcy, insolvency, reorganiza tion, moratorium or similar laws at the time
in effect affecting the enforceability of the rights of creditors generally, and
except as to general equitable remedies.
4. Covenants. The Guarantor covenants and agrees that, so long as any
---------
portion of the Liabilities shall remain unpaid or any Lender shall have any
outstanding Credit Commitment, the Guarantor will, unless the Required Banks
shall otherwise consent in writing, perform the obligations set forth in this
Section 4.
---------
4.1. Maintenance of Corporate Existences, etc. The Guarantor will cause
----------------------------------------
to be done at all times all things necessary to maintain and preserve its
corporate existence and to comply in all material respects with all applicable
laws, rules, regula tions and orders where the failure to so comply would have a
Materially Adverse Effect.
4.2. Foreign Qualification. The Guarantor will cause to be done at all
---------------------
times all things necessary to be duly qualified to do business and in good
standing as a foreign corporation in each jurisdiction where the nature of its
business makes such qualification necessary and where the failure to so qualify
would have a Materially Adverse Effect, and to comply in all material respects
with all applicable laws, rules, regulations and orders where the failure to so
comply would have a Materially Adverse Effect.
5. Miscellaneous Provisions.
------------------------
5.1. Loan Document. This Guaranty is a Loan Document executed pursuant
-------------
to the Loan Agreement and shall (unless otherwise expressly indicated herein) be
construed, administered and applied in accordance with the terms and provisions
thereof.
5.2. Binding on Successors, Transferees and Assigns; Assignment. In
----------------------------------------------------------
addition to, and not in limitation of, Section 2.7, this Guaranty shall be
-----------
binding upon the Guarantor and its successors, transferees and assigns and shall
inure to the benefit of and be enforceable by each Lender Party and each
I-8
<PAGE>
holder of a Note and their respective successors, transferees and assigns (to
the full extent provided pursuant to Section 2.7); provided, however, that the
----------- -------- -------
Guarantor may not assign any of its obligations hereunder without the prior
written consent of all Lenders.
5.3. Amendments, etc. No amendment to or waiver of any provision of this
---------------
Guaranty, nor consent to any departure by the Guarantor herefrom, shall in any
event be effective unless the same shall be in writing and signed by the Agent,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
5.4. Addresses for Notices to the Guarantor. All notices and other
--------------------------------------
communications hereunder to the Guarantor shall be in writing (including
telegraphic communication) and mailed or telegraphed or delivered to it,
addressed to it at the address set forth below its signature hereto or at such
other address as shall be designated by the Guarantor in a written notice to the
Agent at the address specified in the Loan Agreement complying as to delivery
with the terms of this Section 5.4. All such notices and other communications
-----------
shall, when mailed or telegraphed, respectively, be effective when deposited in
the mails or delivered to the telegraph company, respectively, addressed as
aforesaid.
5.5. No Waiver; Remedies. In addition to, and not in limitation of,
-------------------
Sections 2.3 and 2.5, no failure on the part of any Lender Party or any holder
------------ ---
of a Note to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
5.6. Section Captions. Section captions used in this Guaranty are for
----------------
convenience of reference only, and shall not affect the construction of this
Guaranty.
5.7. Setoff. In addition to, and not in limitation of, any rights of any
------
Lender Party or any holder of a Note under applicable law, each Lender Party and
each such holder shall,
I-9
<PAGE>
upon the occurrence of any Default described in Section 9.1.4 of the Loan
Agreement or any Event of Default, have the right to appropriate and apply to
the payment of the obligations of the Guarantor owing to it hereunder, whether
or not then due, and the Guarantor hereby grants to each Lender Party and each
such holder a continuing security interest in, any and all balances, credits,
deposits, accounts or moneys of the Guarantor then or thereafter maintained with
such Lender Party or such holder and any and all property of every kind or
description of or in the name of the Guarantor now or hereafter, for any reason
or purpose whatsoever, in the possession or control of, or in transit to, such
Lender Party, such holder or any agent or bailee for such Lender Party or such
holder; provided, however, that any such appropriation and application shall be
-------- -------
subject to the provisions of Section 3.8 of the Loan Agreement.
5.8. Severability. Wherever possible each provision of this Guaranty
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Guaranty shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Guaranty.
5.9. Governing Law, Entire Agreement, etc. THIS GUARANTY SHALL BE
------------------------------------
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
NEW YORK. THIS GUARANTY AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE
UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF
AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO.
5.10. Forum Selection and Consent to Jurisdiction. FOR PURPOSES OF ANY
-------------------------------------------
ACTION OR PROCEEDING INVOLVING THIS GUARANTY, THE GUARANTOR HEREBY EXPRESSLY
SUBMITS TO THE JURISDICTION OF ALL FEDERAL AND STATE COURTS LOCATED IN THE STATE
OF NEW YORK AND CONSENTS THAT IT MAY BE SERVED WITH ANY PROCESS OR PAPER BY
REGISTERED MAIL OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK,
PROVIDED A REASONABLE TIME FOR APPEARANCE IS ALLOWED.
I-10
<PAGE>
5.11. Waiver of Jury Trial. THE GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY
--------------------
AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH,
THIS GUARANTY OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF THE LENDER PARTIES OR THE GUARANTOR. THE
GUARANTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT
CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE AGENT AND THE LENDERS ENTERING INTO THE LOAN AGREEMENT.
I-11
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
VARITY CORPORATION
By:/s/F.J. Chapman
Name: F.J. Chapman
Title: Vice President & Treasurer
By:/s/H.T. Pollock
Name: H.T. Pollock
Title: Assistant Treasurer
Address: World Headquarters
672 Delaware Avenue
Buffalo, New York 14209
Attention: H. T. Pollock
Facsimile: (716) 888-8010
I-12
<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,
-----------------------------
1995 1994
-------------- -------------
<S> <C> <C>
Income before discontinued operations................ $ 32.7 $ 22.7
Preferred stock dividend entitlements................ (.6) (.6)
------- -------
Income attributable to common stockholders before
discontinued operations (A)........................ 32.1 22.1
Earnings from discontinued operations (B)............ - 23.3
------- -------
Net income attributable to common stockholders (C)... $ 32.1 $ 45.4
======= =======
Weighted average shares of common stock outstanding
during the period (in thousands)................... 40,913 43,971
Common stock equivalents:
Common stock options............................... 479 407
Long-term incentive plans.......................... - 7
------- -------
Primary weighted average shares of common stock
outstanding during the period (D).................. 41,392 44,385
======= =======
Primary income per share of common stock:
Before discontinued operations (A/D)............... $ .78 $ .50
Discontinued operations (B/D)...................... - .52
------- -------
Net income (C/D)................................... $ .78 $ 1.02
======= =======
</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,
---------------------------
1995 1994
------------- ------------
<S> <C> <C>
Income before discontinued operations................ $ 66.4 $ 48.2
Preferred stock dividend entitlements................ (1.2) (1.2)
------- -------
Income attributable to common stockholders before
discontinued operations (A)........................ 65.2 47.0
Earnings from discontinued operations (B)............ .5 27.2
------- -------
Net income attributable to common stockholders (C)... $ 65.7 $ 74.2
======= =======
Weighted average shares of common stock outstanding
during the period (in thousands)................... 40,945 43,967
Common stock equivalents:
Common stock options............................... 442 471
Long-term incentive plans.......................... - 9
------- -------
Primary weighted average shares of common stock
outstanding during the period (D).................. 41,387 44,447
======= =======
Primary income per share of common stock:
Before discontinued operations (A/D)............... $ 1.58 $ 1.06
Discontinued operations (B/D)...................... .01 .61
------- -------
Net income (C/D)................................... $ 1.59 $ 1.67
======= =======
</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-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> JUL-31-1995
<CASH> 108
<SECURITIES> 43
<RECEIVABLES> 347
<ALLOWANCES> 0
<INVENTORY> 158
<CURRENT-ASSETS> 698
<PP&E> 644
<DEPRECIATION> 0
<TOTAL-ASSETS> 1814
<CURRENT-LIABILITIES> 498
<BONDS> 164
<COMMON> 642
0
7
<OTHER-SE> 181
<TOTAL-LIABILITY-AND-EQUITY> 1814
<SALES> 1168
<TOTAL-REVENUES> 1168
<CGS> 949
<TOTAL-COSTS> 949
<OTHER-EXPENSES> 132
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 77
<INCOME-TAX> 18
<INCOME-CONTINUING> 66
<DISCONTINUED> 1
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 67
<EPS-PRIMARY> 1.59
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<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> 377
<ALLOWANCES> 0
<INVENTORY> 160
<CURRENT-ASSETS> 805
<PP&E> 893
<DEPRECIATION> 303
<TOTAL-ASSETS> 1857
<CURRENT-LIABILITIES> 557
<BONDS> 163
<COMMON> 638
0
7
<OTHER-SE> 141
<TOTAL-LIABILITY-AND-EQUITY> 1857
<SALES> 998
<TOTAL-REVENUES> 998
<CGS> 822
<TOTAL-COSTS> 822
<OTHER-EXPENSES> 114
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> 50
<INCOME-TAX> 8
<INCOME-CONTINUING> 48
<DISCONTINUED> 27
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75
<EPS-PRIMARY> 1.67
<EPS-DILUTED> 0.00
</TABLE>
