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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 Commission File No 1-1997
THE MONARCH MACHINE TOOL COMPANY
Ohio 34-4307810
(State of Incorporation) (IRS Employer Identification No.)
2600 Kettering Tower, Dayton, Ohio 45423
Telephone 937/910-9300
Security registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common shares, without par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
---------------------------------------------
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 twelve months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the common shares held by nonaffiliates of the
registrant as of the close of business on March 5, 1999 was $27,260,000.
The number of common shares outstanding as of March 5, 1999, was 3,779,393.
Documents Incorporated By Reference
Portions of the Registrant's Definitive Proxy Statement for its Annual Meeting
of Shareholders to be held on May 5, 1999.
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PART I
ITEM 1 - BUSINESS
The Monarch Machine Tool Company ("Monarch" or the "Company") was incorporated
in 1909. The Company operates in three business segments where it designs,
manufactures and assembles metal coil processing equipment, paper coating and
laminating equipment and machining centers.
Recent Developments
On December 31, 1998, the Company acquired all of the outstanding shares of
common stock of GFG Corporation ("GFG"), based in Milwaukee, Wisconsin. GFG
designs and assembles roll coating, electrostatic oil application and strip
processing equipment used by the metal coil processing industry.
In November 1998, the Company acquired engineering designs from Unisign B.V., a
Netherlands company, to produce travelling-column CNC machining centers. In
addition, the Company has a license for the exclusive right to sell this
equipment to North American customers for a period of 5 years. The Company
anticipates that this equipment will be manufactured at its machining center
operations in Cortland, NY.
The Company entered into a strategic alliance in 1997 with Spinner Machine Tool
Company, a German company, to market in North America ultra-precision horizontal
turning machines produced by Spinner and to have Spinner market the Company's
machining centers in Europe.
During 1997, the Company sold the business of the Sidney lathe (turning
machines) operation and decided to close the operations of its three German
businesses. Subsequently, in March 1998, the Company entered into an agreement
to sell a majority of the assets of one of the German businesses, with the buyer
agreeing to assume certain liabilities of the business.
The following is a description of the Company's primary businesses.
Metal Coil Processing Equipment
The Company designs and manufactures a broad line of metal coil processing
equipment. This equipment, generally sold as complete lines, is used by steel
and aluminum mills and mini-mills, ferrous and non-ferrous supply centers, and
end users of coiled material. Coil processing lines perform various operations,
such as slitting, tension leveling, shearing, cleaning, forming, coating,
galvanizing, annealing, and heat treating. Individual components are also
manufactured for the upgrading of existing lines. GFG designs and assembles roll
coating and electrostatic oil application equipment also used by the above
industries. GFG also designs and assembles metal strip processing equipment to
process metal normally of smaller gauge and width than that processed by the
coil processing equipment.
Machining Centers
A machining center is a multi-functional machine that removes metal by milling,
drilling, boring, or tapping with a rotating tool on a stationary part. Monarch
manufactures vertical spindle machining centers in various sizes and
configurations. All are computer numerically controlled (CNC) and have automatic
tool changers that change tools in the spindle without operator assistance.
Automatic part fixture loading devices have been developed by Monarch that can
be added to most models. Through strategic alliances with 2 European companies,
the Company markets precision turning machines, produced by a German company, in
North
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America and intends to manufacture and sell travelling-column machining centers
through an alliance with a Dutch company, which includes a 5-year exclusive
selling arrangement in North America.
Paper Coating and Laminating Equipment
In 1995, the Company entered a new industry segment with its purchase of certain
assets of the coating and laminating equipment business of a German company. In
1996, the Company also began designing and manufacturing this type of equipment
in the United States. In 1997, the Company decided to close the German business.
The equipment, typically sold in complete lines, is used to further process
paper, plastics, and foil for use in flexible or medical packaging, pressure
sensitives, adhesives products and wall coverings. The products include
continuous roll processing with in-line coating, drying, dry or wet laminating,
slitting and rewinding. The coatings and adhesives applied are aqueous solvent,
solventless, hot melt and wax. Individual components are also available for
upgrading existing installations.
Competition
Monarch actively competes with other equipment manufacturers, both domestic and
foreign. The market for the Company's products is subject to normal price,
service, and quality competition. Domestically, the coil processing equipment
produced by the Company's Stamco operations primarily competes with other
domestic producers and the Company believes it holds a second place market share
position. Internationally, the Company competes with a number of other major
international companies. GFG believes it has over 50% of the market share, both
domestically and internationally, for its roll coating equipment and also holds
the largest market share compared to its competitors for its electrostatic oil
application equipment. Its major competitors include both domestic and
international companies. Increasingly, foreign machining center manufacturers
aggressively compete in the North American market. Although the prior
competitors in this business were predominantly Japanese, they are now spread
throughout Asia. However, for the Company's machining centers, the competition
continues to be primarily Japanese manufacturers. During 1998, competition in
the machining center business intensified with foreign competitors discounting
equipment to North American customers, largely due to lower international demand
and weak foreign currencies values, especially the Japanese yen.
Customers
Monarch has a broad customer base. Producers, suppliers and users of strip metal
have a need for coil processing equipment. Virtually all manufacturing plants
that perform metal cutting operations are potential customers for Monarch
machining centers. The Company's paper coating and laminating equipment is used
by individual customers in the packaging industry and by producers of commercial
or consumer products. The loss of any individual customer would not have a
materially adverse effect upon the Company.
Backlog
Monarch's backlog, segregated by industry segment, is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1998 1997
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<S> <C> <C>
Metal Coil Processing Equipment $43,112 $30,352
Machining Centers 4,302 10,275
Paper Coating and Laminating Equipment 1,839 1,584
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$49,253 $42,211
======= =======
</TABLE>
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The entire backlog can reasonably be expected to be shipped within twelve
months. Seasonal factors are not significant to Monarch.
Purchases of Raw Materials and Supplies
Monarch generally manufactures certain of the components of its machines and
purchases other components such as castings, large weldments, computer numerical
controls, large gear boxes, motors, and electrical components. The principal
materials purchased are obtained on a competitive basis from many different
sources and are commercially available. Monarch's numerically controlled
machines are designed to be used with controls made by one of two major
industrial control manufacturers. The paper coating and laminating and GFG
businesses are primarily involved in the design and assembly of their equipment.
These operations generally sub-contract for a significant portion of components
of their equipment from numerous suppliers. The Company does not believe that
the loss of any one supplier would have a material adverse affect on the ability
of these operations to continue. GFG has alliances with certain key suppliers of
components used in its equipment. While the loss of one of these suppliers could
be disruptive in the short-term, alternative sources of supply would be
available.
Patents, Licenses and Franchises
In 1998, the Company entered into an agreement with Unisign B.V. to sell, on an
exclusive basis in North America for a 5-year period, travelling-column
machining centers which will be manufactured by the Company. The Company also
has a strategic alliance with Spinner Machine Tool Company GmbH to jointly sell
each other's products. In North America, the Company sells Spinner's
ultra-precision horizontal turning machines.
Engineering and Development
The Company's engineering departments are responsible for designing equipment to
customer order specifications, the improvement of existing product lines, and
the development of new products. Refer to the Notes to Consolidated Financial
Statements contained in Item 8 of this Form 10-K, for the amount of research and
development expense incurred by the Company.
Employees
The Company had 570 employees at December 31, 1998.
Working Capital
Because of the up to 12 month cycle time required to manufacture certain of its
products, Monarch may be required to finance a substantial volume of work in
process. However, to the extent possible, it obtains progress payments from
customers during the production cycle.
Domestic and Foreign Operations and Export Sales
Amounts of revenue, profitability, and identifiable assets attributable to
domestic and foreign operations are included in Notes to Consolidated Financial
Statements contained in Item 8 of this Form 10-K.
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ITEM 2 - PROPERTIES
Domestic
Engineering design and manufacturing operations for the metal coil processing
equipment business are conducted in New Bremen, Ohio, in a plant of 180,000
square feet, and for the machining center business in Cortland, New York, in a
plant of 135,000 square feet. Both facilities are owned by the Company and are
in good condition. During 1998, the Company relocated its corporate headquarters
from Sidney, Ohio to leased facilities in Dayton, Ohio. GFG Corporation's
business is located in Milwaukee, Wisconsin in a leased facility containing
60,000 square feet of office and plant space. The paper coating and laminating
equipment business is presently based in Sidney, Ohio, but will be relocated to
the GFG facility during 1999.
Foreign
Stamco (U.K.) Ltd., leases office facilities near Birmingham, England where it
designs, purchases components and sells metal coil processing equipment.
GFG Peabody Ltd. leases a sales and service office in Surrey, England.
During 1997, the Company decided to close or sell the operations of Stamco
Depiereux GmbH, Monarch Werkzeugmaschinen GmbH and Monarch Busch GmbH, all
located in Germany. Each of the companies are in liquidation, in accordance with
the regulations for liquidation required in Germany. The liquidation process is
expected to be substantially completed in 1999.
All of the Company's facilities are in good condition.
ITEM 3 - LEGAL PROCEEDINGS
In September 1988, the Company and several other potentially responsible parties
("PRPs") were ordered by the Environmental Protection Agency ("EPA"), under the
Federal "Superfund" legislation, to perform a remedial investigation and a
limited removal action to dispose of waste materials at the Rosen site, a former
scrap yard in Cortland, New York. The investigation and removal action work was
completed in 1996 to the EPA's satisfaction.
In 1998, a Consent Decree was entered into among the EPA, the PRPs (including
the Company) and a group of ten companies ("Defendants"), that the EPA
considered to be potentially liable, to share the costs of remediation. The
Consent Decree prescribes the remediation procedures necessary to be performed
at the property. Prior to implementation, the Consent Decree requires approval
of the U.S. Department of Justice and the U.S. District Court in New York. If
the Consent Decree is approved in its present form, the Company will have
limited responsibility for any future remediation or maintenance costs related
to the property, provided that the EPA approved remedy is implemented and
ultimately is successful. Pursuant to the terms of the Consent Decree, the
Company, along with the PRPs and Defendants, have joint and several
responsibility to pay any additional EPA oversight costs.
Based on information presently available, the Company believes that the $1.3
million it has reserved at December 31, 1998 is adequate to provide for its
share of the estimated costs for resolution of this matter. However, the
Company's ultimate liability for remediation will likely be reduced if the
Consent Decree is approved by the appropriate agencies. The Company anticipates
continuing to review the adequacy of its present reserve and will recognize an
adjustment to the reserve when appropriate.
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Included in these legal actions is a claim by one of the Company's customers
related to alleged defects in equipment supplied by the Company (Flat Rock
Metal, Inc. v. The Monarch Machine Tool Company). The action was filed on May
17, 1996 and the matter is scheduled for trial in May 1999 in the United States
District Court for the Eastern District of Michigan, Case No. 96-72776. The
Company believes that the equipment meets all specifications prescribed in the
contract and intends to vigorously defend this litigation.
The Company is a defendant in various legal actions, arising in the ordinary
course of business, including product liability claims. The Company is
responsible for legal and settlement costs up to $100,000 associated with
product liability claims and has insurance coverage for costs which exceed that
amount, subject to specific and aggregate loss limitations. The Company believes
that the ultimate liability, if any, resulting from these matters will not have
a material effect on the Company's consolidated financial position or results of
operations.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of 1998.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS
MATTERS
The following table sets forth for 1998 and 1997 the high and low price of the
Company's Common Stock on the New York Stock Exchange-Composite Tape and the
dividend per share paid on the Common Stock (ticker symbol is MMO):
<TABLE>
<CAPTION>
1998 1997
DIVIDEND DIVIDEND
QUARTER ENDED HIGH LOW PAID HIGH LOW PAID
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<S> <C> <C> <C> <C> <C> <C>
March 31 $ 8-1/2 $ 7-1/2 $ .05 $ 9-1/8 $ 7-3/8 $ .05
June 30 $ 8-15/16 $ 7-13/16 $ .05 $ 9 $ 7 $ .05
September 30 $ 8-11/16 $ 7 $ .05 $ 9-3/4 $ 7-3/16 $ .05
December 31 $ 7-1/8 $ 6-1/4 $ .05 $ 9-15/16 $ 7-11/16 $ .05
</TABLE>
At December 31, 1998, the number of holders of record for the Company's Common
Stock was 737. Under its revolving credit facility the Company is restricted as
to the amount of dividends it may pay in any year, as described in the Notes to
the Consolidated Financial Statements contained in Item 8 of this Form 10-K.
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ITEM 6 - SELECTED FINANCIAL DATA
The selected financial data set forth below for the five years ended December
31, 1998 has been derived from the audited financial statements of the Company
and its consolidated subsidiaries. Such information should be read in
conjunction with the financial statements. (Dollars in thousands, except per
share amounts).
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Net Sales $79,066 $107,116 $115,528 $114,991 $ 76,332
Operating Income (Loss) $ 3,328 $ (4,850)(a) $(11,220)(b) $ 1,220 $ (3,407)
Net Income (Loss) $ 2,083 $ (4,202) $ (5,498) $ 786 $ (1,463)
Earnings (Loss) per Common Share $ .55 $ (1.12) $ (1.47) $ .21 $ (.39)
BALANCE SHEET DATA:
Working Capital $14,828 $ 15,308 $ 36,368 $ 38,942 $ 25,943
Total Assets $88,457 $ 75,869 $102,912 $101,348 $ 78,342
Long-term Debt $16,497 $ 1,598 $ 18,175 $ 14,318
Shareholders' Equity $42,654 $ 41,269 $ 46,579 $ 52,650 $ 52,676
OTHER DATA:
Cash Provided by (Used in)
Operating Activities $(1,041) $ 14,797 $ (4,069) $ (6,155) $ 2,231
Payments of Indebtedness $ $ 20,586 $ 120 $ 1,000
Additional Indebtedness $14,786 $ 4,129 $ 11,764
Ending Backlog $49,300 $ 42,200 $ 60,800 $ 59,600 $ 49,600
Cash Dividend per Common Share $ .20 $ .20 $ .20 $ .20 $ .20
</TABLE>
(a) Includes reserves for asset impairment, closure costs and inventory
write-down of $3,030 ($.81 per share, before tax) related to sale of Sidney
lathe business and $1,383 ($.37 per share, before tax) related to the sale
and closure of the German businesses.
(b) Includes a reserve of $7,463 ($1.99 per share, before tax) resulting from
an inventory write-down at the Sidney lathe business and a gain of $2,518
($.67 per share, before tax) related to LIFO liquidations.
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ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1998 Compared to 1997
The Company realized net income of $2.1 million in 1998 compared to a net loss
of $4.2 million in 1997. The Company's ongoing businesses generated income
before tax of $3.2 million in 1998 compared to income before tax of $843,000 in
1997. Included in 1998 results is a $250,000 reserve for potential costs to be
incurred in closing the Company's operations in Germany. During 1997, the
Company's decision to sell its Sidney lathe business and to close or dispose of
its operations in Germany resulted in a $3.0 million charge for asset impairment
and a $1.4 million write-down of inventory.
Net sales were $79.1 million in 1998 compared to $107.1 million in 1997. The
lower sales in 1998 were the result of the sale and closure of the German
operations and the Sidney lathe business in 1997 and lower sales volume at the
Company's coil processing business in 1998. The Company's ongoing businesses
generated sales of $79.1 million in 1998 compared to $91.4 million in 1997. The
decrease in sales at the coil-processing segment was primarily due to the
segment entering 1998 with a low order backlog.
Cost of sales as a percentage of sales was 79.8% in 1998 compared to 86.0% in
1997. The improvement in gross margin percentage resulted from the sale and
closure of the Company's German operations, which generated poor gross margins,
and an improvement in the gross margin at the Company's coil processing segment.
The improved margins for coil processing resulted from lower than expected cost
of sales, primarily for raw materials. The improvement in margins for the coil
processing segment were partially offset by lower gross margins at the Company's
machine tool segment due to increased competition, which negatively impacted
selling prices and ultimately, gross margins.
Selling, general and administrative expense decreased to $12.6 million in 1998
from $16.8 million in 1997. The selling, general and administrative expenses of
ongoing businesses decreased by 3% from $13.0 million in 1997 to $12.6 million
in 1998 as a result of the Company's efforts to reduce these expenses at each
division.
Interest expense declined in 1998 as the Company used proceeds from the sale of
the Sidney lathe business in the second half of 1997 to repay indebtedness and
the Company's ongoing operations generated sufficient cash flow to maintain a
lower average debt balance.
The Company's income tax provision (benefit) generally reflects the statutory
rates in the jurisdiction in which the Company operated in 1998.
1997 Compared to 1996
The Company reported a net loss of $4.2 million in 1997 compared to a net loss
of $5.5 million in 1996. During 1997, the Company sold the operating assets of
the Sidney lathe business and decided to close or dispose of the operations of
its three German businesses. These businesses had sustained operating losses
during the past few years and the Company could not project an acceptable level
of success in these businesses. Results in 1997 include a reserve of $3.0
million for asset impairment and other disposal costs related to these
businesses, while cost of sales includes $1.4 million for the write-down of
inventory at these businesses. Included in the 1996 loss is a $7.5 million
write-down of inventory, a gain of $3.9 million from the sale of properties in
Germany and income of $2.5 million from LIFO liquidations, each related
primarily to the
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businesses being sold or closed. The Company's ongoing businesses realized
income before tax of $843,000 in 1997 and a loss before tax of $478,000 in 1996.
Net sales were $107.1 million and $115.5 million in 1997 and 1996, respectively.
The decline in 1997 sales was due to the July 1997 sale of the Sidney lathe
business and lower sales from the Company's German businesses, due to the
decision in 1997 to sell or close these businesses. Sales from the Company's
ongoing businesses were $91.4 million in 1997 and $78.4 million in 1996. The
increase in 1997 was primarily realized in the coil processing segment.
Cost of sales as a percentage of sales was 86.0% in 1997 compared to 95.3% in
1996. The percentage was higher in 1996 due to the above noted $7.5 million
inventory write-down and lower margins achieved on certain coil processing lines
of equipment shipped in 1996. The cost of sales percentage at the Company's
ongoing businesses was 83.5% and 87.0% in 1997 and 1996, respectively, with the
higher percentage in 1996 resulting from the aforementioned shipment of lower
margin coil processing lines. The Company's ongoing machine tool business
realized improved margins in 1997 due to a more profitable sales mix.
Selling, general and administrative expense remained relatively constant in 1997
compared to 1996. Expenses decreased in 1997 as a result of lower sales at the
German businesses and the July sale of the Sidney lathe business, but this
decrease was partially offset by additional selling expenses related to efforts
to increase market penetration by the Company's ongoing operations.
Interest expense declined in 1997, as a significant portion of the Company's
indebtedness was repaid in the second half of 1997, using proceeds from the sale
of the Sidney lathe business and from collection of accounts receivable.
Included in other income in 1996 was the aforementioned gain of $3.9 million
from the sale of properties in Germany.
The Company's income tax provision (benefit) generally reflects the statutory
rates in the jurisdictions in which the Company operated, except during 1997. A
lower income tax benefit rate was recorded in 1997 as the Company is limited in
the tax benefit it expects to realize from losses incurred by its German
businesses.
LIQUIDITY AND CAPITAL RESOURCES
During 1998, 1997 and 1996 the Company's operating activities used $1.0 million,
provided $14.8 million and used $4.1 million of cash, respectively. A major
component of operating cash activity each year was from changes in the Company's
working capital, which required $2.4 million in 1998, provided $14.6 million in
1997 and required $2.4 million in 1996. These working capital changes relate
primarily to the timing of collection of accounts receivable and payment of
accounts payable and accrued expenses. Included in 1998 operating results is
$3.2 million of income earned on investments carried in the Company's
overfunded pension plans, while $2.0 million of income was recognized in both
1997 and 1996. This income does not generate operating cash to the Company, as
the Company's pension assets are currently held in a trust to fund the
Company's obligations under its pension plans. Because of its net operating
loss position for Federal income tax purposes, the Company was not required to
pay Federal income taxes on its 1998 earnings nor did it receive a cash refund
for the income tax benefit it recorded in 1997 and 1996. Other non-cash charges
included $3.4 million recorded in 1997 in connection with a write-down of
assets held for sale and a reserve for closure of certain of the Company's
operations and a $7.5 million provision recorded in 1996 for a write-down of
inventory at one of those operations.
The Company's capital expenditures in 1998 totaled $3.0 million, primarily
related to implementation of a new company-wide business planning management
information system, including the purchase of new computer hardware. In December
1998, the Company borrowed $13.5 million under its line of credit to acquire GFG
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Corporation. During 1997, the sale of Sidney division assets generated $7.6
million while a German property sale provided $4.0 million in 1996. The Company
used proceeds received in 1997 from the sale of Sidney division assets and
collection of accounts receivable to repay $20.6 million of its bank debt.
During 1999, the Company plans to spend up to $3.4 million for capital
expenditures, including $650,000 for computer and related equipment, primarily
in conjunction with completion of the implementation of its management
information system. The remaining amount is expected to be expended to acquire
equipment to be used in the Company's manufacturing and assembly processes and
for general business purposes. Included in other assets is $3.2 million related
to property and facilities held for sale, which are not being used in the
Company's operations. The Company anticipates that certain of these properties
are likely to be sold during 1999, at values equal to or in excess of their
carrying basis.
The Company has up to $27.5 million of borrowing capacity under two credit
facilities, although the amount available to the Company to borrow at any time
is determined based on levels of inventory and accounts receivable. The Company
had borrowed $16.5 million under the facilities and $11 million was available to
borrow at December 31, 1998. Under one credit facility for $25 million, the
Company is required to comply with various financial covenants, including
maintaining a minimum tangible net worth and certain operating performance
ratios, and is limited as to the amount of dividends it may pay. At December 31,
1998, the maximum amount of retained earnings available to pay dividends was
$2.2 million. In addition, the Company is required to repay any amounts
outstanding under this credit facility from proceeds generated from asset sales
and the pension plan reversion discussed below. The amount available under this
credit facility will be reduced by an amount equal to the above noted proceeds,
to an amount not less than $20 million.
The Company has approved the termination of two of its pension plans and is
proceeding with the process which will ultimately result in the distribution of
plan assets to participants and the Company. Presently the plans hold assets
valued at approximately $34 million. In connection with the terminations, plan
assets are projected to be distributed as follows: $17 million to plan
participants, $4 million to be transferred to a trust to be used to pay benefits
under replacement pension plans adopted on January 1, 1999, $3 million to pay
excise taxes incurred because of plan termination and $10 million reverting to
the Company, which will be used to reduce indebtedness. These amounts are based
on present valuations and may differ from amounts paid at distribution date
(expected to be in the fourth quarter of 1999) because of changes in the market
value of plan assets, interest rates and actuarial valuations. The Company does
not anticipate paying any statutory federal income tax on this transaction, as
it expects to use its present net operating loss carryforwards to offset any
regular taxable income generated by the pension asset reversion. However, the
Company would be subject to payment of alternative minimum tax on the taxable
gain from this transaction. The termination is subject to approval by both the
Pension Benefit Guaranty Corporation and the Internal Revenue Service. Any gain
or loss on pension plan termination will be recognized at the date of plan asset
distribution. The Company's prepaid pension costs at December 31, 1998 consists
of $13.6 million related to the two plans being terminated and $5.4 million to
its ongoing plans. The Company believes that the prepaid pension cost asset will
increase by $2.0 million in 1999, based on current assumptions.
The Company has a net deferred income tax asset of $3.5 million at December 31,
1998. The Company has determined that it is not necessary to provide a valuation
allowance against this asset, as it expects to realize the asset through the
implementation of certain tax-planning strategies and the generation of future
taxable income.
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BACKLOG
The Company's backlog at December 31, 1998 was $43.5 million compared to a
beginning of year backlog of $40 million for its ongoing businesses. The Company
recorded $85.6 million of orders during 1998, including a record $55 million
recorded by its metal coil processing business. The December 1998 backlog does
not include a $5.7 million backlog carried by GFG Corporation, which the Company
acquired in late December 1998.
YEAR 2000 COMPLIANCE
Year 2000 issues arise because of the inability of many existing computer
systems and software, which utilize a two-digit conversion for recording years,
to properly recognize and process information relating to Year 2000. In early
1998, the Company began a Company-wide program to replace its internal
information processing systems for reasons unrelated to Year 2000 issues. It
expects to complete this program during the third quarter of 1999, which should
result in its internal information processing systems being Year 2000 compliant.
The cost to the Company to fully implement this new system is estimated at
approximately $2.5 million. During 1998, the Company spent $1.8 million on this
project. Funds for this program are expected to be available to the Company from
its internal operations and, if necessary, from its line of credit. GFG
Corporation, acquired by the Company in late 1998, is also in the process of
replacing its information processing system. This process began in 1998 and is
expected to be substantially completed during the second quarter of 1999. The
Company estimates the cost of this process to be $325,000, of which $200,000 was
expended in 1998. As part of a comprehensive Year 2000 compliance project, the
Company is also assessing other key aspects of its operating and administrative
processes which, if they would become inoperable due to Year 2000 issues, would
have a material impact on the Company's ability to continue its normal
operations. This program includes a plan to identify the extent to which key
vendors and consultants are addressing this same issue and an assessment of the
Company's products. The Company will monitor and evaluate the progress of its
vendors and consultants on this matter. The Company is also reviewing its
non-information technology systems to determine the extent of any changes that
may be necessary and presently believes that there will be minimal changes
necessary for compliance. Although the Company cannot assess the result of this
evaluation until it has obtained further information, based upon the work it has
performed to date, it is not presently aware of any Year 2000 issues which would
have a disruptive impact on its operations or a material adverse impact upon its
financial condition or results of operation.
The Company believes it is diligently addressing Year 2000 issues and that it
will satisfactorily resolve any significant Year 2000 problems. The Company
anticipates completing its Year 2000 projects during 1999, with major completion
milestones being targeted for the first, second and third quarters. In the event
the Company falls short of these milestones, additional internal resources will
be focused on completing these projects or implementing contingency plans.
INFLATION AND INTEREST RATES
The Company has not been significantly affected by inflation in recent years and
anticipates that it will not be significantly affected by inflation in 1999. A
change in interest rates could have an impact on the Company's financial
results, as the Company is presently paying a variable interest rate on its
outstanding debt. However, the Company projects that a significant portion of
its debt will be repaid during 1999, through use of proceeds from the sale of
assets and the termination of two pension plans.
10
<PAGE> 12
FOREIGN CURRENCY
In its present operations, the Company has limited market risk exposure to
changes in foreign exchange rates, as it does not have a substantial portion of
its operating assets, liabilities and cash flows in currencies other than the
U.S. dollar, nor does it transact a significant portion of its business in
foreign currencies. The Company's foreign operations have their local currencies
as their functional currency and primarily buy and sell using that same
currency. The Company's primary foreign operations, which provide less than 10%
of the Company's sales, total assets and total liabilities, are located in the
United Kingdom.
The Company may use foreign exchange contracts with terms of less than one year
to hedge certain transactions denominated in foreign currencies. Based upon the
Company's overall foreign currency exchange rate exposure at December 31, 1998,
a 10% adverse change in currency rates would not materially affect the Company's
financial position, results of operations or cash flows.
NEW ACCOUNTING STANDARDS
All issued accounting standards presently applicable to the Company have been
adopted by the Company.
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report contains various
forward-looking statements which are subject to risks and uncertainties that
could cause actual results to differ materially from these statements. These
risks include, but are not limited to, changes in economic conditions, interest
rates, price and product offering competition from domestic and foreign
entities, customer purchasing patterns, labor costs, product liability issues
and other legal claims and governmental regulatory issues. Words identifying
forward-looking statements include "plan", "believe", "expect", "anticipate",
"project", "intend", "estimate" and other expressions which are predictions or
indications of future events or trends which do not relate to historical
matters.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date the statement is made. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
Readers are urged to carefully review and consider the various disclosures made
by the Company in this document and other reports filed with the Securities and
Exchange Commission that attempt to advise interested parties of the risks and
factors that may affect the Company's business.
11
<PAGE> 13
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Index to Financial Statements Page
<S> <C>
Report of Independent Accountants 13
Consolidated Balance Sheets - December 31, 1998 and 1997 14-15
Consolidated Statements of Results of Operations and
Comprehensive Income (Loss) - for the years ended
December 31, 1998, 1997 and 1996 16
Consolidated Statements of Shareholders' Equity -
for the years ended December 31, 1998, 1997 and 1996 17
Consolidated Statements of Cash Flows - for the years ended
December 31, 1998, 1997 and 1996 18-19
Notes to Consolidated Financial Statements 20-40
</TABLE>
12
<PAGE> 14
REPORT OF INDEPENDENT ACCOUNTANTS
February 11, 1999
To the Board of Directors and Shareholders of
The Monarch Machine Tool Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of results of operations and comprehensive income
(loss), shareholders' equity and of cash flows present fairly, in all material
respects, the financial position of The Monarch Machine Tool Company and its
subsidiaries at December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Dayton, Ohio
13
<PAGE> 15
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of December 31, 1998 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS 1998 1997
---- ----
<S> <C> <C>
Cash $ 1,733 $ 5,022
Accounts receivable, net of allowance for doubtful
accounts of $1,413 and $1,507 in 1998 and 1997
respectively 23,893 26,762
Inventories 10,486 11,142
Cost and estimated earnings in excess of billings on
uncompleted contracts 3, 275 337
Prepaid expenses 667 540
Deferred income taxes 1,874 3,102
------- -------
Current assets 41,928 46,905
Property, plant and equipment, net 11,070 8,649
Prepaid pension cost 19,051 15,723
Deferred income taxes 1,631 1,153
Goodwill 10,099
Other assets 4,678 3,439
------- -------
Total assets $88,457 $75,869
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS
14
<PAGE> 16
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of December 31, 1998 and 1997
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
LIABILITIES 1998 1997
---- ----
<S> <C> <C>
Short-term borrowings $ 500 $
Accounts payable 8,930 10,138
Accrued liabilities 12,153 15,786
Billings in excess of costs and estimated earnings
on uncompleted contracts 5,517 5,096
Current portion of long-term debt 577
-------- --------
Current liabilities 27,100 31,597
Postretirement benefits 1,450 1,405
Other liabilities 756
Long-term debt, less current portion 16,497 1,598
-------- --------
Total liabilities 45,803 34,600
Contingencies
SHAREHOLDERS' EQUITY
Preferred stock, no par value, $1.80 cumulative convertible, $1 stated
value; 500,000 shares authorized; 14,642 and
14,757 shares issued and outstanding in 1998 and 1997,
respectively (liquidation preference of $586) 14 14
Common stock, no par value, 12,000,000 shares authorized,
3,769,427 and 3,761,967 shares issued and outstanding,
in 1998 and 1997, respectively 5,815 5,741
Unearned compensation, restricted stock (37) (77)
Retained earnings 37,042 35,739
Accumulated other comprehensive income (180) (148)
-------- --------
Total shareholders' equity 42,654 41,269
-------- --------
Total liabilities and shareholders' equity $ 88,457 $ 75,869
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS
15
<PAGE> 17
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF RESULTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
for the years ended December 31, 1998, 1997 and 1996
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales $ 79,066 $ 107,116 $ 115,528
Cost of sales 63,113 92,152 110,076
Selling, general and administrative 12,625 16,824 16,672
Impairment and other disposal costs 2,990
----------- ----------- -----------
Total costs and operating expenses 75,738 111,966 126,748
----------- ----------- -----------
Operating income (loss) 3,328 (4,850) (11,220)
Other income (expense):
Interest expense (368) (978) (1,399)
Interest income 161 554 334
Other income (expense), net 62 (31) 4,394
----------- ----------- -----------
Income (loss) before income taxes 3,183 (5,305) (7,891)
Income tax provision (benefit) 1,100 (1,103) (2,393)
----------- ----------- -----------
Net income (loss) 2,083 (4,202) (5,498)
Other comprehensive income (loss),
net of tax - foreign
currency translation
adjustments (21) (248) 133
----------- ----------- -----------
Comprehensive income (loss) $ 2,062 $ (4,450) $ (5,365)
=========== =========== ===========
Earnings (loss) per common share, basic and diluted $ .55 $ (1.12) $ (1.47)
=========== =========== ===========
Average shares outstanding:
Basic 3,768,480 3,757,717 3,744,967
Diluted 3,768,480 3,757,717 3,744,967
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS
16
<PAGE> 18
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended December 31, 1998, 1997 and 1996
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Accumulated
Other
Preferred Common Unearned Retained Comprehensive
Stock Stock Compensation Earnings Income Total
----- ----- ------------ -------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ 14 $5,618 $ $ 46,993 $ 25 $52,650
Net (loss) (5,498) (5,498)
Cash Dividends:
$ .20 per share - Common (749) (749)
$1.80 per share - Preferred (26) (26)
Translation adjustments 202 202
---- ------ ----- ------- ----- -------
Balance , December 31, 1996 14 5,618 40,720 227 46,579
Net (loss) (4,202) (4,202)
Cash Dividends:
$ .20 per share - Common (753) (753)
$1.80 per share - Preferred (26) (26)
Restricted Stock Awards:
Shares granted 123 (123)
Amortization 46 46
Translation adjustments (375) (375)
---- ------ ----- ------- ----- -------
Balance, December 31, 1997 14 5,741 (77) 35,739 (148) 41,269
Net income 2,083 2,083
Cash Dividends:
$ .20 per share - Common (754) (754)
$1.80 per share - Preferred (26) (26)
Restricted Stock Awards:
Shares granted 74 (74)
Amortization 114 114
Translation adjustments (32) (32)
---- ------ ----- ------- ----- -------
Balance, December 31, 1998 $ 14 $5,815 $ (37) $37,042 $(180) $42,654
==== ====== ===== ======= ===== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS
17
<PAGE> 19
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
for the years ended December 31, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,083 $ (4,202) $ (5,498)
Adjustments to reconcile net income (loss)
to net cash from operating activities:
Depreciation and amortization 1,181 1,565 1,955
Prepaid pension cost (3,289) (2,014) (2,001)
Deferred tax provision (benefit) 1,100 (719) (2,400)
Gain on sale of fixed assets (9) (79) (3,400)
Provision for inventory write-down 262 751 9,690
Loss on sale of Sidney division 1,507
Impairment of assets 1,914
Changes in operating assets and liabilities
excluding effect of acquisition in 1998 and the
sale of the assets of the Sidney division in 1997:
Accounts receivable 6,624 14,679 (9,479)
Inventories 2,105 (3,162) 397
Costs and estimated earnings in excess of
billings on uncompleted contracts (2,937) 2,852 4,546
Billings in excess of costs and estimated
earnings on uncompleted contracts 420 427 (21)
Other assets (675) (149) (117)
Accounts payable (2,408) 3,281 (448)
Accrued liabilities (5,498) (1,854) 2,707
-------- -------- --------
Net cash provided by (used in) operating activities (1,041) 14,797 (4,069)
Cash flows from investing activities:
Capital expenditures (3,005) (665) (1,101)
Acquisition of business, net of cash acquired (13,181)
Proceeds from sales of fixed assets 18 416 3,969
Proceeds from sale of Sidney division assets 7,167
-------- -------- --------
Net cash provided by (used in) investing activities (16,168) 6,918 2,868
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS
18
<PAGE> 20
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
for the years ended December 31, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Dividends paid (780) (779) (775)
Proceeds from (repayment of) short-term borrowings 500 (4,586) 129
Proceeds from long-term borrowings 14,286 4,000
Repayment of long-term borrowings (16,000) (120)
-------- -------- --------
Net cash provided by (used in) financing activities 14,006 (21,365) 3,234
Effect of exchange rates on cash (86) (176) 199
-------- -------- --------
Net (decrease) increase in cash (3,289) 174 2,232
Cash, beginning of year 5,022 4,848 2,616
-------- -------- --------
Cash, end of year $ 1,733 $ 5,022 $ 4,848
======== ======== ========
Supplemental cash flow information:
Cash paid during the year for:
Interest expense $ 362 $ 1,102 $ 1,380
Income taxes $ 469
Non-cash transactions:
Liability incurred for licensing agreement
recorded as an intangible $ 750
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS
19
<PAGE> 21
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ
from those estimates. Certain 1996 and 1997 amounts have been
reclassified to conform to the 1998 presentation.
The following is a summary of the significant accounting policies:
a. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of The
Monarch Machine Tool Company and its subsidiaries (the Company). All
intercompany accounts and transactions have been eliminated.
b. CASH AND CASH EQUIVALENTS
Cash equivalents include those obligations which are readily
convertible to cash and have a stated maturity of three months or
less when purchased.
c. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and depreciated
principally under the straight-line method, over their estimated
useful lives. Repairs which do not extend the useful life of the
asset are expensed as incurred. Major renewals or renovations are
capitalized. When assets are retired or otherwise disposed of, the
cost of the asset and the related accumulated depreciation are
removed from the respective accounts and any resulting gain or loss
is recognized.
d. GOODWILL
The excess of purchase price over the fair value of net assets of
acquired businesses (goodwill) is being amortized on a straight-line
basis over twenty-five years. Goodwill relates exclusively to the
Company's purchase of GFG Corporation (see note 2) on December 31,
1998. The carrying value of goodwill will be reviewed periodically
if the facts and circumstances suggest that it may be impaired. If
the review indicates that goodwill will not be recoverable, as
determined by the undiscounted cash flow method, the asset will be
reduced to its estimated recoverable value.
20
<PAGE> 22
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
e. REVENUE RECOGNITION
Revenues are recorded at the time products are shipped, except for
significant long-term contracts which are recorded on the
percentage-of-completion method. The percentage-of-completion method
is used in the production of custom metal coil processing equipment
and coating and laminating equipment. Revenue and gross profit are
recognised as work is performed based on the relationship between
actual costs incurred and total estimated costs at completion.
Revenue and gross profit are adjusted prospectively for revisions in
estimated total contract costs. Estimated losses on contracts are
recorded when identified.
f. RESEARCH AND DEVELOPMENT COSTS
Research and development costs, which are expensed as incurred, were
approximately $1,265 $1,474, and $1,415, in 1998, 1997 and 1996,
respectively.
g. EARNINGS PER SHARE
Basic earnings per common share is computed by dividing net income
(loss), after adjustment for the preferred stock dividend
requirement, by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is
computed by adding the dilutive effect of common stock equivalents,
such as the convertible preferred shares and any stock options
outstanding, to the weighted average number of common shares
outstanding.
h. ENVIRONMENTAL REMEDIATION COSTS
Costs incurred to investigate and remediate contaminated sites are
expensed. Liabilities for these expenditures are recorded, on an
undiscounted basis, when it is probable that obligations have been
incurred and the amounts can be reasonably estimated.
i. STOCK OPTIONS
The Company measures compensation cost for their stock option plans
using the intrinsic value based method of accounting prescribed by
APB Opinion No. 25, Accounting for Stock Issued to Employees.
j. POSTRETIREMENT BENEFITS
The Company accrues the cost of providing postretirement benefits
for medical and life insurance coverage over the active service
period of the employee. These benefits are funded by the Company
when paid.
21
<PAGE> 23
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
k. FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial instruments of the Company and its subsidiaries
consist mainly of cash, long-term investments, current and
non-current accounts receivables, short-term debt, accounts payable,
accrued liabilities and long-term liabilities. In view of their
nature, the fair value of the financial instruments included in
working capital of the Company is usually identical or close to
their carrying amount. The fair value of non-current receivables and
long-term liabilities also approximates their carrying value,
because they bear interest at rates close to the prevailing market
rates.
2. ACQUISITION AND DISPOSAL OF BUSINESSES
a. ACQUISITION OF GFG CORPORATION
On December 31, 1998, the Company acquired all of the outstanding
shares of common stock of GFG Corporation ("GFG") for an initial
cash price of $13,497, subject to closing adjustments. The Company
would be required to pay up to an additional $1,780 to the seller in
February 2000 if GFG achieves certain operating profits in 1999. GFG
designs and assembles roll coating, electrostatic oil application
and strip processing equipment used by the metal coil processing
industry.
The acquisition of GFG is being recorded under the purchase method
of accounting. Accordingly, a portion of the purchase price was
allocated to the net assets acquired based on their estimated fair
values. The fair value of tangible assets acquired and liabilities
assumed was $7.1 million and $3.7 million, respectively. The balance
of the purchase price, $10.1 million, was recorded as excess of
purchase price over net assets acquired (goodwill) and is being
amortized over twenty-five years on a straight-line basis.
Since the acquisition occurred on December 31, 1998, no amounts from
GFG are included in the Company's results of operations in 1998. The
following table reflects unaudited pro forma combined results of
operations of the Company and GFG on the basis that the acquisition
had taken place at the beginning of each respective period:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net sales $99,803 $128,704
Net income (loss) $ 2,074 $ (3,393)
Earnings (loss) per common share
basic and diluted $ .55 $ (.90)
</TABLE>
22
<PAGE> 24
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
These unaudited pro forma results include certain adjustments, such
as additional cost of sales as a result of a step-up in the carrying
basis of inventory, additional expense related to the amortization
of goodwill and increased interest expense on acquisition debt. They
do not purport to be indicative of the results of operations which
actually would have resulted had the combination been in effect
during the periods presented, or of future results of operations of
the consolidated entities.
b. SALE OF SIDNEY DIVISION
In 1997, the Company sold the business of the Sidney division and
essentially all of its operating assets, including inventory and
machinery and equipment carried at $7,641 and $1,540, respectively.
The buyer paid $7,167 in cash, assumed specified liabilities of $564
and agreed to pay the remaining amount over a five year period. In
March 1998, the Company agreed to certain adjustments related to
various inventory valuation claims made by the buyer. As a result,
the Company and buyer agreed to reduce the remaining payment due
under the agreement to $250 which will be received over a two year
period beginning August 2000. The Company recorded disposal costs of
$391 ($.07 per share after applicable income taxes of $133) in 1997
related to this transaction, net of a $318 benefit from a pension
plan curtailment. In addition, cost of sales includes charges of
$1,139 ($.20 per share after applicable income taxes of $387)
related to the write-down of inventory and to costs related to the
settlement of claims made by the buyer.
The following is unaudited historical information relating to the
Sidney division (including the disposal costs and charges noted
above and $1,500 ($.26 per share after applicable income taxes of
$510) related to an impairment of a property held for sale described
in Note 9):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net sales $10,613 $23,848
Operating (loss) (3,302) (9,569)
</TABLE>
c. DISPOSITION OF GERMAN BUSINESSES
During 1997, the Company decided to close the operations of its
three businesses located in Germany and recorded a reserve of $1,100
($.19 per share after applicable income taxes of $374) for estimated
costs related to the closure. In addition, included in cost of sales
is $283 ($.05 per share after applicable income taxes of $96)
related to the write-off of inventory related to these businesses.
In March 1998, the Company entered into an agreement to sell a
majority of the assets of one of the businesses, with the buyer also
agreeing to assume certain liabilities of the business. The expected
loss on the sale of these assets was included in the reserve amount
recorded in 1997 noted above.
23
<PAGE> 25
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The following is unaudited historical information, including the
reserves and charges noted above, relating to all three German
businesses:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net sales $ 5,133 $13,253
Operating income (loss) (3,550) (1,559)
</TABLE>
3. ACCOUNTS RECEIVABLE
Included in accounts receivable are $5,984 and $5,740 of amounts
unbilled as of December 31, 1998 and 1997, respectively. All
unbilled amounts at December 31, 1998 are expected to be billed in
1999 including $1,419 to one customer, which amount was also
unbilled at December 31, 1997.
4. INVENTORIES
At December 31, 1998 and 1997, inventories aggregating $6,858 and
$9,558, respectively, were valued at the lower of last-in, first-out
(LIFO) cost or market, with the remaining inventories of $3,628 and
$1,584, respectively, valued at the lower of first-in, first-out
(FIFO) cost or market.
At December 31, 1998 and 1997, inventories are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Finished goods $ 1,285 $ 2,729
Work-in-process and parts inventory 12,967 12,381
Raw materials 739 320
------- -------
Total first-in, first-out (FIFO) cost 14,991 15,430
Less allowance to adjust the carrying value of
inventories to LIFO basis 4,505 4,288
------- -------
$10,486 $11,142
======= =======
</TABLE>
24
<PAGE> 26
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The Company provides for potential losses from obsolete and
slow-moving inventory in the period in which they are identified.
The charge to earnings, before giving effect to LIFO liquidations,
in 1998, 1997 and 1996 relating to obsolete and slow-moving
inventory was $262, $751, and $9,690, respectively. During 1996, the
Company decided to discontinue the manufacturing of certain product
lines of the Sidney division, except for certain special orders and,
accordingly, revalued its parts inventory relating to those product
lines. As a result of this revaluation, before giving effect to LIFO
liquidations, $7,463 ($1.32 per share after applicable income taxes
of $2,537) is included in the 1996 reserve for obsolete and
slow-moving inventory. Because of the above and because of
reductions in inventory in the normal course of business, prior year
LIFO inventory quantities were reduced. In 1996, this resulted in an
increase in income before taxes of $2,518 ($.44 per share after
applicable income taxes of $856).
5. CONTRACTS IN PROCESS
Amounts included in the consolidated financial statements related to
uncompleted contracts are as follows:
<TABLE>
<CAPTION>
Costs and Billings in
Estimated Excess of
Earnings in Costs and
Excess Estimated
of Billings Earnings Total
----------- -------- -----
<S> <C> <C> <C>
December 31, 1998:
Costs $ 6,805 $ 3,597 $ 10,402
Estimated earnings 2,228 540 2,768
-------- -------- --------
9,033 4,137 13,170
Less amounts billed (5,758) (9,654) (15,412)
-------- -------- --------
$ 3,275 $ (5,517) $ (2,242)
======== ======== ========
December 31, 1997:
Costs $ 396 $ 7,263 $ 7,659
Estimated earnings 69 1,354 1,423
-------- -------- --------
465 8,617 9,082
Less amounts billed (128) (13,713) (13,841)
-------- -------- --------
$ 337 $ (5,096) $ (4,759)
======== ======== ========
</TABLE>
25
<PAGE> 27
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
6. INCOME TAXES
The Company recognises deferred tax liabilities and assets for the
expected future tax consequences of events that have been included
in the financial statements or tax returns. Deferred tax liabilities
and assets are determined based on the difference between the
financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences
are expected to reverse.
The income (loss) before income taxes reflected in the consolidated
financial statements is comprised of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
United States $ 2,539 $(2,395) $(9,695)
Europe 644 (2,910) 1,804
------- ------- -------
$ 3,183 $(5,305) $(7,891)
======= ======= =======
</TABLE>
The income tax provision (benefit) reflected in the consolidated
financial statements is comprised of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ $ $ (110)
Foreign 16 (277) 100
------- ------- -------
16 (277) (10)
Deferred - Federal 1,825 1,856 (2,501)
Net operating loss carryforward:
Federal (937) (2,905) (778)
Foreign 196 223 896
------- ------- -------
(741) (2,682) 118
------- ------- -------
$ 1,100 $(1,103) $(2,393)
======= ======= =======
</TABLE>
26
<PAGE> 28
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The differences between the statutory U.S. income tax rate and
effective income tax rate are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
U.S. income tax rate 34 % 34% 34%
Effect of foreign operations 1 (13) (4)
-- -- --
35% 21% 30%
== == ==
</TABLE>
The effect of the foreign operations in 1997 is primarily due to a
valuation allowance provided against the deferred tax assets of the
German subsidiaries.
The components of deferred taxes included in the consolidated
balance sheets are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 424 $ 483
Inventories 210 236
Intangible assets 535 141
Product liability reserve 185 204
Accrued vacation 123 202
Environmental reserve 442 493
Other liabilities and reserves 491 1,212
Postretirement benefits 493 272
Net operating loss and tax credit
carryforwards 8,966 7,913
-------- --------
Total deferred tax assets 11,869 11,156
Less valuation allowance (1,383) (1,243)
-------- --------
Deferred tax asset 10,486 9,913
Deferred tax liabilities:
Property, plant and equipment (503) (457)
Prepaid pension cost (6,478) (5,201)
-------- --------
Deferred tax liability (6,981) (5,658)
-------- --------
Net deferred tax asset 3,505 4,255
Net current deferred tax asset 1,874 3,102
-------- --------
Net non-current deferred tax asset $ 1,631 $ 1,153
======== ========
</TABLE>
27
<PAGE> 29
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Generally accepted accounting principles require a valuation
allowance against deferred tax assets if based on the weight of
available evidence, it is more likely than not that some or all of
the deferred tax assets will not be realised. The Company believes
that a valuation allowance is not necessary, other than a valuation
allowance relating to the net operating loss carryforwards of the
German subsidiaries. The Company anticipates that the deferred tax
assets will be realised as a result of the utilization of deferred
tax liabilities, the generation of future taxable income and the
existence of appreciated values over the tax basis of the Company's
net assets. However, a valuation allowance against the deferred tax
assets could be required if estimates of future taxable income are
reduced.
At December 31, 1998, the Company has domestic net operating loss
carryforwards available to offset future taxable income. These
carryforwards expire as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
2007 $ 1,546
2008 2,068
2009 3,012
2010 624
2011 2,268
2012 8,760
2018 2,757
-------
$21,035
=======
</TABLE>
The Company also has foreign net operating loss carryforwards for
its subsidiary in England and its subsidiaries in Germany of $390
and $3,073 respectively, which can be carried forward indefinitely.
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment includes the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Land $ 307 $ 307
Buildings 10,995 10,975
Machinery and equipment 17,841 15,418
-------- --------
29,143 26,700
Accumulated depreciation (18,073) (18,051)
-------- --------
$ 11,070 $ 8,649
======== ========
</TABLE>
28
<PAGE> 30
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
8. BENEFIT PLANS
Under the Company's pension plans (Plans), all domestic salaried
employees are provided monthly retirement benefits based on an
employee's compensation and years of service at date of retirement.
In addition, bargaining hourly employees are paid monthly retirement
benefits of specified amounts for each year of service. The Company
annually contributes amounts to provide the Plans with sufficient
assets to fund payment of the benefits based on actuarial
assumptions as noted in the following tables. Minimal contributions
were required in 1998, 1997 and 1996 as Plan assets exceeded
projected benefit obligations. At December 31, 1998, Plan assets
exceeded projected benefit obligations by $26,978. Under present tax
laws, the Company's ability to realize the full value of this asset
is limited. The Company approved the termination of pension plans
for its salaried and non-bargaining hourly employees, effective
December 31, 1998.
In 1997, the Company realized a Plan curtailment gain of $318, as a
result of the sale of the Sidney division (described in Note 2), and
subsequent termination of employees covered under the plan.
The Company also provides other postretirement and post employment
benefits (OPEB") consisting of group health and life insurance
coverage and salary continuation for certain retirees and other
health benefits to all retirees.
Net periodic expense (income) for pension and OPEB plans includes
the following components:
<TABLE>
<CAPTION>
1998 1997 1996
PENSION OPEB PENSION OPEB PENSION OPEB
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 628 $ 75 $ 636 $ 26 $ 455 $ 24
Interest cost 1,481 105 1,481 88 1,380 43
Expected return on plan assets (3,688) (3,139) (2,852)
Amortization of prior service
costs 151 8
Amortization of initial asset (151) (329) (329)
Recognized net actuarial (gain)
loss (1,629) (561) (3) (542)
------- ------- ------- ------- ------- -------
$(3,208) $ 188 $(1,912) $ 111 $(1,888) $ 67
======= ======= ======= ======= ======= =======
</TABLE>
29
<PAGE> 31
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The Plans funded status and accounting assumptions at December 31,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
PENSION OPEB PENSION OPEB
------- ---- ------- ----
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 20,048 $ 1,336 $ 21,026 $ 1,254
Service cost 628 75 503 26
Interest cost 1,481 105 1,390 88
Amendments (1,205) 168
Actuarial (gain) loss 405 66 (419) 53
Benefits paid (1,527) (111) (2,452) (85)
-------- -------- -------- --------
Benefit obligation at end of year 19,830 1,639 20,048 1,336
-------- -------- -------- --------
Change in plan assets:
Fair value of plan assets at beginning
of year 44,088 37,742
Actual return on plan assets 4,248 8,668
Employer contribution 121 (111) 216 (32)
Plan participant's contributions
Benefits paid (1,527) 111 (2,452) 32
Expenses paid (122) (86)
-------- -------- -------- --------
Fair value of plan assets, end of year 46,808 44,088
-------- -------- -------- --------
Funded Status 26,978 (1,639) 24,040 (1,336)
Unrecognized net actuarial (gain) loss (6,450) (4) (8,020) 69
Unrecognized prior service cost (1,266) 193 65
Unrecognized initial net obligation (211) (362)
-------- -------- -------- --------
Prepaid (accrued) benefit cost $ 19,051 $ (1,450) $ 15,723 $ (1,405)
======== ======== ======== ========
Weighted-average assumptions as of December 31:
Discount rate 7.0% 6.5% 7.25% 7.0%
Expected return on plan assets 6.3% 8.5%
Rate of compensation increase 4.5% 3% 4.5% 3%
</TABLE>
30
<PAGE> 32
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The change in the pension plan discount rate to 7.0% at December 31,
1998 from 7.25% at December 31, 1997 has resulted in an increase of
$599 in the actuarial present value of projected benefit
obligations at December 31, 1998. This amount will be amortized as
an unrecognized net loss.
Unrecognized gains and losses, are amortized rateably over five
years. Assets in the pension plans include common stock of the
Company with a fair value of $700 and $792 at December 31, 1998 and
1997, respectively.
Under the Company's OPEB plans a 1% change in the assumed health
care cost trend rates would have the following effect:
<TABLE>
<CAPTION>
1% Increase 1% Decrease
----------- -----------
<S> <C> <C>
Effect on total of service and interest
cost components $ 13 $(11)
Effect on postretirement benefit obligation $ 99 $(82)
</TABLE>
For measurement purposes a 9.5% annual rate of increase in the per
capita cost of health care benefits was assumed for 1999. The rate
was assumed to decrease by .5% each year until 2008 and remain at 5%
each year thereafter.
The Monarch Machine Tool Company Retirement Savings Plan (the
Savings Plan) enables substantially all full-time domestic employees
to participate and contribute up to 15% of their salary to the
Savings Plan upon completion of six months of service. Company
matching and profit-sharing contributions are determined annually by
the Board of Directors. During 1998, 1997 and 1996, the Company made
matching contributions of 10% and no profit-sharing contributions.
Total expense was $124, $145 and $142, in 1998, 1997 and 1996
respectively.
9. OTHER ASSETS
Other assets consists of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Assets held for sale $3,205 $2,945
Intangible assets 1,246 252
Notes receivable 209 195
Other 18 47
------ ------
$4,678 $3,439
====== ======
</TABLE>
31
<PAGE> 33
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
During the fourth quarter of 1997, the Company reviewed the
recoverability of the net book value of the land and building which
housed the former Sidney division, due to the sale of the business.
The Company determined that the estimated fair value of the property
was less than the carrying amount by $1,500 ($.26 per share after
applicable income taxes of $510) and accordingly recorded an
impairment loss which is included in the impairment and other
disposal costs line item in the consolidated statements of results
of operations. This determination was based on the estimated cash
flow to be received from the lease and the estimated fair market
value of the property if it were to be sold.
During 1996, the Company realized a gain of $3,863 ($.68 per share
after applicable income taxes of $1.313) from the sale of properties
which were available for sale as a result of the discontinuance of a
business in 1992 and the consolidation of certain of the Company's
German business operations.
10. ACCRUED LIABILITIES
Accrued liabilities include the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Accrued start-up and warranty costs $ 3,821 $ 7,266
Self-insurance reserves 1,228 1,482
Environmental reserve 1,299 1,450
Payroll and related 1,670 1,238
Customer deposits 1,983 434
Other 2,152 3,916
------- -------
$12,153 $15,786
======= =======
</TABLE>
11. DEBT
a. SHORT-TERM BORROWING
The Company has available a $2,500 line of credit payable on demand
with interest at .5% below prime rate and a foreign guaranty/letter
of credit facility for $4,800, committed through March 2000. At
December 31, 1998, the Company had borrowed $500 under its line of
credit at a 7.75% interest rate and had utilized $70 for bank
guaranties under its foreign facility.
32
<PAGE> 34
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
b. LONG-TERM BORROWING
The Company has a revolving credit facility of $25,000 ("Credit
Facility") available through May 2001, when the Company may convert
any amount outstanding into a term loan, payable in eight equal
quarterly installments beginning June 2001 through March 2003. The
Company may borrow at prime rate or at a premium of between .75% and
1.625% over 1 to 3 month LIBOR. The premium is 1.375% at December
31, 1998 and is adjusted quarterly based on a financial ratio. The
Company's weighted average interest rate for the $16,497 borrowed
under the Credit Facility at December 31, 1998 is 6.51%. A
commitment fee of between .25% and .375% per annum ( based on a
financial ratio) is due on the full amount of the Credit Facility.
The amount available under the Credit Facility is restricted to an
amount based on levels of inventory and accounts receivable. At
December 31, 1998, the Company is able to borrow up to $25,000 under
this Credit Facility. The Credit Facility requires the Company to
use proceeds received from the sale of certain non-operating assets
presently available for sale (see Note 9) and from the termination
of two of its pension plans (see Note 8) to repay any amounts
outstanding under the Credit Facility. The amount available under
the Credit Facility will be reduced by an amount equal to such
proceeds, to an amount not less than $20,000.
The Credit Facility requires the Company to comply with various
covenants, which include, among others, maintaining certain
financial ratios and limiting the amount available for dividends,
capital expenditures and acquisitions without lender approval. As of
December 31, 1998, the maximum amount of retained earnings available
for dividends is $2,196.
Future payments due under the Credit Facility are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
2001 $ 6,188
2002 8,250
2003 2,059
-------
$16,497
=======
</TABLE>
12. ENVIRONMENTAL LIABILITY
In September 1988, the Company and several other potentially
responsible parties ("PRPs") were ordered by the Environmental
Protection Agency ("EPA"), under the Federal "Superfund" legislation
to perform a remedial investigation and a limited removal action to
dispose of waste materials at the Rosen site, a former scrap yard in
Cortland, New York. That investigation and removal action was
completed in 1996 to the EPA's satisfaction.
33
<PAGE> 35
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
In 1998, a Consent Decree was entered into among the EPA, the PRPs
(including the Company) and a group of ten companies ("Defendants")
that the EPA considered to be potentially liable to share the costs
of remediation. The Consent Decree prescribes the remediation
procedures necessary to be performed at the property. Prior to
implementation the Consent Decree requires approval of the U.S.
Department of Justice and the U.S. District Court in New York. If
the Consent Decree is approved in its present form, the Company will
have limited responsibility for any future remediation or
maintenance costs related to the property, provided that the EPA
approved remedy is implemented and ultimately is successful.
Pursuant to the terms of the Consent Decree, the Company, along with
the PRPs and Defendants have joint and several responsibility to pay
any additional EPA oversight costs.
Based on information presently available, the Company believes that
the $1,299 it has reserved at December 31, 1998 is adequate to
provide for its share of the estimated costs for resolution of this
matter. However, the Company's ultimate liability for remediation
will likely be reduced if the Consent Decree is approved by the
appropriate agencies. The Company anticipates continuing to review
the adequacy of its present reserve and will recognize an adjustment
to the reserve when appropriate.
13. CONTINGENCIES
The Company is self-insured for a portion of the cost of the health
care benefits it provides its employees with an aggregate annual
self-insured claim limit of $2,500. The Company is also self-insured
for workers' compensation for those divisions located in Ohio and is
liable for individual claims up to $350 per occurrence.
Self-insurance costs are accrued based upon the aggregate of the
liability for reported claims and an estimated liability for claims
incurred but not reported.
The Company is a defendant in various legal actions arising in the
ordinary course of business, including product liability claims. The
Company is responsible for all legal and settlement costs associated
with product liability claims up to $100,000 for each matter and has
insurance coverage for costs which exceed that amount, subject to
specific and aggregate loss limitations. Included in these legal
actions is a claim by one of the Company's customers related to
alleged defects in equipment supplied by the Company. A trial date
for litigation of this claim has been set for May 1999. The Company
believes that the equipment meets all specifications prescribed in
the contract and intends to vigorously defend this litigation. The
Company believes that the ultimate liability, if any, resulting from
these matters will not have a material effect on the Company's
consolidated financial position. The significance of these matters
on the Company's future operating results will depend on the
Company's level of future earnings as well as the timing and the
amount of the ultimate disposition of these matters above any
amounts covered by insurance.
14. CAPITAL STOCK
The Company's preferred shares are $1.80 cumulative. Each preferred
share is entitled to one vote and is convertible into four common
shares.
34
<PAGE> 36
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
15. STOCK-BASED COMPENSATION PLANS
During the three-year period ended on December 31, 1998, the Company
has maintained The Monarch Machine Tool Company 1994 Employees Stock
Option Plan and The Monarch Machine Tool Company 1984 Restricted
Stock Bonus Plan (collectively the "Plans", and individually the
"Option Plan" and "Stock Plan", respectively), which are described
below.
Under the Option Plan, the Company is authorized to issue up to
100,000 shares of Common Stock pursuant to stock options. The
Company may grant incentive stock options, or nonqualified stock
options. The Option Plan provides that the exercise price of the
stock option may not be less than the fair market value of the
Common Stock on the date of grant. All stock options granted during
1998 have terms of 10 years and are fully vested on the first
anniversary of the date of grant.
In 1997, the Company granted 75,000 non-qualified stock options to
an officer. The options granted during 1997 have a term of 10 years
and vest on the sixth anniversary of the date of grant, or earlier
if certain stock prices are achieved.
A summary of the status of the Company's stock options is presented
below.
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------ --------------
<S> <C> <C>
Outstanding December 31, 1995 41,800 $ 11.49
Cancelled (500) $ 10.19
-------
Outstanding December 31, 1996 41,300 $ 11.50
Granted 75,000 $ 8.44
Cancelled or expired (6,000) $ 11.95
-------
Outstanding December 31, 1997 110,300 $ 9.43
Granted 69,050 $ 7.71
Cancelled or expired (27,666) $ 9.95
-------
Outstanding December 31, 1998 151,684 $ 8.52
========
</TABLE>
35
<PAGE> 37
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The Company applies Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" in accounting for option
grants. No compensation expense has been recognized for any stock
options granted in 1998, 1997 and 1996. Had the compensation cost
for the Company's stock-based compensation plans been determined
consistent with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" the related compensation
expense charged to operations, on a pre-tax basis, would have been
$126 in 1998, $59 in 1997, and $3 in 1996. SFAS 123 does not apply
to options granted prior to 1995.
The fair value of each stock option granted is estimated on the date
of grant using the Black-Scholes option-pricing model. The weighted
average fair value of options granted during 1998 and 1997 was $1.85
and $2.55, respectively, which was calculated using the following
weighted-average assumptions..
<TABLE>
<CAPTION>
ASSUMPTION 1998 1997
---- ----
<S> <C> <C>
Expected Term 5 years 7 years
Expected Volatility 24.3% 24.5%
Expected Dividend Yield 2.6% 2.37%
Risk-Free Interest Rate 5.54% 5.72%
</TABLE>
The following table summarizes information about stock options at
December 31, 1998.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE WEIGHTED AVERAGE
EXERCISE PRICES AT 12/31/98 CONTRACT LIFE EXERCISE PRICE AT 12/31/98 EXERCISE PRICE
--------------- ----------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
$7.59-$ 8.56 133,384 8.6 $ 8.12
$9.69-$13.94 18,300 4.0 $11.44 18,300 $ 11.44
--------------------------------------------------------------------------------------------------------------------
$7.59-$13.94 151,684 8.0 $ 8.52 18,300 $ 11.44
</TABLE>
Under the Stock Plan, the Company is authorized to award up to
50,000 shares of Common Stock to employees. Of the 19,179 shares
reserved for award under this plan at December 31, 1998, 9,549
shares were awarded in 1999 in connection with employee incentive
compensation for 1998. In addition, during 1998, 7,000 shares from
the Stock Plan were awarded to an employee, which vest ratably over
a 3-year period from date of award. During 1997, the Company awarded
an employee 17,000 non-Stock Plan shares which vest ratably over a
2-year period from date of award. During 1998 and 1997, the Company
recorded compensation expense of $178 and $46, respectively, in
connection with the awarding of the above shares.
36
<PAGE> 38
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
16. FOREIGN CURRENCY
All assets and liabilities of foreign subsidiaries are translated into
U.S. dollars at rates of exchange in effect at the close of the year,
in accordance with Statement of Financial Accounting Standards No. 52
"Foreign Currency Translation" (SFAS 52). SFAS 52 requires that the
effects of changes in the value of the U.S. dollar, as compared to the
local currency of the foreign subsidiaries, be shown as translation
adjustments in Shareholders' Equity.
Translation adjustments are as follows.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $(148) $ 227 $ 25
Translation adjustment increase (decrease):
Net long-term assets (66) (124) (67)
Net current assets 34 (251) 269
----- ----- -----
Total adjustment (32) (375) 202
----- ----- -----
Balance, end of year $(180) $(148) $ 227
===== ===== =====
</TABLE>
Currency exchange losses during 1998, 1997 and 1996 were
approximately $24, $456 and $293, respectively, relating primarily
to the Company's German operations.
The Company enters into forward foreign exchange contracts during
the normal course of business to hedge its foreign currency exposure
associated with sales contracts and purchase orders denominated in
foreign currencies. Any gains and losses in connection with the
contracts are included in the consolidated financial statements.
There were no outstanding contracts at December 31, 1998 and 1997.
17. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in three primary industries in which it designs
and builds coil processing equipment, paper coating and laminating
equipment and machining centers. These segments have been identified
based on the organizational reporting structure of the Company. Each
of the segments listed above report their individual operating
results directly to the Chief Executive Officer of the Company. All
Company products are sold by direct Company sales people and
independent agents throughout the United States and the world.
Approximately 13%, 11%, and 17%, of the Company's consolidated
revenues from 1998, 1997 and 1996, respectively, were export sales
from the United States primarily to Mexico, Canada, China and the
Far East. Sustantially all long-lived assets are located in the
United States. Intercompany and intersegment sales are priced at
market but are not material. The foreign subsidiaries are located in
England and Germany.
37
<PAGE> 39
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Business segment information is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Sales
Coil processing $ 45,995 $ 62,221 $ 57,383
Paper coating and laminating 2,595 3,618 3,623
Machining center 30,433 41,561 55,328
Adjustments and eliminations 43 (284) (806)
--------- -------- --------
$ 79,066 $107,116 $115,528
========= ======== ========
Operating income (loss):
Coil processing $ 5,304 $ 591 $ (789)
Paper coating and laminating (837) (1,875) (902)
Machining center 727 (2,887) (9,258)
Corporate (1) (1,866) (679) (271)
--------- -------- --------
$ 3,328 $ (4,850) $(11,220)
========= ======== ========
Total assets:
Coil processing $ 43,153 $ 31,017 $ 40,288
Paper coating and laminating 1,263 3,271 1,787
Machining center 19,701 22,918 56,122
Corporate (1) 23,340 18,663 4,715
--------- -------- --------
$ 88,457 $ 75,869 $102,912
========= ========== ========
Depreciation and amortization:
Coil processing $ 526 $ 643 $ 803
Paper coating and laminating 35 125 197
Machining center 421 797 955
Corporate (1) 199
--------- -------- --------
$ 1,181 $ 1,565 $ 1,955
========== ======== ========
</TABLE>
38
<PAGE> 40
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cash provided by (used in) operating activities:
Coil processing $ 377 $ 6,709 $(1,581)
Paper coating and laminating (826) (1,319) (315)
Machining center 3,868 11,866 (2,434)
Corporate (1) (4,460) (2,459) 261
--------- ------- -------
(1,041) $14,797 $(4,069)
========= ======= =======
Capital expenditures:
Coil processing $ 653 $ 223 $ 434
Paper coating and laminating 106 69 78
Machining center 427 212 589
Corporate (1) 1,819 161
--------- ------- -------
$ 3,005 $ 665 $ 1,101
========= ======= =======
</TABLE>
(1) The Corporate entity includes the assets of the corporate office
along with the majority of the prepaid pension asset. Since the
Company files a consolidated federal income tax return and the
reporting segments are divisions of the Company, the Corporate
entity records the consolidated tax provision and the related
deferred taxes. The Corporate entity also incurs interest expense on
borrowings and certain unallocated legal, accounting and shareholder
relation expenses that are incurred for the benefit of all
divisions.
Geographic information which for revenues and operating income is
based on the geographic locations in which the sale originated, is
presented below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Sales:
United States $ 72,318 $ 92,374 $ 97,088
Europe 6,748 15,026 19,246
Adjustments and eliminations (284) (806)
--------- --------- ---------
$ 79,066 $ 107,116 $ 115,528
========= ========= =========
Operating income (loss):
United States $ 4,653 $ (1,133) $ (8,691)
Europe 541 (3,038) (2,258)
Corporate (1,866) (679) (271)
--------- --------- ---------
$ 3,328 $ (4,850) $ (11,220)
========= ========= =========
</TABLE>
39
<PAGE> 41
THE MONARCH MACHINE TOOL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Total assets:
United States $ 83,006 $ 61,751 $ 88,033
Europe 5,451 14,118 14,879
--------- --------- ---------
$ 88,457 $ 75,869 $ 102,912
========= ========= =========
</TABLE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers of the Registrant
The following are the names and ages of the Company officers, each of
whom has been appointed to a one year term. Except as noted below,
each person has been an officer and employee of the registrant for the
last five years.
<TABLE>
<CAPTION>
Office Name Age
------ ---- ---
<S> <C> <C>
President and Chief Executive Officer Richard E. Clemens 49
Vice President and Chief Financial
Officer Karl A. Frydryk 44
Vice President, Operations Improvement Patrick M. Flaherty 49
Vice President, Human Resources Timothy P. Gibson 41
President - Stamco Division Frederick G. Sharp 45
President - Machining Center Division Wayne W. Hanna 45
Treasurer Robert B. Riethman 51
Secretary and Controller Leo E. Dugdale 46
</TABLE>
40
<PAGE> 42
Mr. Clemens became President and Chief Executive Officer of Monarch
in March 1997. He was previously the Vice President and General
Manager of the Frick Company (a subsidiary of York International), a
manufacturer of compressors, heat exchangers, and process
refrigeration equipment, from 1995 to 1997. Prior to working for the
Frick Company, he was President and Chief Executive Officer of Clark
Material Handling Company, a manufacturer of fork lift trucks, from
1994 to 1995. Before then, he was President of BMY Combat Systems, a
division of Harsco Corporation, from 1992 to 1994 and held various
other management positions with the division from 1985 to 1992.
Mr. Frydryk, a CPA, became Vice President and Chief Financial
Officer on January 5, 1998. He had previously been employed for over
13 years by Nord Resources Corporation, a New York Stock Exchange
listed company engaged in mining and mineral and chemical
processing. He held various positions with that company, including
serving for over 10 years as its Vice President - Controller and
Secretary.
Mr. Flaherty became Vice President, Operations Improvement on
February 16, 1998. Prior to joining the Company, he was a
consultant, providing consulting services to the Company for 6
months. From 1995 to 1997 he was Vice President, Operations for the
Frick Company, a subsidiary of York International, which
manufactures compressors, heat exchangers and process refrigeration
equipment. From 1994 to 1995 he served as Vice President, Operations
and then Vice President, Business Development for Clark Equipment
Handling Company, a manufacturer of fork lift trucks, and from 1994
to 1997 served in various capacities with Allied Signal, including
Vice President, Airline Services from 1992 to 1994.
Mr. Gibson became Vice President, Human Resources on March 2, 1998.
From January 1995 until his employment by the Company he was Vice
President, Human Resources for CTG, Inc., a distributor of
computer-related equipment. Prior to then he was, for over 5 years,
the Senior Director, Human Resources for US Airways Express.
Mr. Sharp became President of the Stamco Division on February 23,
1998. He was previously Vice President, Marketing and Sales, for
Fairfield Manufacturing Company, Inc., a designer and manufacturer
of custom and proprietary power transmission components, from 1996
to 1998. Before then, he was Director - Combat Artillery Program,
United Defense, LP (formerly BMY Combat Systems), a designer and
manufacturer of combat vehicles, from 1991 to 1996.
Mr. Hanna became President of the Machining Center Division on
August 24, 1998. He was previously Executive Vice President for
Strategic Sourcing Group, a consulting firm specializing in mergers
and acquisitions, strategic issues and global sourcing, from 1992 to
1998. He was also President of DAB Acquisition Corporation &
Tradestar Expo, Ltd., a venture capital firm and an affiliate of
Strategic Sourcing Group, from 1994 to 1996.
Mr. Dugdale, a CPA, was named Controller on June 1, 1998 and
Secretary effective March 1, 1999, replacing Mr. Earl Hull, the
former Secretary who retired on February 28, 1999. Mr. Dugdale was
employed by Moto Photo Corporation, a NASDAQ-listed company engaged
in franchising of film processing service-centers in 1998, prior to
joining the Company. Until 1998, he was employed for over 10 years
as assistant controller with Nord Resources Corporation, a New York
Stock Exchange listed company engaged in mining and mineral
processing and for 2 years served as Secretary for Nord Pacific
Limited, a NASDAQ-listed company engaged in the same industry.
Additional information required by this Item 10 is set forth on the
Proxy Statement and is incorporated herein by reference.
41
<PAGE> 43
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this Item 11 is set forth in the Proxy
Statement and is incorporated herein by this reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is set forth in the Proxy
Statement and is incorporated herein by this reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 12 is set forth in the Proxy
Statement and is incorporated herein by this reference.
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of Documents filed as part of this Report.
(1) Financial Statements:
See Item 8-Index to Financial Statements
<TABLE>
<CAPTION>
<S> <C>
(2) Financial Statements Schedules: Page No.
Report of Independent Accountants 44
Schedule II - Valuation and Qualifying Accounts 45
Schedules other than those listed above are omitted as they are not
applicable or are not required
</TABLE>
(3) Exhibits: See Index of Exhibits
(b) No reports on Form 8-K have been filed during the fourth quarter of
1998
(c) See Index of Exhibits for location of filed exhibits
(d) No other financial statements, other than those mentioned above, are
required to be filed to comply with regulation S-X
42
<PAGE> 44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE MONARCH MACHINE TOOL COMPANY
By: /s/ Richard E. Clemens
----------------------
RICHARD E. CLEMENS
Director, President and Chief Executive Officer
March 26, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of The Monarch Machine
Tool Company and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
By: /s/ Richard E. Clemens By: /s/ Kenneth H. Hopkins
---------------------- ----------------------
RICHARD E. CLEMENS KENNETH H. HOPKINS
Director, President and Chief Executive Officer Director
March 26, 1999 March 26, 1999
By: /s/ John A. Bertrand By: /s/ David E. Lundeen
-------------------- --------------------
JOHN A. BERTRAND DAVID E. LUNDEEN
Director Director
March 26, 1999 March 26, 1999
By: /s/ Gerald L. Connelly By: /s/ Joseph M. Rigot
---------------------- -------------------
GERALD L. CONNELLY JOSEPH M. RIGOT
Director Director
March 26, 1999 March 26, 1999
By: /s/ William A. Enouen By: /s/ Karl A. Frydryk
--------------------- -------------------
WILLIAM A. ENOUEN KARL A. FRYDRYK
Director Vice President
March 26, 1999 (Principal Financial Officer)
March 26, 1999
By: /s/ Waldemar M. Goulet By: /s/ Leo E. Dugdale III
---------------------- ----------------------
WALDEMAR M. GOULET LEO E. DUGDALE III
Director Controller
March 26, 1999 (Principal Accounting Officer)
March 26, 1999
By: /s/ William R. Graber
---------------------
WILLIAM R. GRABER
Director
March 26, 1999
</TABLE>
43
<PAGE> 45
REPORT OF INDEPENDENT ACCOUNTANTS
February 11, 1999
To the Board of Directors and Shareholders of
The Monarch Machine Tool Company
Our report dated February 11, 1999 on our audits of the consolidated financial
statements of The Monarch Machine Tool Company and Subsidiaries as of December
31, 1998 and 1997 and for the years ended December 1998, 1997 and 1996 is
contained under Item 8 of this Form 10-K. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule listed in the index of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.
PricewaterhouseCoopers LLP
Dayton, Ohio
44
<PAGE> 46
THE MONARCH MACHINE TOOL COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
BALANCE AT BALANCE AT
BEGINNING END OF
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS PERIOD
----------- --------- --------- ---------- ------
<S> <C> <C> <C> <C>
Year ended December 31, 1998:
Allowance for doubtful trade accounts
receivable $ 1,507 $ 310 $ (404) $ 1,413
Inventory reserves 1,031 552 (1,031) 552
Impairment reserve - assets held for
resale 1,500 1,500
Environmental reserve 1,450 (151) 1,299
Valuation allowance for deferred
tax assets 1,243 140 -- 1,383
-------- -------- -------- --------
Total $ 6,731 $ 1,002 $ (1,586) $ 6,147
======== ======== ======== ========
Year ended December 31, 1997:
Allowance for doubtful trade accounts
receivable $ 469 $ 1,097 $ (59) $ 1,507
Inventory reserves 13,516 751 (13,236) 1,031
Impairment reserve - assets held
for sale 1,500 1,500
Environmental reserve 1,500 (50) 1,450
Valuation allowance for deferred
tax assets 1,243 1,243
-------- -------- -------- --------
Total $ 15,485 $ 4,581 $(13,345) $ 6,731
======== ======== ======== ========
Year ended December 1996:
Allowance for doubtful trade accounts
receivable $ 150 $ 463 $ (144) $ 469
Inventory reserves 4,085 9,690 (259) 13,516
Environmental reserve 1,500 50 (50) 1,500
-------- -------- -------- --------
Total $ 5,735 $ 10,203 $ (453) $ 15,485
======== ======== ======== ========
</TABLE>
45
<PAGE> 47
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit Footnote
Number Description Number
------ ----------- ------
<S> <C> <C>
3 Articles of Incorporation and Regulations (2)
10 Material Contracts
10.1 1994 Employees Stock Option Plan (3)
10.2 Letter Agreement, dated February 13, 1997, between The
Monarch Machine Tool Company and Richard E. Clemens (3)
10.3 Amended and Restated Credit Agreement dated as of May 29,
1998 by and among the Company, NBD Bank, Star Bank, N.A.
and NBD Bank, as agent (1)
10.4 Asset Purchase Agreement by and between Monarch Lathes,
L.P. and the Company, dated July 16, 1997 (4)
10.5 First Amendment to Amended and Restated Credit Agreement
dated as of December 29, 1998 (5)
10.6 Letter agreement, dated November 3, 1998 between the Monarch
Machine Tool Company and Richard E. Clemens (1)
10.7 Letter agreement, dated November 3, 1998 between the Monarch
Machine Tool Company and Karl A. Frydryk (1)
21 Subsidiaries of the Registrant (1)
23 Consent of Independent Accountants (1)
27 Financial Data Schedules (1)
</TABLE>
46
<PAGE> 48
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Footnote
Number Description
------ -----------
<S> <C>
(1) Indicates Exhibit is being filed with this report
(2) Incorporated by reference to the Exhibits with the same
number filed with the Company's Form 10-K for the year
ended December 31, 1980
(3) Incorporated by reference to the Exhibits with the same
number filed with the Company's Form 10-K for the year
ended December 31, 1996
(4) Incorporated by reference to Exhibit 10.1 filed with the
Company's Form 8-K dated August 13, 1997
(5) Incorporated by reference to Exhibit 1.1 filed with the
Company's Form 8-K dated January 14, 1999
</TABLE>
47
<PAGE> 1
EXHIBIT 10.3
Execution Copy
THE MONARCH MACHINE TOOL COMPANY
$15,000,000
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
dated as of May 29, 1998
NBD BANK, N.A.
STAR BANK, N.A.
and
NBD BANK, N.A., as Agent
<PAGE> 2
TABLE OF CONTENTS
PAGE
ARTICLE I. DEFINITIONS.........................................................1
1.1 Certain Definitions...................................................1
1.2 Other Definitions: Rules of Construction.............................11
ARTICLE II. THE COMMITMENTS AND THE ADVANCES..................................12
2.1 Commitments of the Banks.............................................12
(a) Revolving Credit Commitment.....................................12
(b) Term Loan Commitment............................................12
2.2 Termination and Reduction of Revolving Credit Commitments............12
2.3 Fees.................................................................13
(a) Commitment Fee..................................................13
(b) Agency Fee......................................................13
(c) Letter of Credit Fees...........................................13
2.4 Disbursement of Advances.............................................13
(a) Requests for Advances...........................................13
(b) Currencies and Interest Rates...................................14
(c) Pro Rata Shares.................................................14
(d) The Notes.......................................................15
(e) Participation in Letters of Credit..............................15
2.5 Conditions for First Disbursement....................................16
(a) Charter Documents...............................................16
(b) Code of Regulations and Corporate Authorizations................16
(c) Incumbency Certificate..........................................16
(d) Revolving Credit Notes..........................................16
(e) Legal Opinion...................................................16
(f) Consents, Approvals, Etc........................................16
(g) Other Loan Documents............................................16
2.6 Further Conditions for Disbursement..................................17
2.7 Subsequent Elections as to Loans.....................................17
2.8 Limitation of Requests and Elections.................................18
2.9 Minimum Amounts; Limitations on Advances.............................19
ARTICLE III. PAYMENTS AND PREPAYMENTS OF ADVANCES.............................19
3.1 Principal Payments...................................................19
3.2 Interest Payments....................................................20
3.3 Payment Method.......................................................20
3.4 No Setoff or Deduction...............................................21
3.5 Payment on Non-Business Day: Payment Computations....................21
-i-
<PAGE> 3
3.6 Additional Costs.....................................................21
3.7 Illegality and Impossibility.........................................22
3.8 Indemnification......................................................22
ARTICLE IV. REPRESENTATIONS AND WARRANTIES....................................25
4.1 Corporate Existence and Power........................................25
4.2 Corporate Authority..................................................25
4.3 Binding Effect.......................................................25
4.4 Subsidiaries.........................................................25
4.5 Litigation...........................................................26
4.6 Financial Condition..................................................26
4.7 Use of Advances......................................................26
4.8 Consents, Etc........................................................26
4.9 Taxes................................................................26
4.9 Taxes................................................................26
4.10 Title to Properties.................................................27
4.11 ERISA...............................................................27
4.12 Disclosure..........................................................27
4.13 Environmental Certificate...........................................27
4.14 Borrowing Base......................................................27
ARTICLE V. COVENANTS..........................................................28
5.1 Affirmative Covenants................................................28
(a) Preservation of Corporate Existence, Etc........................28
(b) Compliance with Laws, Etc.......................................28
(c) Maintenance of Properties; Insurance............................28
(d) Reporting Requirements..........................................29
(e) Accounting; Access to Records; Books, Etc.......................30
(f) Taxes...........................................................31
5.2 Negative Covenants...................................................31
(a) Current Ratio...................................................31
(b) Tangible Net Worth..............................................31
(c) Total Liabilities to Tangible Net Worth.........................31
(d) Liens...........................................................31
(e) Merger; Acquisitions; Etc.......................................32
(f) Disposition of Assets; Etc......................................32
(g) Nature of Business..............................................33
(h) Dividends and Other Restricted Payments.........................33
(i) Capital Expenditures............................................33
(j) Transactions with Affiliates....................................33
(k) Investments, Loans and Advances.................................34
(l) Contingent Liabilities..........................................34
(m) Negative Pledge Limitation......................................34
(n) Restrictions on Payments by Subsidiaries........................34
(o) Inconsistent Agreements.........................................34
-ii-
<PAGE> 4
(p) Fiscal Year.....................................................34
(q) Interest Coverage Ratio.........................................35
ARTICLE VI. DEFAULT...........................................................35
6.1 Events of Default....................................................35
(a) Nonpayment......................................................35
(b) Misrepresentation...............................................35
(c) Certain Covenants...............................................35
(d) Other Defaults..................................................35
(e) Cross Default...................................................35
(f) Judgments.......................................................36
(g) ERISA...........................................................36
(h) Insolvency, Etc.................................................37
6.2 Remedies.............................................................37
ARTICLE VII. THE AGENT AND THE BANKS..........................................38
7.1 Appointment and Authorization........................................38
7.2 Agent and Affiliates.................................................38
7.3 Scope of Agent's Duties..............................................39
7.4 Reliance by Agent....................................................39
7.5 Default..............................................................39
7.6 Liability of Agent...................................................40
7.7 Nonreliance on Agent and Other Banks.................................40
7.8 Indemnification......................................................40
7.9 Successor Agent......................................................41
7.10 Sharing of Payments.................................................41
ARTICLE VIII. MISCELLANEOUS...................................................42
8.1 Amendments, Etc......................................................42
8.2 Notices..............................................................42
8.3 No Waiver By Conduct; Remedies Cumulative............................43
8.4 Reliance on and Survival of Various Provisions.......................43
8.5 Expenses and Indemnification.........................................43
8.6 Successors and Assigns...............................................44
8.7 Counterparts.........................................................45
8.8 Governing Law........................................................45
8.9 Table of Contents and Headings.......................................45
8.10 Construction of Certain Provisions..................................45
8.11 Integration and Severability........................................46
8.12 Independence of Covenants...........................................46
8.13 Interest Rate Limitation............................................46
8.14 Special Procedures for Disbursement of First Loans..................46
8.15 Year 2000 Problem...................................................47
8.16 WAIVER OF JURY TRIAL................................................47
-iii-
<PAGE> 5
Exhibit A-1 - Form of Revolving Credit Note
Exhibit A-2 - Form of Term Note
Exhibit B - Request for Advance
Exhibit C - Opinion of Borrower's Counsel
Exhibit D - Request for Continuation or Conversion of Loan
Exhibit E - Borrowing Base Certificate
Exhibit F - Environmental Certificate
SCHEDULES
4.4 - Subsidiaries
4.5 - Litigation
5.2(d) - Liens
5.2(k) - Investments, Loans and Advances
-iv-
<PAGE> 6
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of May
29, 1998 (this "Agreement"), is by and among THE MONARCH MACHINE TOOL COMPANY,
INC., an Ohio corporation (the "Company"), the Banks set forth on the signature
pages hereof (collectively, the "Banks" and, individually, a "Bank") and NBD
BANK, N.A., a national banking association ("NBD"), as agent for the Banks (in
such capacity, the "Agent").
INTRODUCTION
A. The Company, the Banks and the Agent (NBD, as a Bank and as the
Agent, being the successor by assignment to NBD Bank, a Michigan banking
corporation) are parties to that certain Amended and Restated Credit Agreement,
dated as of June 9, 1995, as amended or modified from time to time (the "1995
Credit Agreement"), pursuant to which the Banks provide to the Company a
revolving credit facility, including, in the Banks' sole discretion, loans in
foreign currencies, in an aggregate principal amount the Dollar Equivalent of
which does not exceed $20,000,000, in order to provide funds for the Company's
general corporate purposes, which credit facility is convertible into a
three-year term loan, all on the terms and conditions therein set forth.
B. The Company now desires to extend the expiry date of such
revolving credit facility three years, reduce the amount of such facility to
$15,000,000, eliminate foreign currency loans from the facility, add standby
letters of credit to the facility, provide for its conversion to a two-year term
loan, and modify the pricing and fees under the credit facility and certain
covenants applicable to the Company, and the Banks and the Agent are willing to
so modify the 1995 Credit Agreement, and for such purpose amend and restate the
1995 Credit Agreement in full, all the terms and condition herein set forth.
In consideration of the premises and of the mutual agreements herein
contained, the parties hereby agree, and hereby amend and restate the 1995
Credit Agreement in full, as follows:
ARTICLE I.
DEFINITIONS
1.1. Certain Definitions. As used herein the following terms shall
have the following respective meanings:
"Advance" shall mean any Loan and any Letter of Credit Advance.
"Affiliate", when used with respect to any person, shall mean any
other person which, directly or indirectly, controls or is controlled by or is
under common control with such person. For purposes of this definition "control"
(including the correlative meanings of the terms "controlled by" and "under
common control with"), with respect to any person, shall mean possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such person, whether through the ownership of voting
securities or by contract or
-1-
<PAGE> 7
otherwise.
"Applicable Commitment Fee Rate", "Applicable Eurodollar Rate
Margin", "Applicable Floating Rate Margin" and "Applicable L/C Fee Rate" shall
be, for purposes of determining the commitment fee payable under Section 2.3(a)
for any month (the "Application Month"), the Eurodollar Rate applicable to any
Eurodollar Rate Loan outstanding at any time during any Application Month, the
Floating Rate applicable to any Floating Rate Loan outstanding at any time
during any Application Month, or the fee under Section 2.3(d) for any Letter of
Credit issued during any Application Month, as the case may be, the percent set
forth under the heading "Applicable Commitment Fee Rate", "Applicable Eurodollar
Rate Margin for Revolving Credit Loans", "Applicable Eurodollar Rate Margin for
the Term Loan", "Applicable Floating Rate Margin for Revolving Credit Loans",
"Applicable Floating Rate Margin for the Term Loan" and "Applicable L/C Fee
Rate", respectively, below in the row corresponding to the range into which
falls the ratio (the "Ratio") of the Consolidated Total Liabilities of the
Company and its Subsidiaries to the Consolidated Tangible Net Worth of the
Company and its Subsidiaries as of the end of the last fiscal quarter (the
"Determination Quarter") preceding such Application Month for which financial
statements have been delivered to the Banks under Section 5.1(d)(ii):
<TABLE>
<CAPTION>
Applicable
Applicable Floating Applicable
Applicable Eurodollar Rate Floating
Eurodollar Rate Margin for Rate Applica-
Applicable Rate Margin Margin for Revolving Margin for ble L/C
Commitment for Revolving the Term Credit the Term Fee
Ratio Fee Rate Credit Loans Loan Loans Loan Rate
----- -------- ------------ ---- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Less than
or equal to
0.75 to 1.00 0.25% 0.75% 1.00% 0% 0.25% 0.75%
Greater
than 0.75 to
1.00 but
less than or
equal to
1.15 to 1.00 0.375% 1.00% 1.25% 0% 0.25% 1.00%
Greater
than 1.15 to
1.00 0.375% 1.50% 1.75% 0% 0.25% 1.50%
</TABLE>
Each change in the Applicable Commitment Fee Rate, Applicable Eurodollar Rate
Margin, Applicable Floating Rate Margin and Applicable L/C Fee Rate in
accordance with this definition, as finally determined upon the Banks' receipt
of the Company's financial statements for any Determination Quarter pursuant to
Section 5.1(d)(ii), shall be effective as of the first day
-2-
<PAGE> 8
of the corresponding Application Month following such Determination Quarter.
"Borrowing Base" shall mean, as of any date, the sum of (a) an
amount equal to 80% of the Eligible Accounts Receivable plus (b) an amount equal
to 50% of the Eligible Inventory minus (c) the Fifth Third Borrowings.
"Borrowing Base Certificate" or any date shall mean an appropriately
completed report as of such date in substantially the form of Exhibit E hereto,
certified as true and correct as of such date by the chief financial officer of
the Company.
"Business Day" shall mean a day other than a Saturday, Sunday or
other day on which the Agent is not open to the public for carrying on
substantially all of its banking functions, and if an applicable Business Day
relates to a Eurodollar Rate Loan or Eurodollar Interest Period, a day which is
also a day on which dealings in Dollar deposits are carried out in the relevant
interbank market.
"Capital Lease" of any person shall mean any lease which, in
accordance with generally accepted accounting principles, is or should be
capitalized on the books of such person.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations thereunder.
"Commitments" shall mean the Revolving Credit Commitments and the
Term Loan Commitments; and "Commitment" shall mean any one of such Commitments.
"Consolidated" or "consolidated" shall mean, when used with
reference to any financial term in this Agreement, the aggregate for two or more
persons of the amounts signified by such term for all such persons determined on
a consolidated basis in accordance with generally accepted accounting
principles.
"Contingent Liabilities" of any person shall mean, as of any date,
all obligations of such person or of others for which such person is
contingently liable, as obligor, guarantor, surety or in any other capacity, or
in respect of which obligations such person assures a creditor against loss or
agrees to take any action to prevent any such loss (other than endorsements of
negotiable instruments for collection in the ordinary course of business),
including without limitation all reimbursement obligations of such person in
respect of any letters of credit, surety bonds or similar obligations and all
obligations of such person to advance funds to, or to purchase assets, property
or services from, any other person in order to maintain the financial condition
of such other person; provided that "Contingent Liabilities" of any person shall
not include (a) contingent obligations of such person to the extent such
contingent obligations do not exceed related direct liabilities of such person
reflected in the financial statements of such person and permitted under the
terms of this Agreement, and such contingent obligations shall terminate upon
payment of such direct liabilities, e.g., reimbursement obligations of such
person in respect of financial letters of credit issued for the account of such
person to secure trade payables of such person or performance of contracts for
which such person has received advance payment, or (b) reimbursement obligations
of such person in respect of letters of credit issued for the account of
-3-
<PAGE> 9
such person to secure performance and warranty obligations of such person
arising in the ordinary course of business.
"Cumulative Net Income" of any person shall mean, as of any date
(the "Determination Date"), the net income of such person (after deduction for
income and other taxes of such person determined by reference to income or
profits of such person) for the period (the "Relevant Period") after the
specified date until the Determination Date (but without reduction for any net
loss incurred for any fiscal year or shorter period during the Relevant Period),
taken as one accounting period, all as determined in accordance with generally
accepted accounting principles.
"Current Assets" and "Current Liabilities" of any person shall mean,
as of any date, all assets or liabilities, respectively, of such person which,
in accordance with generally accepted accounting principles, should be
classified as current assets or current liabilities, respectively, on a balance
sheet of such person.
"Default" shall mean any of the events or conditions described in
Section 6.1 which might become an Event of Default with notice or lapse of time
or both.
"Dollars" and "$" shall mean the lawful money of the United States
of America.
"EBIT" of any person shall mean, for any period, the net income
(after deduction for income taxes and other taxes of such person determined by
reference to income or profits of such person) for such period plus, to the
extent deducted in computation of such net income, (a) the Interest Expense of
such person for such period and (b) income taxes and other taxes of such person
determined by reference to income or profits of such person.
"Effective Date" shall mean the effective date specified in the
final paragraph of this Agreement.
"Eligible Accounts Receivable" shall mean, as of any date, those
trade accounts receivable owned by the Company which are payable in Dollars
valued at the face amount thereof less sales, excise or similar taxes and less
returns, discounts, claims, credits and allowances of any nature at any time
issued, owing, granted, outstanding, available or claimed, but shall not include
any such account receivable (a) that is not a bona fide existing obligation
created by the sale of inventory, goods or other property or the furnishing of
services or other good and sufficient consideration to customers of the Company
in the ordinary course of business, (b) that is more than 90 days past due or
that remains outstanding more than 90 days after the earlier of the date of the
invoice or the final shipment of the related inventory, goods or other property
at project completion or the furnishing of the related services or other
consideration, (c) to the extent that such receivable is subject to any dispute,
contra-account, defense, offset or counterclaim or any Lien, or the inventory,
goods, property, services or other consideration of which such account
receivable constitutes proceeds is subject to any such Lien, (d) in respect of
which the inventory, goods, property, services or other consideration have been
rejected or the amount is in dispute, (e) that is due from any Affiliate or
Subsidiary of the Company, (f) that has been classified by the Company as
doubtful or has otherwise failed to
-4-
<PAGE> 10
meet established or customary credit standards of the Company, (g) that is
payable by any person as to which 50% or more of the aggregate amount of such
accounts receivable payable by such person to the Company do not otherwise
constitute Eligible Accounts Receivable, (h) that is payable by any person that
is the subject of any proceeding seeking to adjudicate it a bankrupt or
insolvent or seeking liquidation, winding up or reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief or protection of
debtors or seeking the appointment of a receiver, trustee, custodian or other
similar official for it or for any substantial part of its property, or that is
not generally paying its debts as they become due or has admitted in writing its
inability to pay its debts generally or has made a general assignment for the
benefit of creditors, (i) that is evidenced by a promissory note or other
instrument, (j) that is subordinate or junior in right or priority of payment to
any other obligation or claim, or (k) that for any other reason is at any time
reasonably deemed by the Agent to be ineligible.
"Eligible Inventory" shall mean, as of any date, that inventory
owned by the Company that constitutes raw materials, work-in-process or finished
goods, valued at the lower of cost or market on a FIFO basis, but shall not
include any such inventory (a) that does not constitute finished goods or raw
materials readily salable or usable in the business of the Company or
work-in-process, (b) that is located outside the United States (which shall not
be deemed to include any territories of the United States), (c) that is subject
to, or any accounts or other proceeds resulting from the sale or other
disposition thereof will be subject to, any Lien, including any sale on approval
or sale or return transaction or any consignment, (d) that is not in the
possession of the Company, except for inventory owned by the Company that is on
consignment at independent dealer locations and the book value of which on a
FIFO basis does not exceed $2,000,000 in the aggregate, (e) that is held for
lease or is the subject of any lease, (f) that is subject to any trademark,
trade name or licensing arrangement, or any law, rule or regulation, that could
limit or impair the ability of a person holding a Lien on such inventory to
promptly exercise all rights of such lienholder, (g) if such inventory is
located on premises not owned by the Company, or (h) that for any other reason
is at any time reasonably deemed by the Agent to be ineligible.
"Environmental Certificate" shall mean an Environmental Certificate
in substantially the form annexed hereto as Exhibit F.
"Environmental Laws" at any date shall mean all provisions of law,
statutes, ordinances, rules, regulations, judgments, writs, injunctions,
decrees, orders, awards and standards promulgated by the government of the
United States of America or any foreign government or by any state, province,
municipality or other political subdivision thereof or therein or by any court,
agency, instrumentality, regulatory authority or commission of any of the
foregoing concerning the protection of, or regulating the discharge of
substances into, the environment.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended time to time, and the regulations thereunder.
"ERISA Affiliate" shall mean, with respect to any person, any trade
or business
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(whether or not incorporated) which, together with such person or any Subsidiary
of such person, would be treated as a single employer under Section 414 of the
Code.
"Eurodollar Interest Period" shall mean, with respect to any
Eurodollar Rate Loan, the period commencing on the day such Eurodollar Rate Loan
is made or converted to a Eurodollar Rate Loan and ending on the date one, two
or three months thereafter, as the Company may elect under Article II, and, with
respect to any continuation of such Loan as a Eurodollar Rate Loan, each
subsequent period commencing on the last day of the immediately preceding
Eurodollar Interest Period and ending on the date one, two or three months
thereafter, as the Company may elect under Article II, provided, however, that
(a) any Eurodollar Interest Period which commences on the last Business Day of a
calendar month (or on any day for which there is no numerically corresponding
day in the appropriate subsequent calendar month) shall end on the last Business
Day of the appropriate subsequent calendar month, (b) each Eurodollar Interest
Period which would otherwise end on a day which is not a Business Day shall end
on the next succeeding Business Day or, if such next succeeding Business Day
falls in the next succeeding calendar month, on the next preceding Business Day,
and (c) no Eurodollar Interest Period which would end after the Maturity Date
(or the Termination Date with respect to any Revolving Credit Loans) shall be
permitted.
"Eurodollar Rate" shall mean, with respect to any Eurodollar Rate
Loan and the related Eurodollar Interest Period, the per annum rate that is
equal to the sum of:
(a) the Applicable Eurodollar Rate Margin, plus
(b) the rate per annum obtained by dividing (i) the per annum rate
of the interest at which deposits in Dollars for such Eurodollar Interest Period
and in an aggregate amount comparable to the amount of such Eurodollar Rate Loan
are offered to the Agent by other prime banks in the London interbank market,
selected in the Agent's discretion, at approximately 11:00 a.m. London time on
the second Eurodollar Business Day prior to the first day of such Eurodollar
Interest Period by (ii) an amount equal to one minus the stated maximum rate
(expressed as a decimal) of all reserve requirements (including, without
limitation, any marginal, emergency, supplemental, special or other reserves)
that is specified on the first day of such Eurodollar Interest Period by the
Board of Governors of the Federal Reserve System (or any successor agency
thereto) for determining the maximum reserve requirement with respect to
eurocurrency funding (currently referred to as "Eurocurrency liabilities" in
Regulation D of such Board) maintained by a member bank of such System;
all as conclusively determined by the Agent, such sum to be rounded up, if
necessary, to the nearest whole multiple of one one-hundredth of one percent
(1/100 of 1%).
"Eurodollar Rate Loan" shall mean any Loan which bears interest at
the Eurodollar Rate.
"Event of Default" shall mean any of the events or conditions
described in Section 6.1.
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"Federal Funds Rate" shall mean the per annum rate established and
announced by the Agent from time to time as the opening federal funds rate paid
by the Agent in its regional federal funds market for overnight borrowings from
other banks, which Federal Funds Rate shall change simultaneously with any
change in such announced rate.
"Fifth Third Borrowings" shall mean, as of any date, the aggregate
outstanding principal amount of Indebtedness of the Company to The Fifth Third
Bank.
"Fixed Rate Loan" shall mean any Eurodollar Rate Loan or Negotiated
Rate Loan.
"Floating Rate" shall mean the per annum rate equal to the sum of
(a) the Applicable Floating Rate Margin, plus (b) the greater of (i) the Prime
Rate in effect from time to time or (ii) the sum of one percent (1%) per annum
plus the Federal Funds Rate in effect from time to time; which Floating Rate
shall change simultaneously with any change in such Prime Rate or Federal Funds
Rate, as the case may be.
"Floating Rate Loan" shall mean any Loan which bears interest at the
Floating Rate.
"Generally accepted accounting principles" shall mean generally
accepted accounting principles applied on a basis consistent with that reflected
in the financial statements referred to in Section 4.6.
"Indebtedness" of any person shall mean, as of any date, (a) all
obligations of such person for borrowed money, (b) all obligations of such
person as lessee under any Capital Lease, (c) all obligations which are secured
by any Lien existing on any asset or property of such person whether or not the
obligation secured thereby shall have been assumed by such person, (d) the
unpaid purchase price for goods, property or services acquired by such person,
except for trade accounts payable arising in the ordinary course of business
that are not past due, (e) all obligations of such person to purchase goods,
property or services where payment therefor is required regardless of whether
delivery of such goods or property or the performance of such services is ever
made or tendered (generally referred to as "take or pay contracts"), (f) all
liabilities of such person in respect of Unfunded Benefit Liabilities under any
plan of such person or of any member of a controlled group (as that term is
defined in the Code) of which such person is a member, (g) all obligations of
such person in respect of any interest rate or currency swap, rate cap or other
similar transaction (valued in an amount equal to the highest termination
payment, if any, that would be payable by such person upon termination for any
reason on the date of determination), and (h) all obligations of others similar
in character to those described in clauses (a) through (g) of this definition
for which such person is contingently liable, as obligor, guarantor, surety or
in any other capacity, or in respect of which obligations such person assures a
creditor against loss or agrees to take any action to prevent any such loss
(other than endorsements of negotiable instruments for collection in the
ordinary course of business), including without limitation all reimbursement
obligations of such person in respect of letters of credit, surety bonds or
similar obligations and all obligations of such person to advance funds to, or
to purchase assets, property or services from, any other person in order to
maintain the financial condition of such other person.
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"Interest Expense" of any person shall mean, for any period, the
interest expense of such person for such period determined in accordance with
generally accepted accounting principles.
"Interest Payment Date" shall mean (a) with respect to any Fixed
Rate Loan, the last day of each Interest Period with respect to such Fixed Rate
Loan and, in the case of any Interest Period exceeding three months or ninety
days, as the case may be, those days that occur during such Interest Period at
intervals of three months or ninety days, as the case may be, after the first
day of such Interest Period, and (b) in all other cases, the last Business Day
of each March, June, September and December occurring after the date hereof,
commencing with the first such Business Day occurring after the date of this
Agreement.
"Interest Period" shall mean any Eurodollar Interest Period or
Negotiated Interest Period.
"Letter of Credit" shall mean a standby letter of credit issued by
the Agent on behalf of the Banks for the account of the Company under an
application and related documentation acceptable to the Agent requiring, among
other things, immediate reimbursement by the Company to the Agent in respect of
all drafts or other demand for payment honored thereunder and all expenses paid
or incurred by the Agent relative thereto.
"Letter of Credit Advance" shall mean any issuance of a Letter of
Credit under Section 2.4 made pursuant to Section 2.1(a) in which each Bank
acquires a pro rata risk participation pursuant to Section 2.4(e).
"Letter of Credit Documents" shall have the meaning ascribed thereto
in Section 3.9(b).
"Lien" shall mean any pledge, assignment, hypothecation, mortgage,
security interest, deposit arrangement, option, conditional sale or title
retaining contract, sale and leaseback transaction, financing statement filing,
lessor's or lessee's interest under any lease, subordination of any claim or
right, or any other type of lien, charge, encumbrance, preferential arrangement
or other similar claim or right.
"Loan" shall mean any Revolving Credit Loan or the Term Loan or any
portion of any Revolving Credit Loan or the Term Loan. Any such Loan may also be
denominated as a Floating Rate Loan or a Fixed Rate Loan (which may be further
denominated as a Eurodollar Rate Loan or Negotiated Rate Loan) and such Floating
Rate Loans and Fixed Rate Loans (including such Eurodollar Rate Loans and
Negotiated Rate Loans) are referred to herein as "types" of Loans.
"Maturity Date" shall mean with respect to the Term Loan, the second
anniversary of the date the Term Loan is made, which in any event shall be no
later than May 29, 2003.
"Multiemployer Plan" shall mean any "multiemployer plan" as defined
in Section
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<PAGE> 14
4001(a)(3) of ERISA or Section 414(f) of the Code.
"Negotiated Rate" shall mean, with respect to any Negotiated Rate
Loan, the rate per annum offered by the Banks in their sole discretion for such
Negotiated Rate Loan and accepted by the Company at the time such Negotiated
Rate Loan is made.
"Negotiated Interest Period" shall mean, with respect to any
Negotiated Rate Loan, the period commencing on the day such Negotiated Rate Loan
is made or converted to a Negotiated Rate Loan and ending on the date agreed
upon between the Company and the Banks at the time such Negotiated Rate Loan is
made, provided, however, that no Negotiated Interest Period which would end
after the Maturity Date (or the Termination Date with respect to any Revolving
Credit Loans) shall be permitted.
"Negotiated Rate Loan" shall mean any Loan which bears interest at
the Negotiated Rate.
"Net Income" of any person shall mean the net income of such person
(after deduction for income and other taxes of such person determined by
reference to income or profits of such person).
"Notes" shall mean the Revolving Credit Notes and the Term Notes;
and "Note" shall mean any one of the Notes.
"Overdue Rate" shall mean (a) in respect of principal of Floating
Rate Loans, a rate per annum that is equal to the sum of three percent (3%) per
annum plus the Floating Rate, (b) in respect of principal of Fixed Rate Loans, a
rate per annum that is equal to the sum of three percent (3%) per annum plus the
per annum rate in effect thereon until the end of the then current Interest
Period for such Loan and, thereafter, a rate per annum that is equal to the sum
of three percent (3%) per annum plus the Floating Rate, and (c) in respect of
other amounts payable by the Company hereunder (other than interest), a per
annum rate that is equal to the sum of three percent (3%) per annum plus the
Floating Rate.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.
"Permitted Liens" shall mean Liens permitted by Section 5.2(d)
hereof.
"Person" or person" shall include an individual, a corporation, an
association, a partnership, a trust or estate, a joint stock company, an
unincorporated organization, a joint venture, a trade or business (whether or
not incorporated), a government (foreign or domestic) and any agency or
political subdivision thereof, or any other entity.
"Plan" shall mean, with respect to any person, any pension plan
(other than a Multiemployer Plan) subject to Title IV of ERISA or to the minimum
funding standards of Section 412 of the Code which has been established or
maintained by such person, any Subsidiary of such person or any ERISA Affiliate,
or by any other person if such person, any
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<PAGE> 15
Subsidiary of such person or any ERISA Affiliate could have liability with
respect to such pension plan.
"Prime Rate" shall mean the per annum rate announced by the Agent
from time to time as its "prime rate" (it being acknowledged that such announced
rate may not necessarily be the lowest rate charged by the Agent to any of its
customers), which Prime Rate shall change simultaneously with any change in such
announced rate.
"Prohibited Transaction" shall mean any transaction involving any
Plan which is proscribed by Section 406 of ERISA or Section 4975 of the Code.
"Pro Rata Share" shall mean, with respect to each Bank and any
amount, the portion of such amount that bears the same relation to the whole of
such amount as the amount of such Bank's outstanding Revolving Credit Advances
bears to the aggregate amount of the outstanding Revolving Credit Advances of
all the Banks (or, if no Revolving Credit Advances are outstanding, as the
amount of such Bank's Revolving Credit Commitment bears to the aggregate
Revolving Credit Commitment of all the Banks).
"Reportable Event" shall mean a reportable event as described in
Section 4043(b) of ERISA including those events as to which the thirty (30) day
notice period is waived under Part 2615 of the regulations promulgated by the
PBGC under ERISA.
"Required Banks" shall mean Banks holding not less than (i) one
hundred percent (100%) of the Advances then outstanding or (ii) one hundred
percent (100%) of the Revolving Credit Commitments if no Advances are then
outstanding.
"Revolving Credit Advance" shall mean any Revolving Credit Loan and
any Letter of Credit Advance.
"Revolving Credit Commitment" shall mean, with respect to each Bank,
the commitment of each such Bank to make Revolving Credit Loans and to
participate in Letter of Credit Advances made through the Agent pursuant to
Section 2.1(a) in amounts not exceeding in aggregate principal amount
outstanding at any time the respective commitment amount for each such Bank set
forth next to the name of each such Bank in the signature pages hereof, as such
amounts may be reduced from time to time pursuant to Section 2.2.
"Revolving Credit Loan" shall mean any borrowing under Section 2.4
other than the Term Loan.
"Revolving Credit Note" shall mean any promissory note of the
Company evidencing the Revolving Credit Loans, in substantially the form annexed
hereto as Exhibit A-1, as amended or modified from time to time and together
with any promissory note or notes issued in exchange or replacement therefor.
"Star Bank" shall mean Star Bank, N.A., a national banking
association.
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"Subsidiary" of any person shall mean any other person (whether now
existing or hereafter organized or acquired) in which (other than directors
qualifying shares required by law) at least a majority of the securities or
other ownership interests of each class having ordinary voting power or
analogous right (other than securities or other ownership interests which have
such power or right only by reason of the happening of a contingency), at the
time as of which any determination is being made, are owned, beneficially and of
record, by such person or by one or more of the other Subsidiaries of such
person or by any combination thereof. Unless otherwise specified, reference to
"Subsidiary" shall mean a Subsidiary of the Company.
"Tangible Net Worth" of any person shall mean, as of any date, (a)
the amount of any capital stock, paid in capital and similar equity accounts
plus (or minus in the case of a deficit) the capital surplus and retained
earnings of such person and the amount of any foreign currency translation
adjustment account shown as a capital account of such person, less (b) the net
book value of all items of the following character which are included in the
assets of such person: (i) goodwill, including without limitation, the excess of
cost over book value of any asset, (ii) organization expenses, (iii) unamortized
debt discount and expense, (iv) patents, trademarks, trade names and copyrights,
(v) treasury stock (to the extent not already deducted in such equity accounts),
(vi) franchises, licenses and permits, and (vii) other assets which are deemed
intangible assets under generally accepted accounting principles.
"Term Loan" shall mean the borrowing under Section 2.4 evidenced by
the Term Notes.
"Term Loan Commitment" shall mean, with respect to each Bank, the
commitment of each such Bank to make the Term Loan pursuant to Section 2.1(b).
"Term Note" shall mean any promissory note of the Company evidencing
the Term Loan, in substantially the form annexed hereto as Exhibit A-2, as
amended or modified from time to time and together with any promissory note or
notes issued in exchange or replacement therefor.
"Termination Date" shall mean the earliest to occur of (a) May 29,
2001 and (b) the date on which the Commitments shall be terminated pursuant to
Section 2.2 or 6.2.
"Total Liabilities" of any person shall mean, as of any date, all
obligations which, in accordance with generally accepted accounting principles,
are or should be classified as liabilities on a balance sheet of such person and
all Contingent Liabilities of such person.
"Unfunded Benefit Liabilities" shall mean, with respect to any Plan
as of any date, the amount of the unfunded benefit liabilities determined in
accordance with Section 4001(a)(18) of ERISA.
1.2 Other Definitions: Rules of Construction. As used herein, the
terms "Agent", "Bank", "Banks", "Company", "NBD", "1995 Credit Agreement" and
"this Agreement" shall have the respective meanings ascribed thereto in the
introductory paragraphs of this Agreement. Such terms, together with the other
terms defined in Section 1.1, shall include both
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the singular and the plural forms thereof and shall be construed accordingly.
All computations required hereunder and all financial terms used herein shall be
made or construed in accordance with generally accepted accounting principles
unless such principles are inconsistent with the express requirements of this
Agreement. Use of the terms "herein", "hereof", and "hereunder" shall be deemed
references to this Agreement in its entirety and not to the Section or clause in
which such term appears. References to "Sections" and "subsections" shall be to
Sections and subsections, respectively, of this Agreement unless otherwise
specifically provided.
ARTICLE II.
THE COMMITMENTS AND THE ADVANCES
2.1 Commitments of the Banks.
(a) Revolving Credit Commitment. Each Bank agrees, for itself only,
subject to the terms and conditions of this Agreement, to make Revolving Credit
Loans to the Company under Section 2.4 and 3.9 and to participate in Letter of
Credit Advances to the Company pursuant to Section 2.4, from time to time from
the Effective Date to but excluding the Termination Date, in an aggregate
principal amount outstanding not to exceed the lesser of (i) the amount of such
Bank's Revolving Credit Commitment, as such amount may be reduced from time to
time pursuant to Section 2.2, and (ii) such Bank's Pro Rata Share of the
Borrowing Base; provided, however, that the aggregate principal amount of Letter
of Credit Advances outstanding at any time shall not exceed $[5,000,000].
(b) Term Loan Commitment. Each Bank, for itself only, further
agrees, subject to the terms and conditions of this Agreement, to make its Pro
Rata Share of a single Term Loan to the Company on the Termination Date in an
amount not exceeding the Dollar Equivalent of the aggregate principal amount of
the Revolving Credit Loans outstanding on the Termination Date.
2.2 Termination and Reduction of Revolving Credit Commitments. (a)
The Company shall have the right to terminate or reduce the Revolving Credit
Commitments at any time and from time to time at its option, provided that (i)
the Company shall give notice of such termination or reduction to the Agent
(with sufficient executed copies for each Bank) specifying the amount and
effective date thereof, (ii) each partial reduction of the Revolving Credit
Commitments shall be in a minimum amount of $1,000,000 and in an integral
multiple of $100,000 and shall reduce the Commitments of all of the Banks
proportionately in accordance with their Pro Rata Shares, (iii) no such
termination or reduction shall be permitted with respect to any portion of the
Revolving Credit Commitments as to which a request for a Revolving Credit
Advance pursuant to Section 2.4 is then pending, and (iv) the Revolving Credit
Commitments may not be terminated if any Revolving Credit Advances are then
outstanding and may not be reduced below the principal amount of the Revolving
Credit Advances then outstanding. The Revolving Credit Commitments or any
portion thereof terminated or reduced pursuant to this Section 2.2 may not be
reinstated.
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(b) For purposes of this Agreement, a Letter of Credit Advance (i)
shall be deemed outstanding in an amount equal to the sum of the maximum amount
available to be drawn under the related Letter of Credit on or after the date of
determination and on or before the stated expiry date thereof plus the amount of
any draws under such Letter of Credit that have not been reimbursed as provided
in Section 3.9 and (ii) shall be deemed outstanding at all times on and before
such stated expiry date or such earlier date on which all amounts available to
be drawn under such Letter of Credit have been fully drawn, and thereafter until
all related reimbursement obligations have been paid pursuant to Section 3.9. As
provided in Section 3.9, upon each payment made by the Agent in respect of any
draft or other demand for payment under any Letter of Credit, the amount of any
Letter of Credit Advance outstanding immediately prior to such payment shall be
automatically reduced by the amount of each Revolving Credit Loan deemed
advanced in respect of the related reimbursement obligation of the Company.
2.3 Fees.
(a) Commitment Fee. The Company agrees to pay to each Bank a
commitment fee on the daily average unused amount of such Bank's Revolving
Credit Commitment for each month or portion thereof during the period from the
Effective Date to but excluding the Termination Date, at a rate equal to the
Applicable Commitment Fee Rate for such month. Accrued commitment fees shall be
payable quarterly in arrears on the last Business Day of each March, June,
September and December, commencing on the first such Business Day occurring
after the date of this Agreement, and on the Termination Date.
(b) Agency Fee. The Company further agrees to pay to the Agent a fee
for its services as Agent under this Agreement in the amount of $10,000 per
annum, payable quarterly in arrears on the last Business Day of each March,
June, September an December, commencing on the first such day occurring after
the date of this Agreement.
(c) Letter of Credit Fees. On or before the date of issuance of any
Letter of Credit, the Company agrees to pay to the Banks a fee, computed at the
Applicable L/C Fee Rate for the month during which such Letter of Credit is
issued, of the maximum amount available to be drawn form time to time under such
Letter of Credit for the period from and including the date of issuance of such
Letter of Credit to and including the stated expiry date of such Letter of
Credit. Such fees are nonrefundable and the Company shall not be entitled to any
rebate of any portion thereof if such Letter of Credit does not remain
outstanding through its stated expiry date or for any other reason. The Company
further agrees to pay to the Agent, on demand, such other customary
administrative fees, charges and expenses of the Agent in respect of the
issuance, negotiation, acceptance, amendment, transfer and payment of each such
Letter of Credit or otherwise payable pursuant to the application and related
documentation under which such Letter of Credit is issued.
2.4 Disbursement of Advances.
(a) Requests for Advances. The Company shall give the Agent notice
of its request for each Loan in substantially the form of Exhibit B hereto not
later than (i) 10:00 a.m. Indianapolis time three Business Days prior to the
date such Loan is requested to be made if such
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Loan is to be made as a Eurodollar Rate Loan, (ii) 10:00 a.m. Indianapolis time
one Business Day prior to the date such Loan is requested to be made if such
Loan is to be made as a Negotiated Rate Loan, and (iii) 11:00 a.m. Indianapolis
time on the date such Loan is requested to be made if such Loan is to be made as
a Floating Rate Loan. The Company shall give the Agent notice of its request for
each Letter of Credit Advance in substantially the form of Exhibit B hereto not
later than 10:00 a.m. Indianapolis time five Business Days prior to the date any
Letter of Credit Advance is requested to be made. Each such notice shall specify
whether a Eurodollar Rate Loan, Negotiated Rate Loan or Floating Rate Loan or
Letter of Credit Advance is requested and, in the case of each requested Fixed
Rate Loan, the Interest Period to be initially applicable to such Loan and, in
the case of each Letter of Credit Advance, such information as may be necessary
for the issuance thereof by the Agent. The Agent shall promptly provide notice
of each such requested Advance to each Bank. Subject to the terms and conditions
of this Agreement, the proceeds of each such requested Loan shall be made
available to the Company by depositing the proceeds thereof, in immediately
available funds, in an account maintained and designated by the Company at the
principal office of the Agent; provided, however, that the proceeds of the Term
Loan shall be applied to the outstanding principal amount of and accrued
Interest on the Revolving Credit Loans. Subject to the terms and conditions of
this Agreement, the Agent shall, on the date any Letter of Credit is requested
to be made, issue the related Letter of Credit on behalf of the Banks for the
account of the Company. Notwithstanding anything herein to the contrary, the
Agent may decline to issue any requested Letter of Credit on the basis that the
beneficiary, the purpose of issuance or the terms or the conditions of drawing
are unacceptable to it in its discretion.
(b) Currencies and Interest Rates. Subject to the terms and
conditions of this Agreement, the Term Loan shall be in Dollars, each Revolving
Credit Loan shall be in Dollars, and each Letter of Credit Advance shall be in
Dollars. All Loans shall bear interest at the Eurodollar Rate, Floating Rate or
Negotiated Rate.
(c) Pro Rata Shares. Each Bank, on the date any Loan is requested to
be made, shall make its Pro Rata Share of such Loan available in immediately
available funds for disbursement to the Company pursuant to the terms and
conditions of this Agreement at the principal office of the Agent. Unless the
Agent shall have received notice from any Bank prior to the date such Loan is
requested to be made under this Section 2.4 that such Bank will not make
available to the Agent such Bank's pro rata portion of such Loan, the Agent may
assume that such Bank has made such portion available to the Agent on the date
such Loan is requested to be made in accordance with this Section 2.4. If and to
the extent such Bank shall not have so made such pro rata portion available to
the Agent, the Agent may (but shall not be obligated to) make such amount
available to the Company, and such Bank and the Company severally agree to pay
to the Agent forthwith on demand such amount together with interest thereon, for
each day from the date such amount is made available to the Company by the Agent
until the date such amount is repaid to the Agent, at a rate per annum equal to
the interest rate applicable to such Loan during such period. If such Bank shall
pay such amount to the Agent together with interest, such amount so paid shall
constitute a Loan by such Bank as a part of such the related Loan for purposes
of this Agreement. The failure of any Bank to make its pro rata portion of any
such Loan available to the Agent shall not relieve any other Bank of its
obligations to make available its pro rata portion of such Loan on the date such
Loan is requested to be made, but no Bank
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shall be responsible for failure of any other Bank to make such pro rata portion
available to the Agent on the date of any such Loan.
(d) The Notes. All Revolving Credit Loans made under this Section
2.4 shall be evidenced by the Revolving Credit Notes in the aggregate nominal
amount of $15,000,000, and the Term Loan made under this Section 2.4 shall be
evidenced by the Term Notes, and all such Loans shall be due and payable and
bear interest as provided in Article III. Each Bank is hereby authorized by the
Company to record on the schedule attached to its Revolving Credit Note and Term
Note, or in its books and records, the date, and amount and type of each Loan
and the duration of the related Interest Period (if applicable), the amount of
each payment or prepayment of principal thereon, and the other information
provided for on such schedule, which schedule or books and records, as the case
may be, shall constitute prima facie evidence of the information so recorded,
provided, however, that failure of any Bank to record, or any error in
recording, any such information shall not relieve the Company of its obligation
to repay the outstanding principal amount of the Loans, all accrued interest
thereon and other amounts payable with respect thereto in accordance with the
terms of the Notes and this Agreement. Subject to the terms and conditions of
this Agreement, the Company may borrow Revolving Credit Loans under this Section
2.4, prepay Revolving Credit Loans and the Term Loan pursuant to Section 3.1 and
reborrow Revolving Credit Loans, but not the Term Loan, under this Section 2.4.
(e) Participation in Letters of Credit. Nothing in this Agreement
shall be construed to require or authorize any Bank to issue any Letter of
Credit, it being recognized that the Agent has the sole obligation under this
Agreement to issue Letters of Credit on behalf of the Banks, and the Revolving
Credit Commitment of each Bank with respect to Letter of Credit Advances is
expressly conditioned upon the Agent's performance of such obligations. Upon
such issuance by the Agent, each Bank shall automatically acquire a pro rata
risk participation interest in such Letter of Credit Advance based on the amount
of its respective Revolving Credit Commitment. If the Agent shall honor a draft
or other demand for payment presented or made under any Letter of Credit, the
Agent shall provide notice thereof to each Bank on the date such draft or demand
is honored unless the Company shall have satisfied its reimbursement obligation
under Section 3.9 by payment to the Agent on such date. Each Bank, on such date,
shall make its pro rata share of the amount paid by the Agent available in
immediately available funds at the principal office of the Agent for the account
of the Agent. If and to the extent such Bank shall not have made such pro rata
portion available to the Agent, such Bank and the Company severally agree to pay
to the Agent forthwith on demand such amount together with interest thereon, for
each day from the date such amount was paid by the Agent until such amount is so
made available to the Agent at a per annum rate equal to the Federal Funds Rate.
If such Bank shall pay such amount to the Agent together with such interest,
such amount so paid shall constitute a Revolving Credit Loan by such Bank as
part of the borrowing of Revolving Credit Loans disbursed in respect of the
reimbursement obligation of the Company under Section 3.9 for purposes of this
Agreement. The failure of any Bank to make its pro rata portion of any such
amount paid by the Agent available to the Agent shall not relieve any other Bank
of its obligation to make available its pro rata portion of such amount, but no
Bank shall be responsible for failure of any other Bank to make such pro rata
portion available to the Agent.
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2.5 Conditions for First Disbursement. The obligation of the Banks
to make the first Advance hereunder is subject to receipt by each Bank and the
Agent of the following documents and completion of the following matters, in
form and substance satisfactory to each Bank and the Agent:
(a) Charter Documents. Certificates of recent date of the
appropriate authority or official of the Company's state of incorporation
listing all charter documents of the Company on file in that office and
certifying as to the good standing and corporate existence of the Company,
together with copies of such charter documents of the Company, certified as of a
recent date by such authority or official and certified as true and correct as
of the Effective Date by a duly authorized officer of the Company; or bring-down
certifications by such an officer with respect to such items previously
delivered by the Company to NBD;
(b) Code of Regulations and Corporate Authorizations. Copies of the
code of regulations of the Company together with all authorizing resolutions and
evidence of other corporate action taken by the Company to authorize the
execution, delivery and performance by the Company of this Agreement and the
Notes and the consummation by the Company of the transactions contemplated
hereby, certified as true and correct as of the Effective Date by a duly
authorized officer of the Company; or bring-down certifications by such officer
with respect to such items previously delivered by the Company to NBD;
(c) Incumbency Certificate. A certificate of incumbency of the
Company containing, and attesting to the genuineness of, the signatures of those
officers authorized to act on behalf of the Company in connection with this
Agreement and the Notes and the consummation by the Company of the transactions
contemplated hereby, certified as true and correct as of the Effective Date by a
duly authorized officer of the Company:
(d) Revolving Credit Notes. A Revolving Credit Note duly completed
and executed on behalf of the Company for each Bank:
(e) Legal Opinion. The favorable written opinion of Thompson, Hine
and Flory, counsel for the Company, in substantially the form of Exhibit C
hereto;
(f) Consents, Approvals, Etc. Copies of all governmental and
nongovernmental consents, approvals, authorizations, declarations, registrations
or filings, if any, required on the part of the Company in connection with the
execution, delivery and performance of this Agreement, the Notes, or the
transactions contemplated hereby or as a condition to the legality, validity or
enforceability of this Agreement or the Notes, certified as true and correct and
in full force and effect as of the Effective Date by a duly authorized officer
of the Company, or, if none is required, a certificate of such officer to that
effect; and
(g) Other Loan Documents. The Environmental Certificate and such
other instruments and documents, duly executed by the Company, deemed necessary,
customary or appropriate by the Agent in its sole discretion, to properly
document any Loans or other obligations hereunder.
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2.6 Further Conditions for Disbursement. The obligation of the Banks
to make any Advance (including the first Advance), or any continuation or
conversion under Section 2.7, is further subject to the satisfaction of the
following conditions precedent:
(a) The representations and warranties contained in Article IV
hereof shall be true and correct on and as of the date such Advance is made or
the date of such continuation or conversion (both before and after such Advance
is made or such continuation or conversion is done) as if such representations
and warranties were made on and as of such date;
(b) No Default or Event of Default shall exist or shall have
occurred and be continuing on the date such Advance is made or the date of such
continuation or conversion (whether before or after such Advance is made or such
continuation or conversion is done);
(c) In the case of the Term Loan, the Company shall have delivered
to each Bank a Term Note in the principal amount of such Bank's Pro Rata Share
of the Term Loan, appropriately completed and duly executed on behalf of the
Company;
(d) The Agent shall have received the most recent Borrowing Base
Certificate required pursuant to Section 5.1(d)(iv); and
(e) In the case of any Letter of Credit Advance, the Company shall
have delivered to the Agent an application for the related Letter of Credit and
other related documentation requested by and acceptable to the Agent
appropriately completed and duly executed on behalf of the Company.
The Company shall be deemed to have made a representation and warranty to the
Banks at the time of the making of, and the continuation or conversion of, each
Advance to the effects set forth in clauses (a) and (b) of this Section 2.6. For
purposes of this Section 2.6, the representations and warranties contained in
Section 4.6 hereof shall be deemed made with respect to both the financial
statements referred to therein and the most recent financial statements
delivered pursuant to Section 5.1.
2.7 Subsequent Elections as to Loans. Notwithstanding any provision
of this Agreement to the contrary, the Company may elect to continue or convert
any Negotiated Rate Loan only with the prior consent of each Bank. Subject to
the foregoing, the Company may elect (a) to continue a Fixed Rate Loan of one
type, or a portion thereof, as a Fixed Rate Loan of the then existing type or
(b) to convert a Fixed Rate Loan of one type, or a portion thereof, to a Loan of
another type or (c) to convert a Floating Rate Loan, or a portion thereof, to a
Fixed Rate Loan, in each case by giving notice thereof to the Agent (with
sufficient executed copies for each Bank) in substantially the form of Exhibit D
hereto not later than (i) 10:00 a.m. Indianapolis time three Business Days prior
to the date any such continuation of or conversion to a Eurodollar Rate Loan is
to be effective, (ii) 10:00 a.m. Indianapolis time one Business Day prior to the
date any such continuation of or conversion to a Negotiated Rate Loan is to be
effective and (iii) 2:00 p.m. Indianapolis time on the date any such
continuation or conversion is to be effective in all other cases; provided that
an outstanding Fixed Rate Loan may only be converted on the last day of the then
current Interest Period with respect to such Loan, and provided, further, if a
continuation of
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a Loan as, or a conversion of a Loan to, a Eurodollar Rate Loan is requested,
such notice shall also specify the Interest Period to be applicable thereto upon
such continuation or conversion. The Agent shall promptly provide notice of such
election to the Banks. If the Company shall not timely deliver such a notice
with respect to any outstanding Fixed Rate Loan, the Company shall be deemed to
have elected to convert such Fixed Rate Loan to a Floating Rate Loan on the last
day of the then current Interest Period with respect to such Loan.
2.8 Limitation of Requests and Elections. (a) Notwithstanding any
other provision of this Agreement to the contrary, if, upon receiving a request
for a Fixed Rate Loan pursuant to Section 2.4, or a request for a continuation
of a Fixed Rate Loan as a Fixed Rate Loan of the then existing type, or a
request for conversion of a Fixed Rate Loan of one type to a Fixed Rate Loan of
another type, or a request for a conversion of a Floating Rate Loan to a Fixed
Rate Loan pursuant to Section 2.7, (i) in the case of any Eurodollar Rate Loan,
deposits in Dollars for periods comparable to the Interest Period elected by the
Company are not available to any Bank in the relevant interbank market, or (ii)
the Eurodollar Rate will not adequately and fairly reflect the cost to any Bank
of making, funding or maintaining the related Eurodollar Rate Loan, or (iii) by
reason of national or international financial, political or economic conditions
or by reason of any applicable law, treaty, rule or regulation (whether domestic
or foreign) now or hereafter in effect, or the interpretation or administration
thereof by any governmental authority charged with the interpretation or
administration thereof, or compliance by any Bank with any guideline, request or
directive of such authority (whether or not having the force of law), including
without limitation exchange controls, it is impracticable, unlawful or
impossible for any Bank (A) to make or fund the relevant Fixed Rate Loan or (B)
to continue such Fixed Rate Loan as a Fixed Rate Loan of the then existing type
or (C) to convert a Loan to such a Fixed Rate Loan, then the Company shall not
be entitled, so long as such circumstances continue, to request a Fixed Rate
Loan of the affected type pursuant to Section 2.4 or a continuation of or
conversion to a Fixed Rate Loan of the affected type pursuant to Section 2.7. In
the event that such circumstances no longer exist, the Banks shall again
consider requests or Fixed Rate Loans of the affected type pursuant to Section
2.4, and requests for continuations of and conversions to Fixed Rate Loans of
the affected type pursuant to Section 2.7.
(b) Notwithstanding any other provision of this Agreement to the
contrary and in order to give effect to the provisions of Section 3.1(b), the
Company shall make requests for Fixed Rate Loans pursuant to Section 2.4, and
requests for continuations of and conversions to Fixed Rate Loans pursuant to
Section 2.7, such that, on each date that any scheduled principal payment is due
with respect to the Term Loan pursuant to Section 3.1(a), either Floating Rate
Loans, or Fixed Rate Loans having an Interest Period ending on such date, or any
combination thereof, are outstanding on such date in an aggregate outstanding
principal amount not less than the amount of such principal payment.
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<PAGE> 24
2.9 Minimum Amounts; Limitations on Advances. Except for conversions
or payments required pursuant to Section 3.1(c) or 3.7, each Fixed Rate Loan and
each continuation of or conversion to a Fixed Rate Loan pursuant to Section 2.7
and each prepayment thereof shall be in a minimum amount of $1,000,000 and in an
integral multiple of $100,000 (or, in the case of the Term Loan, in integral
multiples of the quarterly installments of, principal thereon). Each Letter of
Credit Advance shall be in a minimum amount of $100,000. No Letter of Credit
shall have a stated expiry date earlier than 90 days after the date of issuance
or later than the fifth Business Day before the Termination Date.
Notwithstanding anything in this Agreement to contrary, the Company shall not be
permitted to request that any Letter of Credit Advance be denominated in a
currency other than Dollars.
ARTICLE III.
PAYMENTS AND PREPAYMENTS OF ADVANCES
3.1 Principal Payments.
(a) Unless earlier payment is required under this Agreement (i) the
Company shall pay to the Banks on the Termination Date the entire outstanding
principal amount of all Revolving Credit Loans, and (ii) the Company shall pay
to the Banks the outstanding principal amount of the Term Loan in eight (8)
equal quarterly installments, each in the amount of one eighth (1/8) of the
original principal amount of the Term Loan, payable on the last day of each
March, June, September and December, commencing on the first such day occurring
after the date the Term Loan is made, to and including the Maturity Date, when
the entire outstanding principal amount of the Term Loan shall be due and
payable.
(b) The Company may at any time and from time to time prepay all or
a portion of the Loans, without premium or penalty in the case of the Revolving
Credit Loans, provided that (i) the Company may not prepay any portion of any
Loan as to which an election for a continuation of or a conversion to a Fixed
Rate Loan is pending pursuant to Section 2.7, (ii) unless earlier payment is
required under this Agreement, any Fixed Rate Loan may only be prepaid on the
last day of the then current Interest Period with respect to such Loan, and
(iii) such prepayment of the Term Loan shall only be permitted if the Company
shall have given not less than two Business Days' notice thereof specifying the
Term Loan or portion thereof to be so prepaid and shall have paid to the Banks,
together with such prepayment of principal, all accrued interest to the date of
payment on the Term Loan or portion thereof so prepaid and all amounts owing, to
the Banks under Section 3.8 in connection with such prepayment. Upon the giving
of such notice, the aggregate principal amount of the Term Loan or portion
thereof so specified in such notice, together with such accrued interest and
other amounts, shall become due and payable on the specified prepayment date.
(c) If at any time the aggregate outstanding principal amount of the
Advances shall exceed the then Borrowing Base, the Company shall forthwith pay
to the Banks the amount of such excess for application to the outstanding
principal amount of the Loans, as selected by
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<PAGE> 25
the Banks in their sole discretion (if practicable, to Loans that are Floating
Rate Loans or Fixed Rate Loans whose Interest Periods are then ending), or
provide to the Banks cash collateral in respect of outstanding Letters of Credit
in an amount, such that the aggregate amount of such payments and such cash
collateral is not less than the amount of such excess.
(d) All prepayments of the Term Loan, whether optional or mandatory,
shall be applied to installments of principal of the Term Loan in the inverse
order of their maturities and no partial prepayment of the Term Loan shall
reduce the amount or defer the date of the scheduled installments of principal
required to be paid thereon.
3.2 Interest Payments. The Company shall pay interest to the Banks
on the unpaid principal amount of each Loan, for the period commencing on the
date such Loan is made until such Loan is paid in full, on each Interest Payment
Date and at maturity (whether at stated maturity, by acceleration or otherwise),
and thereafter on demand, at the following rates per annum:
(a) During such periods that such Loan is a Floating Rate Loan, the
Floating Rate.
(b) During such periods that such Loan is a Eurodollar Rate Loan,
the Eurodollar Rate applicable to such Loan for each related Eurodollar Interest
Period.
(c) During such periods that such Loan is a Negotiated Rate Loan,
the Negotiated Rate applicable to such Loan for each related Negotiated Interest
Period.
Notwithstanding the foregoing paragraphs (a) through (c), the Company shall pay
interest on demand by the Agent at the Overdue Rate on the outstanding principal
amount of any Loan and any other amount payable by the Company hereunder (other
than interest) which is not paid in full when due (whether at stated maturity,
by acceleration or otherwise) for the period commencing on the due date thereof
until the same is paid in full,
3.3 Payment Method. (a) All payments to be made by the Company
hereunder will be made in Dollars and in immediately available funds to the
Agent for the account of the Banks at its address set forth on the signature
pages hereof not later than 1:00 p.m. Indianapolis time on the date on which
such payment shall become due. Payments received after 1:00 p.m. Indianapolis
time shall be deemed to be payments made prior to 1:00 p.m. Indianapolis time on
the next succeeding Business Day. The Company hereby authorizes the Agent to
charge its account with the Agent in order to cause timely payment of amounts
due hereunder to be made (subject to sufficient funds being available in such
account for that purpose).
(b) At the time of making each such payment, the Company shall,
subject to the other terms and conditions of this Agreement, specify to the
Agent that Advance or other obligation of the Company hereunder to which such
payment is to be applied. In the event that the Company fails to so specify the
relevant obligation or if an Event of Default shall have occurred and be
continuing, the Agent may apply such payments as it may determine in its sole
discretion to obligations of the Company to the Banks arising under this
Agreement or otherwise.
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<PAGE> 26
(c) On the date such payments are deemed received, the Agent shall
remit to the Banks their Pro Rata Shares of such payments in immediately
available funds at their respective address in the United States specified for
notices on the signature pages hereof.
3.4 No Setoff or Deduction. All payments of principal of and
interest on the Advances and other amounts payable by the Company hereunder
shall be made by the Company without setoff or counterclaim, and free and clear
of, and without deduction or withholding for, or on account of, any present or
future taxes, levies, imposts, duties, fees, assessments, or other charges of
whatever nature, imposed by any governmental authority, or by any department,
agency or other political subdivision or taxing authority.
3.5 Payment on Non-Business Day: Payment Computations. Except as
otherwise provided in this Agreement to the contrary, whenever any installment
of principal of, or interest on, any Advance or any other amount due hereunder
becomes due and payable on a day which is not a Business Day, the maturity
thereof shall be extended to the next succeeding Business Day and, in the case
of any installment of principal, interest shall be payable thereon at the rate
per annum determined in accordance with this Agreement during such extension.
Computations of interest and other amounts due under this Agreement, including
without limitation the commitment fee under Section 2.3, shall be made on the
basis of a year of 360 days for the actual number of days elapsed, including the
first day but excluding the last day of the relevant period.
3.6 Additional Costs. In the event that any applicable law, treaty,
rule or regulation (whether domestic or foreign) now or hereafter in effect and
whether or not presently applicable to any Bank or the Agent, or any
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof, or compliance by any Bank or
the Agent with any guideline, request or directive of any such authority
(whether or not having the force of law), including any risk based capital
guidelines, (a) affects or would affect the amount of capital required or
expected to be maintained by such Bank or the Agent (or any corporation
controlling such Bank or the Agent) and such Bank or the Agent determines that
the amount of such capital is increased by or based upon the existence of such
Bank's or the Agent's obligations hereunder and such increase has the effect of
reducing the rate of return on such Bank's or the Agent's (or such controlling
corporation's) capital as a consequence of such obligations hereunder to a level
below that which such Bank or the Agent (or such controlling corporation) could
have achieved but for such circumstances (taking into consideration its policies
with respect to capital adequacy) by an amount deemed by such Bank or the Agent
to be material, or (b) shall affect the basis of taxation of payments to such
Bank or the Agent of any amounts payable by the Company under this Agreement
(other than taxes imposed on the overall net income of such Bank or the Agent,
by the jurisdiction, or by such political subdivision or taxing authority of any
such jurisdiction, in which such Bank or the Agent has its principal office), or
(c) shall impose, modify or deem applicable any reserve, special deposit or
similar requirement against assets of, deposits with or for the account of, or
credit extended by such Bank or the Agent, or (d) shall impose any other
condition with respect to this Agreement, the Commitments, the Notes or the
Advances and, with respect to any of the foregoing clauses (b), (c) and (d), the
result is to increase the cost to such Bank or the Agent, as the case may be, of
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making, funding or maintaining any Fixed Rate Loan or Letter or Credit Advance
or to reduce the amount of any sum receivable by such Bank or the Agent, as the
case may be, thereon, then the Company shall pay to such Bank or the Agent, as
the case may be, from time to time, upon request by such Bank (with a copy of
such request to be provided to the Agent) or the Agent, additional amounts
sufficient to compensate such Bank or the Agent, as the case may be, (or such
controlling corporation) for any increase in the amount of capital and reduced
rate of return which such Bank or the Agent reasonably determines to be
allocable to the existence of such Bank's or the Agent's obligations hereunder
or for such increased cost or reduced sum receivable to the extent, in the case
of any Fixed Rate Loan, such Bank or the Agent is not compensated therefor in
the computation of the interest rate applicable to such Fixed Rate Loan. A
statement as to the amount of such compensation or increased cost or reduced sum
receivable, as the case may be, prepared in good faith and in reasonable detail
by such Bank or the Agent, as the case may be, and submitted by such Bank or the
Agent, as the case may be, to the Company, shall be, conclusive and binding for
all purposes absent manifest error in computation.
3.7 Illegality and Impossibility. In the event that any applicable
law, treaty, rule or regulation (whether domestic or foreign) now or hereafter
in effect and whether or not presently applicable to any Bank, or any
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof, or compliance by any Bank
with any guideline, request or directive of such authority (whether or not
having the force of law), including without limitation exchange controls, shall
make it unlawful or impossible for any Bank to maintain any Fixed Rate Loan
under this Agreement, the Company shall upon receipt of notice thereof from such
Bank, repay in full the then outstanding principal amount of each Fixed Rate
Loan so affected, together with all accrued interest thereon to the date of
payment and all amounts owing to such Bank under Section 3.8, (a) on the last
day of the then current Interest Period applicable to such Loan if such Bank may
lawfully continue to maintain such Loan to such day, or (b) immediately if such
Bank may not continue to maintain such Loan to such day.
3.8 Indemnification. If the Company makes any payment of principal
with respect to any Fixed Rate Loan on any other date than the last day of an
Interest Period applicable thereto (whether pursuant to Section 3.1(b), Section
3.1(c), Section 3.7, Section 6.2 or otherwise), or if the Company fails to
borrow any Fixed Rate Loan after notice has been given to the Banks in
accordance with Section 2.4, or if the Company fails to make any payment of
principal or interest in respect of a Fixed Rate Loan when due, the Company
shall reimburse each Bank on demand for any resulting loss or expense incurred
by each such Bank, including without limitation any loss incurred in obtaining,
liquidating or employing deposits from third parties, whether or not such Bank
shall have funded or committed to fund such Loan. A statement as to the amount
of such loss or expense, prepared in good faith and in reasonable detail by such
Bank and submitted by such Bank to the Company, shall be conclusive and binding
for all purposes absent manifest error in computation. Calculation of all
amounts payable to such Bank under this Section 3.8 shall be made as though such
Bank shall have actually funded or committed to fund the relevant Fixed Rate
Loan through the purchase of an underlying deposit in an amount equal to the
amount of such Loan and having a maturity comparable to the related Interest
Period and, in the case of any Eurodollar Rate Loan, through the transfer of
such deposit from an off shore office of such Bank to a domestic office of such
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Bank in the United States of America; provided, however, that such Bank may fund
any Fixed Rate Loan in any manner it sees fit and the foregoing assumption shall
be utilized only for the purpose of calculation of amounts payable under this
Section 3.8.
3.9 Letter of Credit Reimbursement Payments. (a) (i) The Company
agrees to pay to the Banks, on the day on which the Agent shall honor a draft or
other demand for payment presented or made under any Letter of Credit, an amount
equal to the amount paid by the Agent in respect of such draft or other demand
under such Letter of Credit and all expenses paid or incurred by the Agent
relative thereto. Unless the Company shall have made such payment to the Banks
on such day, upon each such payment by the Agent, the Agent shall be deemed to
have disbursed to the Company, and the Company shall be deemed to have elected
to satisfy its reimbursement obligation by, a borrowing of Revolving Credit
Loans bearing interest at the Floating Rate for the account of the Banks in an
amount equal to the amount so paid by the Agent in respect of such draft or
other demand under such Letter of Credit. Such Revolving Credits Loans shall be
disbursed notwithstanding any failure to satisfy any conditions for disbursement
of any Loan set forth in Article II hereof and, to the extent of the Revolving
Credit Loans so disbursed, the reimbursement obligation of the Company under
this Section 3.9 shall be deemed satisfied; provided, however, that nothing in
this Section 3.9 shall be deemed to constitute a waiver of any Default or Event
of Default caused by the failure to satisfy the conditions for disbursement or
otherwise.
(ii) If, for any reason (including without limitation as a
result of the occurrence of an Event of Default with respect to the Company
pursuant to Section 6.1(h)), Floating Rate Loans may not be made by the Banks as
described in Section 3.9(a)(i), then (A) the Company agrees that each
reimbursement amount not paid pursuant to the first sentence of Section
3.9(a)(i) shall bear interest, payable on demand by the Agent, at the interest
rate then applicable to Floating Rate Loans, and (B) effective on the date each
such Floating Rate Loan would otherwise have been made, each Bank severally
agrees that it shall unconditionally and irrevocably, without regard to the
occurrence of any Default or Event of Default, in lieu of deemed disbursement of
loans, to the extent of such Bank's Revolving Credit Commitment, purchase a
participating interest in each reimbursement amount. Each Bank will immediately
transfer to the Agent, in same day funds, the amount of its participation. Each
Bank shall share on a pro rata basis (calculated by reference to its Revolving
Credit Commitment) in any interest which accrues thereon and in all repayments
thereof. If and to the extent that any Bank shall not have so made the amount of
such participating interest available to the Agent, such Bank and the Company
severally agree to pay to the Agent forthwith on demand such amount together
with interest thereon, for each day from the date of demand by the Agent until
the date such amount is paid to the Agent, at (1) in the case of the Company,
the interest rate then applicable to Floating Rate Loans and (2) in the case of
such Bank, the Federal Funds Rate.
(b) The reimbursement obligation of the Company under this Section
3.9 shall be absolute, unconditional and irrevocable and shall remain in full
force and effect until all obligations of the Company to the Banks hereunder
shall have been satisfied, and such obligations of the Company shall not be
affected, modified or impaired upon the happening of any event, including,
without limitation, any of the following, whether or not with notice to, or the
consent of, the Company:
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(i) Any lack of validity or enforceability of any Letter of
Credit or any documentation relating to any Letter of Credit or to any
transaction related in any way to such Letter of Credit (the "Letter of Credit
Documents");
(ii) Any amendment, modification, waiver, consent, or any
substitution, exchange or release of or failure to perfect any interest in
collateral or security, with respect to any of the Letter of Credit Documents;
(iii) The existence of any claim, setoff, defense or other
right which the Company may have at any time against any beneficiary or any
transferee of any Letter of Credit (or any persons or entities for whom any such
beneficiary or any such transferee may be acting), the Agent or any Bank or any
other person or entity, whether in connection with any of the Letter of Credit
Documents, the transactions contemplated herein or therein or any unrelated
transactions;
(iv) Any draft or other statement or document presented under
any Letter of Credit proving to be forged, fraudulent, invalid or insufficient
in any respect or any statement therein being untrue or inaccurate in any
respect;
(v) Payment by the Agent to the beneficiary under any Letter
of Credit against presentation of documents which do not comply with the terms
of the Letter of Credit, including failure of any documents to bear any
reference or adequate reference to such Letter of Credit;
(vi) Any failure, omission, delay or lack on the part of the
Agent or any Bank or any party to any of the Letter of Credit Documents to
enforce, assert or exercise any right, power or remedy conferred upon the Agent,
any Bank or any such party under this Agreement or any of the Letter of Credit
Documents, or any other acts or omissions on the part of the Agent, any Bank or
any such party;
(vii) Any other event or circumstance that would, in the
absence of this clause, result in the release or discharge by operation of law
or otherwise of the Company from the performance or observance of any
obligation, covenant or agreement contained in this Section 3.9.
No setoff, counterclaim, reduction or diminution of any obligation or any
defense of any kind or nature which the Company has or may have against the
beneficiary of any Letter of Credit shall be available hereunder to the Company
against the Agent or any Bank. Nothing in this Section 3.9 shall limit the
liability, if any, of the Banks to the Company pursuant to Section 8.5.
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Banks and the Agent that:
4.1 Corporate Existence and Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio and is duly qualified to do business, and is in good standing, in all
additional jurisdictions where such qualification is necessary under applicable
law, except those jurisdictions in which the failure to qualify would not have a
material adverse effect on its business. The Company has all requisite corporate
power to own or lease the properties used in its business and to carry on its
business as now being conducted and as proposed to be conducted, and to execute
and deliver this Agreement and the Notes and to engage in the transactions
contemplated by this Agreement.
4.2 Corporate Authority. The execution, delivery and performance by
the Company of this Agreement and the Notes have been duly authorized by all
necessary corporate action and are not in contravention of any law, rule or
regulation, or any judgment, decree, writ, injunction, order or award of any
arbitrator, court or governmental authority, or of the terms of the Company's
charter or code of regulations, or of any contract or undertaking to which the
Company is a party or by which the Company or its property may be bound or
affected and will not result in the imposition of any Lien except for Permitted
Liens.
4.3 Binding Effect. This Agreement is, and the Notes when delivered
hereunder will be, legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting creditors' rights
generally and by general principles of equity.
4.4 Subsidiaries. Schedule 4.4 hereto correctly sets forth the
corporate name, jurisdiction of incorporation and ownership of each Subsidiary
of the Company. Each such Subsidiary and each corporation becoming a Subsidiary
of the Company after the date hereof is and will be a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and is and will be duly qualified to do business
in each additional jurisdiction where such qualification is or may be necessary
under applicable law, except those jurisdictions in which the failure to qualify
would not have a material adverse effect on its business. Each Subsidiary of the
Company has and will have all requisite corporate power to own or lease the
properties used in its business and to carry on its business as now being
conducted and as proposed to be conducted. All outstanding shares of capital
stock of each class of each Subsidiary of the Company have been and will be
validly issued and are and will be fully paid and nonassessable and, except as
otherwise indicated in Schedule 4.4 hereto or disclosed in writing to the Agent
and the Banks from time to time, are and will be owned, beneficially and of
record, by the Company or another Subsidiary of the Company free and clear of
any Liens. The corporations described in Schedule 4.4 hereto constitute all
persons in which the Company or any of its Subsidiaries has an ownership
interest.
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4.5 Litigation. Except as set forth in Schedule 4.5 hereto, there is
no action, suit or proceeding pending or, to the best of the Company's
knowledge, threatened against or affecting the Company or any of its
Subsidiaries before or by any court, governmental authority or arbitrator, which
if adversely decided might result in any material adverse change in the
business, properties, operations or condition, financial or otherwise, of the
Company or of, in the aggregate, any of its Subsidiaries or in any material
adverse effect on the legality, validity or enforceability of this Agreement or
the Notes.
4.6 Financial Condition. The consolidated balance sheet of the
Company and its Subsidiaries and the consolidated statements of income, retained
earnings and cash flows of the Company and its Subsidiaries for the fiscal year
ended December 31, 1997 and reported on by Coopers & Lybrand, independent
certified public accountants, copies of which have been furnished to the Banks,
fairly present, and the financial statements of the Company and its Subsidiaries
delivered pursuant to Section 5.1(d) will fairly present, the consolidated
financial position of the Company and its Subsidiaries as at the respective
dates thereof, and the consolidated results of operations of the Company and its
Subsidiaries for the respective periods indicated, all in accordance with
generally accepted accounting principles consistently applied (subject, in the
case of said interim statements, to year-end audit adjustments). There has been
no material adverse change in the business, properties, operations or condition,
financial or otherwise, of the Company or any of its Subsidiaries since December
31, 1997. There is no material Contingent Liability of the Company that is not
reflected in such financial statements or in the notes thereto.
4.7 Use of Advances. The Company will use the proceeds of the
Advances for its general corporate purposes. Neither the Company nor any of its
Subsidiaries extends or maintains, in the ordinary course of business, credit
for the purpose, whether immediate, incidental, or ultimate, of buying or
carrying margin stock (within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System), and no part of the proceeds of any
Advance will be used for the purpose, whether immediate, incidental, or
ultimate, of buying or carrying any such margin stock or maintaining or
extending credit to others for such purpose. After applying the proceeds of each
Advance, such margin stock will not constitute more than 25% of the value of the
assets (either of the Company alone or of the Company and its Subsidiaries on a
consolidated basis) that are subject to any provisions of this Agreement that
may cause the Advances to be deemed secured, directly or indirectly, by margin
stock.
4.8 Consents, Etc. No consent, approval or authorization of or
declaration, registration or filing with any governmental authority or any
nongovernmental person or entity, including without limitation any creditor,
lessor or stockholder of the Company or any of its Subsidiaries, is required on
the part of the Company in connection with the execution, delivery and
performance of this Agreement, the Notes or the transactions contemplated hereby
or as a condition to the legality, validity or enforceability of this Agreement
or the Notes.
4.9 Taxes. The Company and its Subsidiaries have filed all tax
returns (federal, state and local) required to be filed and have paid all taxes
shown thereon to be due, including interest and penalties, or have established
adequate financial reserves on their respective books and records for payment
thereof, Neither the Company nor any of its
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Subsidiaries knows of any actual or proposed tax assessment or any basis
therefor, and no extension of time for the assessment of deficiencies in any
federal or state tax has been granted by the Company or any Subsidiary.
4.10 Title to Properties. Except as otherwise disclosed in the
latest balance sheet delivered pursuant to Section 4.6 or 5.1(d) of this
Agreement, the Company or one or more of its Subsidiaries have good and
marketable fee simple title to all of the real property, and a valid and
indefeasible ownership interest in all of the other properties and assets,
reflected in said balance sheet or subsequently acquired by the Company or any
Subsidiary. All of such properties and assets are free and clear of any Lien,
except for Permitted Liens.
4.11 ERISA. The Company, its Subsidiaries, their ERISA Affiliates
and their respective Plans are in compliance in all material respects with those
provisions of ERISA and of the Code which are applicable with respect to any
Plan. No Prohibited Transaction and no Reportable Event has occurred with
respect to any such Plan. None of the Company, any of its Subsidiaries or any of
their ERISA Affiliates is an employer with respect to any Multiemployer Plan.
The Company, its Subsidiaries and their ERISA Affiliates have met the minimum
funding requirements under ERISA and the Code with respect to each of their
respective Plans, if any, and have not incurred any liability to the PBGC or any
Plan. The execution, delivery and performance of this Agreement and the Notes
does not constitute a Prohibited Transaction. There is no material unfunded
benefit liability, determined in accordance with Section 4001(a)(18) of ERISA,
with respect to any Plan of the Company, its subsidiaries or their ERISA
Affiliates.
4.12 Disclosure. No report or other information furnished in writing
or on behalf of the Company to the Bank in connection with the negotiation or
administration of this Agreement contains any material misstatement of fact or
omits to state any material fact or any fact necessary to make the statements
contained therein not misleading. Neither this Agreement or the Notes, nor any
other document, certificate, or report or statement or other information
furnished to the Bank by or on behalf of the Company in connection with the
transactions contemplated hereby contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein and therein not misleading. There is no fact known to the
Company which materially and adversely affects, or which in the future may (so
far as the Company can now foresee) materially and adversely affect, the
business, properties, operations or condition, financial or otherwise, of the
Company or any Subsidiary, which has not been set forth in this Agreement or in
the other documents, certificates, statements, reports and other information
furnished in writing to the Bank by or on behalf of the Company in connection
with the transactions contemplated hereby.
4.13 Environmental Certificate. The representations and warranties
contained in the Environmental Certificate are true and correct.
4.14 Borrowing Base. All trade accounts receivable and inventory of
the Company represented or reported by the Company to be, or are otherwise
included in, Eligible Accounts Receivable and Eligible Inventory comply in all
respects with the requirements therefor set forth in the definition thereof, and
the computation of the Borrowing Base set forth in each
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Borrowing Base Certificate is true and correct.
ARTICLE V.
COVENANTS
5.1 Affirmative Covenants. The Company covenants and agrees that,
until the Termination Date and thereafter until payment in full of the principal
of and accrued interest on the Notes and the performance of all other
obligations, of the Company under this Agreement, unless the Required Banks
shall otherwise consent in writing, it shall, and shall cause each of its
Subsidiaries to:
(a) Preservation of Corporate Existence, Etc. Do or cause to be done
all things necessary to preserve, renew and keep in full force and effect its
legal existence and its qualification as a foreign corporation in good standing
in each jurisdiction in which such qualification is necessary under applicable
law, except those jurisdictions in which the failure to qualify would not have a
material adverse effect on its business, and the rights, licenses, permits
(including those required under Environmental Laws), franchises, patents,
copyrights, trademarks and trade names material to the conduct of its
businesses; and defend all of the foregoing against all claims, actions,
demands, suits or proceedings at law or in equity or by or before any
governmental instrumentality or other agency or regulatory authority.
(b) Compliance with Laws, Etc. Comply in all material respects with
all applicable laws, rules, regulations and orders of any governmental
authority, whether federal, state, local or foreign (including without
limitation ERISA, the Code and Environmental Laws), in effect from time to time;
and pay and discharge promptly when due all taxes, assessments and governmental
charges or levies imposed upon it or upon its income, revenues or property,
before the same shall become delinquent or in default, as well as all lawful
claims for labor, materials and supplies or otherwise, which, if unpaid, might
give rise to Liens upon such properties or any portion thereof, except to the
extent that payment of any of the foregoing is then being contested in good
faith by appropriate legal proceedings and with respect to which adequate
financial reserves have been established on the books and records of the Company
or such Subsidiary.
(c) Maintenance of Properties; Insurance. Maintain, preserve and
protect all property that is material to the conduct of the business of the
Company or any of its Subsidiaries and keep such property in working order and
from time to time make, or cause to be made all needful and proper repairs,
renewals, additions, improvements and replacements thereto necessary in order
that the business carried on in connection therewith may be properly conducted
at all times in accordance with customary and prudent business practices for
similar businesses; and maintain in full force and effect insurance with
responsible and reputable insurance companies or associations in such amounts,
on such terms and covering such risks, including fire and other risks insured
against by extended coverage, as is usually carried by companies engaged in
similar businesses and owning similar properties similarly situated and maintain
in full force and effect public liability insurance, insurance against claims
for personal injury or death or property damage occurring in connection with any
of its activities or any of any properties owned, occupied or controlled by it,
in such amount as it shall reasonably deem
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necessary, and maintain such other insurance as may be required by law or as may
be reasonably requested by the Required Banks for purposes of assuring
compliance with this Section 5.1(c).
(d) Reporting Requirements. Furnish to the Banks and the Agent the
following:
(i) Promptly and in any event within three Business Days after
becoming aware of the occurrence of (A) any Event of Default or any event or
condition which, with notice or lapse of time, or both, would constitute an
Event of Default, (B) the commencement of any material litigation against, by or
affecting the Company or any of its Subsidiaries, and any material developments
therein, (C) entering into any material contract or undertaking that is not
entered into in the ordinary course of business or (D) any development in the
business or affairs of the Company or any of its Subsidiaries which has resulted
in or which is likely in the reasonable judgment of the Company, to result in a
material adverse change in the business, properties, operations or condition,
financial or otherwise of the Company or any of its Subsidiaries, a statement of
the chief financial officer of the Company setting forth details of such Event
of Default or such event or condition or such litigation and the action which
the Company or such Subsidiary, as the case may be, has taken and proposes to
take with respect thereto;
(ii) As soon as available and in any event within 60 days
after the end of each fiscal quarter of the Company, the consolidated balance
sheet of the Company and its Subsidiaries as of the end of such quarter, and the
related period commencing at the end of the previous fiscal year and ending with
the end of such quarter, setting forth in each case in comparative form the
corresponding figures for the corresponding date or period of the preceding
fiscal year, all in reasonable detail and duly certified (subject to year-end
audit adjustments) by the chief financial officer of the Company as having been
prepared in accordance with generally accepted accounting principles, together
with a certificate of the chief financial officer of the Company stating (A)
that no Event of Default or event or condition which, with notice or lapse of
time, or both, would constitute an Event of Default, has occurred and is
continuing or, if an Event of Default or such an event or condition has occurred
and is continuing, a statement setting forth the details thereof and the action
which the Company has taken and proposes to take with respect thereto, and (B)
that a computation (which computation shall accompany such certificate and shall
be in reasonable detail) showing compliance with Section 5.2(a), (b), (c) and
(q) hereof is in conformity with the terms of this Agreement;
(iii) As soon as available and in any event within 120 days
after the end of each fiscal year of the Company, a copy of the consolidated and
consolidating balance sheet of the Company and its Subsidiaries as of the end of
such fiscal year and the related consolidated and consolidating statements of
income, retained earnings and cash flows of the Company and its Subsidiaries for
such fiscal year, with a customary audit report of Coopers & Lybrand or other
independent certified public accountants selected by the Company and acceptable
to the Required Banks (which acceptance will not unreasonably be withheld),
without qualifications unacceptable to the Required Banks, together with a
certificate of such accountants stating (A) that they have reviewed this
Agreement and stating further whether, in the course of their review of such
financial statements, they have become aware of any Event of Default or any
event or condition
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which, with notice or lapse of time, or both, would constitute an Event of
Default, and, if such an Event of Default or such an event or condition then
exists and is continuing, a statement setting forth the nature and status
thereof, and (B) that a computation by the Company (which computation shall
accompany such certificate and shall be in reasonable detail) showing compliance
with Section 5.2 (a), (b), (c) and (q) hereof is in conformity with the terms of
this Agreement;
(iv) No later than the 30th calendar day following the end of
each month, a Borrowing Base Certificate prepared as of the close of business on
the last day of such month, together with supporting schedules, in form and
detail satisfactory to the Agent, setting forth such information as the Agent
may request with respect to the aging, value, location and other information
relating to the computation of the Borrowing Base and the eligibility of any
property or assets included in such computation, certified as true and correct
by the chief financial officer of the Company;
(v) Promptly after the sending or filing thereof, copies of
all reports, proxy statements and financial statements which the Company or any
of its Subsidiaries sends to or files with any of their respective security
holders or any securities exchange or the Securities and Exchange Commission or
any successor agency thereof;
(vi) On the same day, telephonic notice, followed immediately
by written confirmation, of all borrowings from time to time by the Company from
The Fifth Third Bank and all repayments thereof from time to time;
(vii) As soon as available and in any event within 30 days
after the end of each month (other than those months which correspond to fiscal
quarter ends of the Company, which are covered by subpart (ii) above), the
consolidated balance sheet of the Company and its Subsidiaries as of the end of
such month, and the related consolidated statements of income, retained earnings
and cash flow of the Company and its Subsidiaries for the period commencing at
the end of the previous fiscal year and ending with the end of such month,
setting forth in each case in comparative form the corresponding figures for the
corresponding date or period of the preceding fiscal year, all in reasonable
detail; and
(viii) Promptly, such other information respecting the
business, properties, operations or condition, financial or otherwise, of the
Company or any of its Subsidiaries as the Agent or any Bank may from time to
time reasonably request.
(e) Accounting; Access to Records; Books, Etc. Maintain a system of
accounting established and administered in accordance with sound business
practices to permit preparation of financial statements in accordance with
generally accepted accounting principles and to comply with the requirements of
this Agreement and, at any reasonable time and from time to time, (i) permit any
Bank or the Agent or any agents or representatives thereof to examine and make
copies of and abstracts from the records and books of account of, and visit the
properties of, the Company and its Subsidiaries, and to discuss the affairs,
finances and accounts of the Company and its Subsidiaries with their respective
directors, officers, employees and independent auditors, and by this provision
the Company does hereby authorize such persons to
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discuss such affairs, finances and accounts with any Bank or the Agent, and (ii)
permit any Bank or the Agent or any of its agents or representatives to conduct
a comprehensive field audit of its books, records, properties and assets.
(f) Taxes. Pay in full, except to the extent being contested in good
faith by appropriate proceedings and as to which adequate financial reserves
have been established on the Company's or such Subsidiary's, as the case may be,
books and records, (i) in each case prior to the date when penalties for the
nonpayment thereof would attach, all taxes, assessments and governmental charges
and levies for which it may be or become subject and all lawful claims which, if
unpaid, might become a lien or charge upon its property, and (ii) all stamp
taxes and similar taxes, if any, including interest and penalties, if any,
payable in respect of any Loans or the Notes. The efficacy of this subsection
5.1(f) shall survive the payment in full of the Notes.
5.2 Negative Covenants. Until the Termination Date and thereafter
until payment in full of the principal of and accrued interest on the Notes and
the performance of all other obligations of the Company under this Agreement,
the Company agrees that, unless the Required Banks shall otherwise consent in
writing it shall not, and shall not permit any of its Subsidiaries to:
(a) Current Ratio. Permit or suffer the ratio of Consolidated
Current Assets of the Company and its Subsidiaries to Consolidated Current
Liabilities of the Company and its Subsidiaries to be less than 1.25 to 1.00 at
any time.
(b) Tangible Net Worth. Permit or suffer (i) Consolidated Tangible
Net Worth of the Company and its Subsidiaries to be less than (ii) the sum of
(A) $40,000,000 plus (B) 50% of Consolidated Cumulative Net Income of the
Company and its Subsidiaries after December 31, 1997 plus (C) for each fiscal
year end of the Company, the amount, if any, by which $500,000 exceeds the
aggregate amount added pursuant to the foregoing clause (B) attributable to each
such fiscal year; such covenant to be tested as of the end of each fiscal
quarter of the Company.
(c) Total Liabilities to Tangible Net Worth. Permit or suffer the
ratio of Consolidated Total Liabilities of the Company and its Subsidiaries to
Consolidated Tangible Net Worth of the Company and its Subsidiaries to be
greater than 1.25 to 1.00 at any time.
(d) Liens. Create, incur or suffer to exist any Lien on any of the
assets, rights, revenues or property, real, personal or mixed, tangible or
intangible, whether now owned or hereafter acquired, of the Company or any of
its Subsidiaries, other than:
(i) Liens for taxes not delinquent or for taxes being
contested in good faith by appropriate proceedings and as to which adequate
financial reserves have been established on its books and records;
(ii) Liens (other than any Lien imposed by ERISA) created and
maintained in the ordinary course of business which are not material in the
aggregate, and which would not have a material adverse effect on the business or
operations of the Company or any of
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its Subsidiaries and which constitute (A) pledges or deposits under worker's
compensation laws, unemployment insurance laws or similar legislation, (B) good
faith deposits in connection with bids, tenders, contracts or leases to which
the Company or any of its Subsidiaries is a party for a purpose other than
borrowing money or obtaining credit, including rent security deposits, (C) liens
imposed by law, such as those of carriers, warehousemen and mechanics, if
payment of the obligation secured thereby is not yet due, (D) Liens securing
taxes, assessments or other governmental charges or levies not yet subject to
penalties for nonpayment, and (E) pledges or deposits to secure public or
statutory obligations of the Company or any of its Subsidiaries, or surety,
customs or appeal bonds to which the Company or any of its Subsidiaries is a
party;
(iii) Each Lien described in Schedule 5.2(d) hereto, which may
be suffered to exist upon the same terms as those existing on the date hereof,
but no extension or renewal thereof shall be permitted;
(iv) Any Lien created to secure payment of a portion of the
purchase price of any tangible fixed asset acquired by the Company or any of its
Subsidiaries may be created or suffered to exist upon such fixed asset if the
outstanding principal amount of the indebtedness secured by such Lien does not
at any time exceed ninety percent of the purchase price paid by the Company or
such Subsidiary for such fixed asset and the aggregate principal amount of all
indebtedness secured by all such Liens does not exceed $5,000,000, provided that
such Lien does not encumber any other asset at any time owned by the Company or
such Subsidiary, and provided, further, that not more than one such Lien shall
encumber such fixed asset at any one time; and
(v) The interest or title of a lessor under any lease
otherwise permitted under this Agreement with respect to the property subject to
such lease to the extent performance of the obligations of the Company or its
Subsidiary thereunder are not delinquent.
(e) Merger; Acquisitions; Etc. Purchase or otherwise acquire,
whether in one or a series of transactions, all or a substantial portion of the
business assets, rights, revenues or property, real, personal or mixed, tangible
or intangible, of any person, or all or a substantial portion of the capital
stock of or other ownership interest in any other person, provided that this
Section 5.2(e) shall not prohibit any such purchase or acquisition (the "Subject
Transaction") if the aggregate consideration paid by the Company for all such
purchases and acquisitions after December 31, 1997, including, without
limitation, the Subject Transaction, is less than the amount equal to 20% of the
Consolidated Tangible Net Worth of the Company its Subsidiaries as of the date
the Subject Transaction is consummated; nor merge or consolidate or amalgamate
with any other person or take any other action having a similar effect, nor
enter into any joint venture or similar arrangement with any other person in
which the Company is required to make an equity contribution having a similar
effect.
(f) Disposition of Assets; Etc. Sell, lease, license, transfer,
assign or otherwise dispose of all or a substantial portion of its business,
assets, rights, revenues or property, real, personal or mixed, tangible or
intangible, whether in one or a series of transactions, other than inventory
sold in the ordinary course of business upon customary credit terms and sales of
scrap or obsolete material or equipment, provided, however, that this Section
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5.2(f) shall not prohibit any such sale, lease, license, transfer, assignment or
other disposition if the aggregate book value (disregarding any write downs of
such book value other than ordinary depreciation and amortization) of all of the
business, assets, rights, revenues and property disposed of after the date of
this Agreement is not greater than $1,000,000 in the aggregate during any
12-month period and if, immediately after such transaction, no Default or Event
of Default shall exist or shall have occurred and be continuing.
(g) Nature of Business. Make any material change in the nature of
its business from that engaged in on the date of this Agreement or engage in any
other businesses other than those in which it is engaged on the date of this
Agreement.
(h) Dividends and Other Restricted Payments. Make, pay, declare or
authorize any dividend, payment or other distribution in respect of any class of
its capital stock or any dividend, payment or distribution in connection with
the redemption, purchase, retirement or other acquisition, directly or
indirectly, of any shares of its capital stock other than such dividends,
payments or other distributions to the extent payable solely in shares of the
capital stock of the Company, provided, however, that, if no Default or Event of
Default shall exist or shall have occurred and be continuing, (i) any Subsidiary
of the Company may make, pay, declare or authorize dividends, payments and other
such distributions collectively, "Distributions") to the Company, and (ii) the
Company may make Distributions during each fiscal year ending after the
Effective Date which, together with all other Distributions made during any such
fiscal year, in the aggregate do not exceed the sum of (A) Net Income of the
Company for such fiscal year plus (B) the difference of (1) $3,750,000 minus (2)
the aggregate amount of Excess Distributions for all previous fiscal years since
December 31, 1994. For purposes of this Section 5.2(h), (i) "capital stock"
shall include capital stock and any securities exchangeable for or convertible
into capital stock and any warrants, rights or other options to purchase or
otherwise acquire capital stock or such securities, and (ii) "Excess
Distributions" shall mean, with respect to any fiscal year of the Company, the
portion of the aggregate amount of Distributions made by the Company during such
fiscal year that exceeds the Net Income of the Company for such fiscal year.
(i) Capital Expenditures. Acquire any fixed asset or make any other
capital expenditure (collectively, "Capital Expenditures") if the aggregate
purchase price and other acquisition costs of all such Capital Expenditures made
by the Company or any of its Subsidiaries during any fiscal year of the Company
ending after the Effective Date would exceed, on a consolidated basis, an amount
equal to the sum of (i) the consolidated depreciation expense relating to fixed
assets ("Depreciation Expense") of the Company and its Subsidiaries for such
fiscal year plus (ii) the difference of (A) $7,500,000 minus (B) the aggregate
amount of Excess Capital Expenditures for all previous fiscal years after
December 31, 1997. For purposes of this Section 5.2(i), "Excess Capital
Expenditures" shall mean, with respect to any fiscal year of the Company, the
portion of the aggregate amount of consolidated Capital Expenditures of the
Company and its Subsidiaries made during such fiscal year that exceeds the
consolidated Depreciation Expense of the Company and its Subsidiaries for such
fiscal year.
(j) Transactions with Affiliates. Enter into, become a party to, or
become liable in respect of, any contract or undertaking with any Affiliate
except in the ordinary course
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of business and on terms not less favorable to the Company or such Subsidiary
than those which could be obtained if such contract or undertaking were an arms
length transaction with a person other than an Affiliate.
(k) Investments, Loans and Advances. Purchase or otherwise acquire
any capital stock of or other ownership interest in, or debt securities of or
other evidences of indebtedness of, any other person; nor make any loan or
advance of any of its funds or property or make any other extension of credit
to, or make any investment or acquire any interest whatsoever in, any other
person; other than (i) extensions of trade credit made in the ordinary course of
business on customary credit terms and commission, travel and similar advances
made to officers and employees in the ordinary course of business, and (ii)
commercial paper of any United States issuer having the highest rating then
given by Moody's Investors Service, Inc., or Standard & Poor's Corporation,
direct obligations of and obligations fully guaranteed by the United States of
America or certificates of deposit of any commercial bank which is a member of
the Federal Reserve System and which has capital, surplus and undivided profit
(as shown on its most recently published statement of condition) aggregating not
less than $100,000,000, provided, however, that each of the foregoing
investments has a maturity date not later than 180 days after the acquisition
thereof by the Company or any of its Subsidiaries, (iii) investments permitted
by Section 5.2(e), and (iv) those investments, loans, advances and other
transactions described in Schedule 5.2(k) hereto, having the same terms as
existing on the date of this Agreement, but no extension or renewal thereof
shall be permitted.
(l) Contingent Liabilities. Create, incur, assume, or in any manner
become liable in respect of, or suffer to exist, Contingent Liabilities in
excess of $5,000,000 for the Company and its Subsidiaries on a consolidated
basis.
(m) Negative Pledge Limitation. Enter into any agreement, with any
person other than the Banks pursuant hereto, which prohibits or limits the
ability of the Company or any Subsidiary to create, incur, assume or suffer to
exist any Lien upon any of its assets, rights, revenues or property, real,
personal or mixed, tangible or intangible, whether now owned or hereafter
acquired; provided that this Section 5.2(m) shall not prohibit the Company from
entering into such an agreement with The Fifth Third Bank, so long as the
aggregate principal amount of Indebtedness of the Company to The Fifth Third
Bank does not at any time exceed $7,500,000.
(n) Restrictions on Payments by Subsidiaries. Enter into any
agreement, contract or arrangement restricting the ability of any Subsidiary of
the Company to pay dividends or make cash advances or other payments of any
nature to the Company or to any Subsidiary of the Company of which such
Subsidiary is also a Subsidiary.
(o) Inconsistent Agreements. Enter into any agreement containing any
provision which would be violated or breached by this Agreement or any of the
transactions contemplated hereby or by performance by the Company or any of its
Subsidiaries of its obligations in connection therewith.
(p) Fiscal Year. Change its fiscal year from beginning January 1 and
ending
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December 31.
(q) Interest Coverage Ratio. Permit or suffer the ratio of (i)
Consolidated EBIT of the Company and its Subsidiaries to (ii) Consolidated
Interest Expense of the Company and its Subsidiaries to be less than 3.00 to
1.00; such ratio to be determined as of the end of each fiscal quarter of the
Company for the period of four fiscal quarters of the Company then ending or, if
less, the number of fiscal quarters of the Company from January 1, 1998 through
the date of determination.
ARTICLE VI.
DEFAULT
6.1 Events of Default. The occurrence of any one of the following
events or conditions shall be deemed an "Event of Default" hereunder unless
waived by the Required Banks pursuant to Section 7.1:
(a) Nonpayment. The Company shall fail to pay when due any principal
of the Notes or any reimbursement obligation under Section 3.9 (whether by
deemed disbursement of Revolving Credit Loans or otherwise), or the Company
shall fail to pay within 10 days of the due date thereof any interest on the
Notes or any fees or any other amount (other than principal of the Notes or such
reimbursement obligations) payable hereunder; or
(b) Misrepresentation. Any representation or warranty made by the
Company in Article IV hereof or in any other certificate, report, financial
statement or other document furnished by or on behalf of the Company in
connection with this Agreement, shall prove to have been incorrect in any
material respect when made or deemed made; or
(c) Certain Covenants. The Company shall fail to perform or observe
any term, covenant or agreement contained in Article V hereof; or
(d) Other Defaults. The Company shall fail to perform or observe any
other term, covenant or agreement contained in this Agreement, and any such
failure shall remain unremedied for 30 calendar days after notice thereof shall
have been given to the Company by the Agent; or
(e) Cross Default. (i) Any default or event of default shall occur
under any other agreement, instrument or document evidencing or otherwise
relating to any indebtedness (other than indebtedness hereunder) of the Company
or any of its Subsidiaries to any Bank; or (ii) the Company or any of its
Subsidiaries shall fail to pay any part of the principal of, the premium, if
any, or the interest on, or any other payment of money due under any of its
indebtedness (other than indebtedness hereunder or described in clause (i)
above), beyond any period of grace provided with respect thereto, which
individually or together with other such indebtedness as to which any such
failure exists has an aggregate outstanding principal amount in excess of
$100,000; or (iii) the Company or any of its Subsidiaries shall fail to perform
or
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observe any other term, covenant or agreement contained in any agreement,
document or instrument evidencing or securing any indebtedness (other than
indebtedness hereunder or described in clause (i) above) having such aggregate
outstanding principal amount, or under which any such indebtedness was issued or
created, beyond any period of grace, if any, provided with respect thereto if
the effect of such failure is either (A) to cause, or permit the holders of such
Indebtedness (or a trustee on behalf of such holders) to cause, any payment in
respect of such Indebtedness to become due prior to its due date or (ii) to
permit the holders of such Indebtedness (or a trustee on behalf of such holders)
to elect a majority of the board of directors of the Company; or
(f) Judgments. One or more judgments or orders for the payment of
money in an aggregate amount of $1,000,000 or more shall be rendered against the
Company or any of its Subsidiaries, or any other judgment or order (whether or
not for the payment of money) shall be rendered against or shall affect the
Company or any of its Subsidiaries which causes or could cause a material
adverse change in the business, properties, operations or condition, financial
or otherwise, of the Company or any of its Subsidiaries or which does or could
have a material adverse effect on the legality, validity or enforceability of
this Agreement or the Notes, and either (i) such judgment or order shall have
remained unsatisfied and the Company or such Subsidiary shall not have taken
action necessary to stay enforcement thereof, by reason of pending appeal or
otherwise, prior to the expiration of the applicable period of limitations for
taking such action or, if such action shall have been taken, a final order
denying such stay shall have been rendered, or (ii) enforcement proceedings
shall have been commenced by any creditor upon any such judgment or order; or
(g) ERISA. The occurrence of a Reportable Event that results in or
there is a reasonable possibility that it could result in material liability of
the Company, any Subsidiary of the Company or their ERISA Affiliates to the PBGC
or to any Plan and such Reportable Event is not corrected within thirty (30)
days after the occurrence thereof; or the occurrence of any Reportable Event
which there is a reasonable possibility could constitute grounds for termination
of any Plan of the Company, its Subsidiaries or their ERISA Affiliates by the
PBGC or for the appointment by the appropriate United States District Court of a
trustee to administer any such Plan and such Reportable Event is not corrected
within thirty (30) days after the occurrence thereof; or the filing by the
Company, any Subsidiary of the Company or any of their ERISA Affiliates of a
notice of intent to terminate a Plan or the institution of other proceedings to
terminate a Plan; or the Company, any Subsidiary of the Company or any of their
ERISA Affiliates shall fail to pay when due any material liability to the PBGC
or to a Plan; or the PBGC shall have instituted proceedings to terminate, or to
cause a trustee to be appointed to administer, any Plan of the Company, its
Subsidiaries or their ERISA Affiliates; or any person engages in a Prohibited
Transaction with respect to any Plan which results in or there is a reasonable
possibility could result in material liability of the Company, any Subsidiary of
the Company, any of their ERISA Affiliates, any Plan of the Company, its
Subsidiaries or their ERISA Affiliates or fiduciary of any such Plan; or failure
by the Company, any Subsidiary of the Company or any of their ERISA Affiliates
to make a required installment or other payment to any Plan within the meaning
of Section 302(f) of ERISA or Section 412(n) of the Code that results in or
there is a reasonable possibility could result in liability of the Company, any
Subsidiary of the Company or any of their ERISA Affiliates to the PBGC or any
Plan; or the withdrawal of the Company, any
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of its Subsidiaries or any of their ERISA Affiliates from a Plan during a plan
year in which it was a "substantial employer" as defined in Section 4001 (9a)
(2) of ERISA; or the Company, any of its Subsidiaries or any of their ERISA
Affiliates becomes an employer with respect to any Multiemployer Plan without
the prior written consent of the Bank; or
(h) Insolvency, Etc. The Company or any of its Subsidiaries shall be
dissolved or liquidated (or any judgment, order or decree therefor shall be
entered), or shall generally not pay its debts as they become due, or shall
admit in writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors, or shall institute, or there
shall be instituted against the Company or any of its Subsidiaries, any
proceeding or case seeking to adjudicate it a bankrupt or insolvent or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief or protection of debtors or seeking the
entry of an order for relief, or the appointment of a receiver, trustee,
custodian or other similar official for it or for any substantial part of its
assets, rights, revenues or property, and, if such proceeding is instituted
against the Company or such Subsidiary and is being contested by the Company or
such Subsidiary, as the case may be, in good faith by appropriate proceedings,
such proceeding shall remain undismissed or unstayed for a period of 60 days; or
the Company or such Subsidiary shall take any action (corporate or other) to
authorize or further any of the actions described above in this subsection.
6.2 Remedies.
(a) Upon the occurrence and during the continuance of any Event of
Default, the Agent may and, upon being directed to do so by the Required Banks,
shall by notice to the Company (i) terminate the Commitments, or (ii) declare
the outstanding principal of, and accrued interest on, the Notes, all unpaid
reimbursement obligations in respect of drawings under Letters of Credit and all
other amounts owing under this Agreement to be immediately due and payable, or
(iii) demand immediate delivery of cash collateral, and the Company agrees to
deliver such cash collateral upon demand, in an amount equal to the maximum
amount that may be available to be drawn at any time prior to the stated expiry
of all outstanding Letter of Credit, or any one or more of the foregoing,
whereupon the Commitments shall terminate forthwith and all such amounts,
including such cash collateral, shall become immediately due and payable,
provided that in the case of any event or condition described in Section 6.1(h)
with respect to the Company, the Commitments shall automatically terminate
forthwith and all such amounts, including such cash collateral, shall
automatically become immediately due and payable without notice; in all cases
without demand, presentment, protest, diligence, notice of dishonor or other
formality, all of which are hereby expressly waived. Such cash collateral
delivered in respect of outstanding Letters of Credit shall be deposited in a
special cash collateral account to be held by the Agent as collateral security
for the payment and performance of the Company's obligation under this Agreement
to the Banks and the Agent.
(b) The Agent may and, upon being directed to do so by the Required
Banks, shall, in addition to the remedies provided in Section 6.2(a), exercise
and enforce any and all other rights and remedies available to it or the Banks,
whether arising under this Agreement, the Notes or under applicable law, in any
manner deemed appropriate by the Agent, including suit in
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equity, action at law, or other appropriate proceedings, whether for the
specific performance (to the extent permitted by law) of any covenant or
agreement contained in this Agreement or in the Notes or in aid of the exercise
of any power granted in this Agreement or the Notes.
(c) Upon the occurrence and during the continuance of any Event of
Default, each Bank may at any time and from time to time, without notice to the
Company (any requirement for such notice being expressly waived by the Company)
set off and apply against any and all of the obligations of the Company now or
hereafter existing under this Agreement, whether owing to such Bank or any other
Bank or the Agent, any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by such Bank to or for the credit or the account of the Company and any property
of the Company from time to time in possession of such Bank, irrespective of
whether or not such Bank shall have made any demand hereunder and although such
obligations may be contingent and unmatured. The Company hereby grants to such
Bank a lien on and security interest in all such deposits, indebtedness and
property as collateral security for the payment and performance of the
obligations of the Company under this Agreement. The rights of each Bank under
this Section 6.2(c) are in addition to other rights and remedies (including,
without limitation, other rights of setoff) which the Banks may have.
(d) In addition to other amounts payable pursuant to this Agreement,
the Company confirms that it shall further pay, together with any payment of the
Term Loan hereunder after the occurrence and during the continuance of any Event
of Default, all amounts required to be paid pursuant to Section 3.8.
ARTICLE VII.
THE AGENT AND THE BANKS
7.1 Appointment and Authorization. Each Bank hereby irrevocably
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers under this Agreement and the Notes as are delegated to
the Agent by the terms hereof or thereof, together with all such powers as are
reasonably incidental thereto. The provisions of this Article VII are solely for
the benefit of the Agent and the Banks, and the Company shall not have any
rights as a third party beneficiary of any of the provisions hereof. In
performing its functions and duties under this Agreement, the Agent shall act
solely as agent of the Banks and does not assume and shall not be deemed to have
assumed any obligation towards or relationship of agency or trust with or for
the Company.
7.2 Agent and Affiliates. NBD Bank, N.A. in its capacity as a Bank
hereunder shall have the same rights and powers hereunder as any other Bank and
may exercise or refrain from exercising the same as though it were not the
Agent, NBD Bank, N.A. and its Affiliates may (without having to account therefor
to any Bank) accept deposits from, lend money to, and generally engage in any
kind of banking, trust, financial advisory or other business with the Company or
any of its Subsidiaries as if it were not acting as Agent hereunder, and may
accept fees and other consideration therefor without having to account for the
same to the Banks.
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7.3 Scope of Agent's Duties. The Agent shall have no duties or
responsibilities except those expressly set forth herein, and shall not, by
reason of this Agreement, have a fiduciary relationship with any Bank, and no
implied covenants, responsibilities, duties, obligations or liabilities shall be
read into this Agreement or shall otherwise exist against the Agent. As to any
matters not expressly provided for by this Agreement (including, without
limitation, collection and enforcement actioned under the Notes), the Agent
shall not be required to exercise any discretion or take any action, but the
Agent shall take such action or omit to take any action pursuant to the
reasonable written instructions of the Required Banks and may request
instructions from the Required Banks. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, pursuant to the written
instructions of the Required Banks, which instructions and any action or
omission pursuant thereto shall be binding upon all of the Banks; provided,
however, that the Agent shall not be required to act or omit to act if, in the
judgment of the Agent, such action or omission may expose the Agent to personal
liability or is contrary to this Agreement or the Notes or applicable law.
7.4 Reliance by Agent. The Agent shall be entitled to rely upon any
certificate, notice, document or other communication (including any cable,
telegram, telex, facsimile transmission or oral communication) believed by it to
be genuine and correct and to have been sent or given by or on behalf of a
proper person. The Agent may treat the payee of any Note as the holder thereof
unless and until the Agent receives written notice of the assignment thereof
pursuant to the terms of this Agreement signed by such payee and the Agent
receives the written agreement of the assignee that such assignee is bound
hereby to the same extent as if it had been an original party hereto, The Agent
may employ agents (including without limitation collateral agents) and may
consult with legal counsel (who may be counsel for the Company), independent
public accountants and other experts selected by it and shall not be liable to
the Banks, except as to money or property received by it or its authorized
agents, for the negligence or misconduct of any such agent selected by it with
reasonable care or for any action taken or omitted to be taken by it in good
faith in accordance with the advice of such counsel, accountants or experts.
7.5 Default. The Agent shall not be deemed to have knowledge of the
occurrence of any Default or Event of Default, unless the Agent has received
written notice from a Bank or the Company specifying such Default or Event of
Default and stating that such notice is a "Notice of Default". In the event that
the Agent receives such a notice, the Agent shall give written notice thereof to
the Banks.
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7.6 Liability of Agent. Neither the Agent nor any of its directors,
officers, agents, or employees shall be liable to the Banks for any action taken
or not taken by it or them in connection herewith with the consent or at the
request of the Required Banks or in the absence of its or their own gross
negligence or willful misconduct. Neither the Agent nor any of its directors,
officers, agents or employees shall be responsible for or have any duty to
ascertain, inquire into or verify (i) any recital, statement, warranty or
representation contained in this Agreement or any Note, or in any certificate,
report, financial statement or other document furnished in connection with this
Agreement, (ii) the performance or observance of any of the covenants or
agreements of the Company, (iii) the satisfaction of any condition specified in
Article II hereof, or (iv) the validity, effectiveness, legal enforceability,
value or genuineness of this Agreement, the Notes or any other instrument or
document furnished in connection herewith.
7.7 Nonreliance on Agent and Other Banks. Each Bank acknowledges and
agrees that it has, independently and without reliance on the Agent or any other
Bank, and based on such documents and information as it has deemed appropriate,
made its own credit analysis of the Company and decision to enter into this
Agreement and that it will, independently and without reliance upon the 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 decision in
taking or not taking action under this Agreement. The Agent shall not be
required to keep itself informed as to the performance or observance by the
Company of this Agreement, the Notes or any other documents referred to or
provided for herein or to inspect the properties or books of the Company and,
except for notices, reports and other documents and information expressly
required to be furnished to the Banks by the Agent hereunder, the Agent shall
not have any duty or responsibility to provide any Bank with any information
concerning the affairs, financial condition or business of the Company or any of
its Subsidiaries which may come into the possession of the Agent or any of its
Affiliates.
7.8 Indemnification. The Banks agree to indemnify the Agent (to the
extent not reimbursed by the Company, but without limiting any obligation of the
Company to make such reimbursement), ratably according to their Pro Rata Shares,
from and against any and all claims, damages, losses, liabilities, costs or
expenses of any kind or nature whatsoever (including, without limitation, fees
and disbursements of counsel) which may be imposed on, incurred by, or asserted
against the Agent in any way relating to or arising out of this Agreement or the
transactions contemplated hereby or any action taken or omitted by the Agent
under this Agreement, provided, however, that no Bank shall be liable for any
portion of such claims, damages, losses, liabilities, costs or expenses
resulting from the Agent's gross negligence or willful misconduct. Without
limitation of the foregoing, each Bank agrees to reimburse the Agent promptly
upon demand for its ratable share of any out-of-pocket expenses (including,
without limitation, fees and expenses of counsel) incurred by the Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, to the extent that the Agent is not
reimbursed for such expenses by the Company, but without limiting the obligation
of the Company to make such reimbursement. Each Bank agrees to reimburse the
Agent promptly upon demand for its ratable share of any amounts owing to the
Agent by the Banks pursuant to this Section. If the indemnity furnished to the
Agent under this Section shall, in the judgment of the Agent, be insufficient or
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become impaired, the Agent may call for additional indemnity from the Banks and
cease, or not commence to take, any action until such additional indemnity is
furnished.
7.9 Successor Agent. The Agent may resign as such at any time upon
ten days' prior written notice to the Company and the Banks. In the event of any
such resignation, the Required Banks shall, by an instrument in writing
delivered to the Company and the Agent, appoint a successor, which shall be a
commercial bank organized under the laws of the United States or any State
thereof and having a combined capital and surplus of at least $500,000,000. If a
successor is not so appointed or does not accept such appointment before the
Agent's resignation becomes effective, the retiring Agent may appoint a
temporary successor to act until such appointment by the Required Banks is made
and accepted or if no such temporary successor is appointed as provided above by
the retiring Agent, the Required Banks shall thereafter perform all the duties
of the Agent hereunder until such appointment by the Required Banks is made and
accepted. Any successor to the Agent shall execute and deliver to the Company
and the Banks an instrument accepting such appointment and thereupon such
successor Agent, without further act, deed, conveyance or transfer shall become
vested with all of the properties, rights, interests, powers, authorities and
obligations of its predecessor hereunder with like effect as if originally named
as Agent hereunder. Upon request of such successor Agent, the Company and the
retiring Agent shall execute and deliver such instruments of conveyance,
assignment and further assurance and do such other things as may reasonably be
required for more fully and certainly vesting and confirming in such successor
Agent all such properties, rights, interest, powers, authorities and
obligations, The provisions of this Article VII shall thereafter remain
effective for such retiring Agent with respect to any actions taken or omitted
to be taken by such Agent while acting as the Agent hereunder.
7.10 Sharing of Payments. The Banks agree among themselves that, in
the event that any Bank shall obtain payment in respect of any Advance or any
other obligation owing to the Banks under this Agreement through the exercise of
a right of set-off, banker's lien, counterclaim or otherwise in excess of its
Pro Rata Share of payments received by all of the Banks on account of the
Advances and other obligations, such Bank shall promptly purchase from the other
Banks participation in such Advances and other obligations in such amounts, and
make such other adjustments from time to time, as shall be equitable to the end
that all of the Banks share such payment in accordance with their Pro Rata
Shares. The Banks further agree among themselves that if payment to a Bank
obtained by such Bank through the exercise of a right of set-off, banker's lien,
counterclaim or otherwise as aforesaid shall be rescinded or must otherwise be
restored, each Bank which shall have shared the benefit of such payment shall,
by repurchase of participation theretofore sold, return its share of that
benefit to each Bank whose payment shall have been rescinded or otherwise
restored, The Company agrees that any Bank so purchasing such a participation
may, to the fullest extent permitted by law, exercise all rights of payment,
including set-off, banker's lien or counterclaim with respect to such Advance or
other obligation in the amount of such participation. The Banks further agree
among themselves that, in the event that amounts received by the Banks and the
Agent hereunder are insufficient to pay all such obligations or insufficient to
pay all such obligations when due, the fees and other amounts owing to the Agent
in such capacity shall be paid therefrom before payment of obligations owing to
the Banks under this Agreement. Except as otherwise expressly provided in this
Agreement, if any Bank or the Agent shall fail to remit to the Agent or any
other Bank an
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amount payable by such Bank or the Agent to the Agent or such other Bank
pursuant to this Agreement on the date when such amount is due, such payment
shall be made together with interest thereon for each date from the date such
amount is due until the date such amount is paid to the Agent or such other Bank
at a rate per annum equal to the rate at which borrowings are available to the
payee in its overnight federal funds market. It is further understood and agreed
among the Banks and the Agent that if the Agent shall engage in any other
transactions with the Company and shall have the benefit of any collateral or
security therefor which does not expressly secure the obligations arising under
this Agreement except by virtue of a so-called dragnet clause or comparable
provision, the Agent shall be entitled to apply any proceeds of such collateral
or security first in respect of the obligations arising in connection with such
other transaction before application to the obligations arising under this
Agreement.
ARTICLE VIII.
MISCELLANEOUS
8.1 Amendments, Etc. (a) No amendment, modification, termination or
waiver of any provision of this Agreement nor any consent to any departure
therefrom shall be effective unless the same shall be in writing and signed by
the Required Banks and, to the extent any rights or duties of the Agent may be
affected thereby, the Agent. Any such amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
(b) Notwithstanding anything herein to the contrary, no Bank that is
in default of any of its obligations, covenants or agreements under this
Agreement shall be entitled to vote (whether to consent or to withhold its
consent) with respect to any amendment, modification, termination or waiver of
any provision of this Agreement or any departure therefrom or any direction from
the Banks to the Agent, and, for purposes of determining the Required Banks at
any time when any Bank is in default under this Agreement, the Commitments and
Advances of such defaulting Banks shall be disregarded.
8.2 Notices. (a) Except as otherwise provided in Section 8.2(c)
hereof, all notices and other communications hereunder shall be in writing and
shall be delivered or sent to the Company at 2600 Kettering Tower, Dayton, Ohio,
45423. Attention: Mr. Karl A. Frydryk, Chief Financial Officer, Facsimile No.
(937) 910-9305, and to the Agent and the Banks at their respective addresses for
notices set forth on the signature pages hereof, or to such other address as may
be designated by the Company, the Agent or any Bank by notice to the other
parties hereto. All notices and other communications shall be deemed to have
been given at the time of actual delivery thereof to such address, or if sent by
certified or registered mail, postage prepaid, to such address, on the third day
after the date of mailing, or in the case of telex notice, upon receipt of the
appropriate answerback, provided, however, that notices to the Agent shall not
be effective until received.
(b) Notices by the Company to the Agent with respect to terminations
or reductions of the Revolving Credit Commitments pursuant to Section 2.2,
requests for Advances
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pursuant to Section 2.4, requests for continuations or conversions of Loans
pursuant to Section 2.7 and notices of prepayment pursuant to Section 3.1 shall
be irrevocable and binding on the Company.
(c) Any notice to be given by the Company to the Agent pursuant to
Sections 2.4, 2.7 or 3.1 and any notice to be given by the Agent or any Bank
hereunder, may be given by telephone, and all such notices given by the Company
must be immediately confirmed in writing in the manner provided in Section
8.2(a). Any such notice given by telephone shall be deemed effective upon
receipt thereof by the party to whom such notice is to be given.
8.3 No Waiver By Conduct; Remedies Cumulative. No course of dealing
on the part of the Agent or any Bank, nor any delay or failure on the part of
the Agent or any Bank in exercising any right, power or privilege hereunder
shall operate as a waiver of such right, power or privilege or otherwise
prejudice the Agent's or any Bank's rights and remedies hereunder; nor shall any
single or partial exercise thereof preclude any further exercise thereof or the
exercise of any other right, power or privilege. No right or remedy conferred
upon or reserved to the Agent or any Bank under this Agreement or the Notes is
intended to be exclusive of any other right or remedy, and every right and
remedy shall be cumulative and in addition to every other right or remedy
granted thereunder or now or hereafter existing under any applicable law. Every
right and remedy granted by this Agreement or the Notes or by applicable law to
the Agent or any Bank may be exercised from time to time and as often as may be
deemed expedient by the Agent or any Bank and, unless contrary to the express
provisions of this Agreement or the Notes, irrespective of the occurrence or
continuance of any Default or Event of Default.
8.4 Reliance on and Survival of Various Provisions. All terms,
covenants, agreements, representations and warranties of the Company made herein
or in any certificate, report, financial statement or other document furnished
by or on behalf of the Company in connection with this Agreement shall be deemed
to be material and to have been relied upon by the Banks, notwithstanding any
investigation heretofore or hereafter made by any Bank or on such Bank's behalf,
and those covenants and agreements of the Company set forth in Section 3.6, 3.7,
3.8, 3.9 and 8.5 hereof shall survive the repayment in full of the Advances and
the termination of the Commitments.
8.5 Expenses and Indemnification. (a) The Company agrees to pay, or
reimburse the Agent for the payment of, on demand, (i) the reasonable fees and
expenses of counsel to the Agent, including without limitation the fees and
expenses of Dickinson Wright PLLC in connection with the preparation, execution,
delivery and administration of this Agreement and the Notes and the consummation
of the transactions contemplated hereby, and in connection with advising the
Agent as to its rights and responsibilities with respect thereto, and in
connection with any amendments, waivers or consents in connection therewith, and
(ii) all reasonable costs and expenses of the Agent and the Banks (including
reasonable fees and expenses of counsel and whether incurred through
negotiations, legal proceedings or otherwise) in connection with any Default or
Event of Default or the enforcement of, or the exercise or preservation of any
rights under, this Agreement or the Notes or in connection with any refinancing
or restructuring of the credit arrangements provided under this Agreement.
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(b) The Company agrees to indemnify and hold harmless the Banks and
the Agent, and their respective officers, directors, employees and agents, and
each person who controls any of them, from and against any and all claims,
damages, losses, liabilities, costs or expenses of any kind or nature whatsoever
which the Banks or the Agent or any such person may incur or which may be
claimed against any of them with respect to or in connection with the execution,
delivery, enforcement, performance and administration of this Agreement or the
Notes or the Company's use or proposed use of the proceeds of any Advance.
(c) Without limiting the foregoing, the Company hereby indemnifies
and agrees to hold harmless the Banks and the Agent, and their respective
officers, directors, employees and agents, from and against any and all claims,
damages, losses, liabilities, costs or expenses of any kind or nature whatsoever
which the Banks or the Agent or any such person may incur or which may be
claimed against any of them by reason of or in connection with any Letter of
Credit, and neither any Bank nor the Agent or any of their respective officers,
directors, employees or agents shall be liable or responsible for: (i) the use
which may be made of any Letter of Credit or for any acts or omissions of any
beneficiary in connection therewith; (ii) the validity, sufficiency or
genuineness of documents or of any endorsement thereon, even if such documents
should in fact prove to be in any or all respects invalid, insufficient,
fraudulent or forged; (iii) payment by the Agent to the beneficiary under any
Letter of Credit against presentation of documents which do not comply with the
terms of any Letter of Credit, including failure of any documents to bear any
reference or adequate reference to such Letter of Credit; (iv) any error,
omission, interruption or delay in transmission, dispatch or delivery of any
message or advice, however transmitted, in connection with any Letter of Credit;
or (v) any other event or circumstance whatsoever arising in connection with any
Letter of Credit; provided, however, that the Company shall not be required to
indemnify the Banks and the Agent and such other persons, and the Banks shall be
liable to the Company to the extent, but only to the extent, of any direct, as
opposed to consequential or incidental, damages suffered by the Company which
were caused by (A) the Agent's wrongful dishonor of any Letter of Credit after
the presentation to it by the beneficiary thereunder of a draft or other demand
for payment and other documentation strictly complying with the terms and
conditions of such Letter of Credit, or (B) the Agent's payment to the
beneficiary under any Letter of Credit against presentation of documents which
do not comply with the terms of the Letter of Credit to the extent, but only to
the extent, that such payment constitutes gross negligence or willful misconduct
of the Agent. It is understood that in making any payment under a Letter of
Credit the Agent will rely on documents presented to it under such Letter of
Credit as to any and all matters set forth therein without further investigation
and regardless of any notice or information to the contrary, and such reliance
and payment against documents presented under a Letter of Credit substantially
complying with the terms thereof shall not be deemed gross negligence or willful
misconduct of the Agent in connection with such payment. It is further
acknowledged and agreed that the Company may have rights against the beneficiary
or others in connection with any Letter of Credit with respect to which the
Banks are alleged to be liable and it shall be a precondition of the assertion
of any liability of the Banks under this Section that the Company shall first
have exhausted all remedies in respect of the alleged loss against such
beneficiary and any other parties obligated or liable in connection with such
Letter of Credit and any related transactions.
8.6 Successors and Assigns. (a) This Agreement shall be binding upon
and
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inure to the benefit of the parties hereto and their respective successors and
assigns, provided that the Company may not, without the prior written consent of
the Banks, assign its rights or obligations hereunder or under the Notes and the
Banks shall not be obligated to make any Advance hereunder to any entity other
than the Company.
(b) The Agent from time to time in its sole discretion may appoint
agents for the purpose of servicing and administering this Agreement and the
transactions contemplated hereby and enforcing or exercising any rights or
remedies of the Agent provided under this Agreement, the Notes or otherwise. In
furtherance of such agency, the Agent may from time to time direct that the
Company provide notices, reports and other documents contemplated by this
Agreement (or duplicates thereof) to such agent. The Company hereby consents to
the appointment of such agent and agrees to provide all such notices, reports
and other documents and to otherwise deal with such agent acting on behalf of
the Agent in the same manner as would be required if dealing with the Agent
itself. No Bank may assign or sell any of its rights or obligations under this
Agreement or the Notes without the prior written consent of the Company and each
of the other Banks.
8.7 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.
8.8 Governing Law. This Agreement is a contract made under, and
shall be governed by and construed in accordance with, the law of the State of
Indiana applicable to contracts made and to be performed entirely within such
State and without giving effect to choice of law principles of such State. Each
of the Company and the Banks further agrees that any legal action or proceeding
with respect to this Agreement, the Notes or the transactions contemplated
hereby may be brought in any court of the State of Indiana, or in any court of
the United States of America sitting in Indiana, and each of the Company and the
Banks hereby submits to and accepts generally and unconditionally the
jurisdiction of those courts with respect to its person and property, and
irrevocably consents to the service of process in connection with any such
action or proceeding by personal delivery to the Company or by the mailing
thereof by registered or certified mail, postage prepaid to the Company at its
address set forth in Section 8.2 or in the signature pages hereof. Nothing in
this paragraph shall affect the right of the Banks and the Agent to serve
process in any other manner permitted by law or limit the right of the Banks or
the Agent to bring any such action or proceeding against the Company or property
in the courts of any other jurisdiction. Each of the Company and the Banks
hereby irrevocably waives any objection to the laying of venue of any such suit
or proceeding in the above described courts.
8.9 Table of Contents and Headings. The table of contents and the
headings of the various subdivisions hereof are for the convenience of reference
only and shall in no way modify any of the terms or provisions hereof.
8.10 Construction of Certain Provisions. If any provision of this
Agreement refers to any action to be taken by any person, or which such person
is prohibited from taking, such provision shall be applicable whether such
action is taken directly or indirectly by such person, whether or not expressly
specified in such provision.
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<PAGE> 51
8.11 Integration and Severability. This Agreement embodies the
entire agreement and understanding between the Company and the Agent and the
Banks, and supersedes all prior agreements and understandings, relating to the
subject matter hereof. In case any one or more of the obligations of the Company
under this Agreement or the Notes shall be invalid, illegal or unenforceable in
any jurisdiction, the validity, legality and enforceability of the remaining
obligations of the Company shall not in any way be affected or impaired thereby,
and such invalidity, illegality or unenforceability in one jurisdiction shall
not affect the validity, legality or enforceability of the obligations of the
Company under this Agreement or the Notes in any other jurisdiction.
8.12 Independence of Covenants. All covenants hereunder shall be
given independent effect so that if a particular action or condition is not
permitted by any such covenant, the fact that it would be permitted by an
exception to, or could be otherwise within the limitations of, another covenant
shall not avoid the occurrence of a Default or an Event of Default or any event
or condition which with notice or lapse of time, or both, could become such a
Default or an Event of Default if such action is taken or such condition exists.
8.13 Interest Rate Limitation. Notwithstanding any provisions of
this Agreement or the Notes, in no event shall the amount of interest paid or
agreed to be paid by the Company exceed an amount computed at the highest rate
of interest permissible under applicable law. If, from any circumstances
whatsoever, fulfillment of any provision of this Agreement or the Notes, at the
time performance of such provision shall be due, shall involve exceeding the
interest rate limitation validly prescribed by law which a court of competent
jurisdiction may deem applicable hereto, then, ipso facto, the obligations to be
fulfilled shall be reduced to an amount computed at the highest rate of interest
permissible under applicable law, and if for any reason whatsoever any Bank
shall ever receive as interest an amount which would be deemed unlawful under
such applicable law such interest shall be automatically applied to the payment
of principal of the Loans outstanding hereunder (whether or not then due and
payable) and not to the payment of interest, or shall be refunded to the Company
if such principal and all other obligations of the Company to the Banks have
been paid in full
8.14 Special Procedures for Disbursement of First Loans. The
Revolving Credit Notes of the Banks are being issued in substitution and
replacement for the revolving credit notes previously issued by the Company to
the Banks under the 1995 Credit Agreement (the "Replaced Revolving Credit
Notes"). On the Effective Date, the principal balance of the Replaced Revolving
Credit Notes, as well as all other information which has been endorsed on the
schedules attached to the Replaced Revolving Credit Notes or elsewhere on the
books and records of the Banks with respect to the Replaced Revolving Credit
Notes, shall be endorsed on the schedules attached to the Revolving Credit Notes
or elsewhere on the books and records of the Banks with respect to the Revolving
Credit Notes, in accordance with the Banks' Pro Rata Shares. The execution and
delivery by the Company of the Revolving Credit Notes shall not in any
circumstances be deemed a novation or to have terminated, extinguished or
discharged the Company's indebtedness evidenced by the Replaced Revolving Credit
Notes, all of which indebtedness shall continue under and be evidenced and
governed by the Revolving Credit Notes and this Agreement.
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<PAGE> 52
8.15 Year 2000 Problem. The Company and its Subsidiaries have
reviewed the areas within their business and operations which could be adversely
affected by, and have developed or are developing a program to address on a
timely basis, the "Year 2000 Problem" (that is, the risk that computer
applications used by the Company and its Subsidiaries may be unable to recognize
and perform properly date-sensitive functions involving certain dates prior to
and any date after December 31, 1999). Based on such review and program, the
Company reasonably believes that the "Year 2000 Problem" will not have a
material adverse effect on the business, properties, operations or condition,
financial or otherwise, of the Company or any of its Subsidiaries.
8.16 WAIVER OF JURY TRIAL. THE BANKS AND THE AGENT AND THE COMPANY,
AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL,
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO
A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR
ANY RELATED INSTRUMENT OR AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR
WRITTEN) OR ACTIONS OF ANY OF THEM. NEITHER THE BANKS, THE AGENT NOR THE COMPANY
SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY SUCH ACTION IN
WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL
CANNOT BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE
BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY EITHER THE BANKS, THE AGENT OR
THE COMPANY EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY ALL OF THEM.
[The rest of this page intentionally left blank.]
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<PAGE> 53
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.
THE MONARCH MACHINE TOOL COMPANY
By:______________________________________
Its:__________________________________
Address for Notices: NBD BANK, N.A., as a Bank and as the Agent
One Indiana Square, Suite 308
Indianapolis, Indiana 46266
Attn: Edward C. Hathaway By:______________________________________
Facsimile: 317/266-6042
Commitment Amount: $9,750,000 Its:__________________________________
Address for Notices: STAR BANK, N.A.
425 Walnut Street, M.L. 8160
Cincinnati, OH 42501-1038
Attention: Commercial Lending By:______________________________________
Facsimile: 513/632-2068
Commitment Amount: $5,250,000 Its:_________________________________
-48-
<PAGE> 1
EXHIBIT 10.6
THE MONARCH MACHINE TOOL COMPANY
Mr. Richard E. Clemens
November 3, 1998
Page 1
November 3, 1998
Mr. Richard E. Clemens
79 Governors Club Drive
Beavercreek, OH 45385
Dear Mr. Clemens:
The Monarch Machine Tool Company, an Ohio corporation ("Monarch"),
considers the establishment and maintenance of a sound and vital management to
be essential to protecting and enhancing the best interests of Monarch and its
shareholders. In this connection, Monarch recognizes that, as is the case with
many publicly-held corporations, the mere possibility of a change in control can
raise distracting and disrupting uncertainties and questions among management
personnel, can interfere with their whole-hearted attention and devotion to the
performance of their duties, and can even lead to their departure, all to the
detriment of the best interests of Monarch and its shareholders. Accordingly,
the Board of Directors of Monarch (the "Board") has determined that the best
interests of Monarch and its shareholders would be served by assuring to certain
executives of Monarch and its Affiliates, including yourself, the protection
provided by an agreement which defines the respective rights and obligations of
Monarch and the executive in the event of termination of employment subsequent
to a change in control.
In order to induce you to remain in the employ of Monarch or an
Affiliate of Monarch, this letter agreement sets forth the severance benefits
which Monarch agrees will be provided to you in the event your employment with
Monarch or an Affiliate of Monarch is terminated subsequent to a "change in
control" under the circumstances described below.
Except where the context otherwise indicates, (i) the term "Monarch"
hereinafter includes Monarch and any Successor to Monarch and (ii) the term
"Affiliate of Monarch" when used herein with reference to your employment means
any entity in which Monarch has, directly or indirectly, a 20% or more equity
interest.
1. OPERATION AND TERM OF AGREEMENT. This agreement, although
effective immediately, shall not become operative unless and until there has
been a Change in Control (as defined at Paragraph 2). None of the provisions of
this agreement shall be applicable
<PAGE> 2
THE MONARCH MACHINE TOOL COMPANY
Mr. Richard E. Clemens
November 3, 1998
Page 2
to any termination of your employment, however occurring, which is effective
prior to a Change in Control. This agreement shall continue until the later of
December 31, 2001 or two years after the occurrence of a Change in Control,
provided such Change in Control occurs on or before December 31, 2001, subject
to extension beyond that date by mutual consent. Monarch will review this
agreement with you between January 1, 2001 and July 31, 2001, for the purpose of
determining whether or not an extension beyond December 31, 2001 is mutually
agreeable and, if so, on what basis and for how long.
2. CHANGE IN CONTROL. No benefits shall be payable hereunder unless
there shall have been a Change in Control, as set forth below, and your
employment with Monarch or an Affiliate of Monarch shall thereafter have been
terminated in accordance with paragraph 3 below. For purposes of this agreement,
a "Change in Control" shall mean and be deemed to have occurred if (i) any
"person," as such term is defined in Section 13(d) of the Securities Exchange
Act of 1934 (the "Act"), other than Monarch or an entity then controlled by
Monarch is or becomes the beneficial owner, directly or indirectly, of
securities of Monarch representing 20% or more of the combined voting power of
Monarch's then outstanding securities except, however, in determining whether
the 20% threshold has been attained by a particular person, any voting
securities of Monarch which such person acquires directly from Monarch (other
than pursuant to a stock dividend or split) shall not be taken into
consideration in calculating such person's percentage of ownership of the voting
power of Monarch; (ii) any "person" (as such term is defined at Section 13(d) of
the Act) other than Monarch or an entity then controlled by Monarch is or
becomes the beneficial owner, directly or indirectly, of securities of Monarch
representing 35% or more of the combined voting power of Monarch's then
outstanding securities, including securities such person may have acquired
directly from Monarch; (iii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of Monarch (the "Board") cease for any reason to constitute at least a
majority thereof unless the election, or the nomination for the election by
Monarch's shareholders, of each new Director was approved by a vote of at least
two-thirds of the Directors then still in office who were Directors at the
beginning of the period; (iv) Monarch merges or consolidates with another
corporation and an entity controlled by Monarch immediately prior to the merger
or consolidation is not the surviving entity or if Monarch is the surviving
entity, holders of 80% or more of the voting power of Monarch immediately prior
to the merger or consolidation do not own, immediately after the merger or
consolidation, 65% or more of the voting power of the surviving entity; or (v) a
sale, lease, exchange, or other disposition of all or substantially all of the
assets of Monarch takes place.
3. TERMINATION FOLLOWING CHANGE IN CONTROL.
(A) If any of the events described in paragraph 2 constituting a
Change in Control shall have occurred, then upon any subsequent termination of
your employment with Monarch or an Affiliate of Monarch at any time within two
years following the occurrence of
<PAGE> 3
THE MONARCH MACHINE TOOL COMPANY
Mr. Richard E. Clemens
November 3, 1998
Page 3
such event, you shall be entitled to the benefits provided by this agreement, as
set forth in paragraph 5, unless such termination is (i) directed by Monarch for
Cause or because of your Disability, or (ii) because of your Retirement, or
(iii) by you other than for Good Reason, or (iv) because of your death.
(B) As used in this agreement, the terms "Cause," "Retirement,"
"Good Reason," and "Disability" shall have the meanings set forth below:
(i) Cause. "Cause" shall mean (a) the willful and continued
failure by you to substantially perform your duties with Monarch or an
Affiliate of Monarch (other than any such failure resulting from your
physical or mental illness or other physical or mental incapacity), after a
demand for substantial performance is delivered to you by the Board which
specifically identifies the manner in which the Board believes that you
have not substantially performed your duties, or (b) the willful engaging
by you in gross misconduct which is materially and demonstrably injurious
to Monarch or an Affiliate of Monarch resulting or intended to result,
directly or indirectly, in substantial personal gain or substantial
personal enrichment at the expense of Monarch or an Affiliate of Monarch.
For purposes of this subparagraph, no act, or failure to act, on your part
shall be considered "willful" unless done, or omitted to be done, by you
not in good faith and without reasonable belief that your action or
omission was in the best interests of Monarch. Notwithstanding the
foregoing, Cause shall not be deemed to exist unless and until there shall
have been delivered to you a copy of a resolution duly adopted by the
affirmative vote of not less than three-fourths of the number of Directors
then in office at a meeting of the Board called and held for that purpose
(after reasonable notice to you and an opportunity for you, together with
your counsel, to be heard before the Board), finding that in the good faith
opinion of the Board you were guilty of conduct set forth above in clauses
(a) or (b) of the first sentence of this subparagraph and specifying the
particulars thereof in detail.
(ii) Retirement. "Retirement" shall mean cessation of your
employment in accordance with Monarch's or an Affiliate of Monarch's
retirement policy (including early retirement) generally applicable to
salaried employees, or in accordance with any retirement arrangement with
respect to you established with your consent.
(iii) Good Reason. "Good Reason" shall mean:
(a) The assignment to you of any duties inconsistent
with your position, duties, responsibilities and status with Monarch
or an Affiliate of Monarch immediately prior to a Change in Control
or a change in your responsibilities, as in effect immediately prior
to a Change in Control, which materially diminishes your
responsibilities with Monarch or an Affiliate of Monarch when
considered as a whole, or any removal of you from or any failure
<PAGE> 4
THE MONARCH MACHINE TOOL COMPANY
Mr. Richard E. Clemens
November 3, 1998
Page 4
to re-elect you to any of such positions or offices; provided,
however, that the foregoing shall not constitute Good Reason if done
in connection with termination of your employment by Monarch or an
Affiliate of Monarch for Cause or because of your Disability, or by
you other than for Good Reason.
(b) A reduction by Monarch or an Affiliate of Monarch of
your then current annual base salary or, if higher, your annual base
salary as in effect at the time of the Change in Control.
(c) Failure by Monarch or an Affiliate of Monarch to
continue in effect any benefit, incentive compensation, pension,
employee stock ownership, stock option, life insurance, medical,
health and accident, or disability plan in which you are
participating at the time of a Change in Control or plans providing
you with substantially similar benefits, or the taking of any action
by Monarch or an Affiliate of Monarch which would adversely affect
your participation in or materially reduce your benefits under any
of such plans or deprive you of any material fringe benefit enjoyed
by you at the time of the Change in Control, or the failure by
Monarch or an Affiliate of Monarch to provide you with the number of
paid vacation days to which you would then be entitled in accordance
with Monarch's or an Affiliate of Monarch's vacation policy in
effect at the time of the Change in Control.
(d) The relocation of Monarch's principal executive
offices to a location outside Montgomery County, Ohio, if at the
time of a Change in Control you are based at Monarch's principal
executive offices.
(e) Monarch's or an Affiliate of Monarch's requiring you
to be based anywhere other than the location where you are based at
the time of a Change in Control, if the same requires you to
relocate your principal residence; or, in the event you consent to
being based anywhere other than such location, the failure by
Monarch or an Affiliate of Monarch to pay (or reimburse you for) all
reasonable moving expenses incurred by you relating to a change of
your principal residence in connection with such relocation and to
indemnify you against any loss [defined as the difference between
the higher of (1) your aggregate investment in such residence or (2)
the fair market value of such residence, as determined by a real
estate appraiser designated by you and reasonably satisfactory to
Monarch, and the actual sale price of such residence after the
deduction of all real estate brokerage charges and related selling
expenses] realized upon the sale of such residence in connection
with any such change of residence.
<PAGE> 5
THE MONARCH MACHINE TOOL COMPANY
Mr. Richard E. Clemens
November 3, 1998
Page 5
(f) The failure of Monarch to obtain the assumption of
this agreement by any Successor as provided in paragraph 7 hereof.
(g) Monarch's or an Affiliate of Monarch's termination
of your employment without satisfying any applicable requirements of
paragraph 4 and subparagraph B(i) above.
(iv) Disability. "Disability" shall mean your inability to
perform the duties required of you on a full-time basis for a period of six
consecutive months because of physical or mental illness or other physical
or mental disability or incapacity, followed by Monarch giving you thirty
days' written notice of its intention to terminate your employment by
reason thereof, and your failure because of physical or mental illness or
other physical or mental disability or incapacity to resume the full-time
performance of your duties within such period of thirty days and thereafter
perform the same for a period of two consecutive months.
(C) During any period of time subsequent to a Change in Control, if
you fail to perform your duties as a result of physical or mental illness or
other physical or mental disability or incapacity, you shall continue to receive
your full salary at your annual base salary rate then in effect, together with
all incentive compensation until you return to work or your employment with
Monarch or an Affiliate of Monarch is terminated; provided, however, that any
amount otherwise payable for any period of time pursuant to this subparagraph
(C) shall be reduced by any payment or payments you receive for such period of
time under any employee salary continuation plan or employee disability
insurance plan maintained by Monarch or an Affiliate of Monarch no part of the
cost of which was paid or is payable by you.
(D) If subsequent to a Change in Control, your employment is
terminated by Monarch or an Affiliate of Monarch for Cause, Monarch shall pay
you your full salary through the Date of Termination at your annual base salary
rate in effect at the time Notice of Termination is given, and you shall also
receive all accrued or vested benefits of any kind to which you are, or would
otherwise have been, entitled through the Date of Termination (as defined in
paragraph 4), and Monarch or an Affiliate of Monarch shall thereupon have no
further obligation to you under this agreement.
4. NOTICE AND DATE OF TERMINATION.
(A) Any termination of your employment subsequent to a Change in
Control shall be consummated by written Notice of Termination given to the other
party. For purposes of this agreement, "Notice of Termination" shall mean a
notice which indicates the specific termination provision or provisions in this
agreement relied upon, if any, and sets forth in
<PAGE> 6
THE MONARCH MACHINE TOOL COMPANY
Mr. Richard E. Clemens
November 3, 1998
Page 6
reasonable detail the facts and circumstances claimed to provide a basis for
termination of your employment.
(B) "Date of Termination" shall mean (i) if your employment is
terminated by Monarch or an Affiliate of Monarch for Cause, the date specified
in the Notice of Termination or the date on which the meeting of the Board
referred to in subparagraph 3(B)(i) is concluded, whichever date is the later;
or (ii) if your employment is terminated for any other reason, the date on which
Notice of Termination is given or the effective date specified in the Notice,
whichever is later. For purposes of this agreement, termination of your
employment shall be deemed to have occurred within two years following the
occurrence of a Change in Control if the Date of Termination is within such two
year period.
5. COMPENSATION UPON TERMINATION.
(A) The compensation and benefits to be provided to you pursuant to
paragraph 3 of this agreement upon termination of your employment with Monarch
or an Affiliate of Monarch under specified circumstances within two years
following a Change in Control include the following:
(i) Subject to the provisions of paragraph 8 hereof, Monarch
shall pay to you as severance pay in a lump sum in cash on the fifteenth
day following the Date of Termination, the following amounts:
(a) Your full salary through the Date of Termination at
your annual base salary rate in effect at the time Notice of
Termination is given; and also the amount of the award or awards, if
any, with respect to any completed period or periods which has been
earned by or awarded to you pursuant to any incentive compensation
plan or arrangement of Monarch or an Affiliate of Monarch but which
has not yet been paid to you.
(b) In lieu of any further salary payments to you for
periods subsequent to the Date of Termination, an amount (the
"Additional Compensation Payment") equal to two hundred percent
(200%) of the greater of (i) the sum of your annual base salary at
the rate in effect as of the Date of Termination (or, if higher, at
the rate in effect at the time of the Change in Control) plus an
amount equal to the average annual amount awarded to you under any
incentive compensation plan or arrangement for the two years
immediately preceding the year during which the Date of Termination
occurs (whether or not fully paid) or (ii) your average annual
compensation for the five calendar years preceding the calendar year
in which the Change in Control occurred (it being understood that
for purposes of this clause (b)(ii), "compensation" means your
actual salary plus
<PAGE> 7
THE MONARCH MACHINE TOOL COMPANY
Mr. Richard E. Clemens
November 3, 1998
Page 7
any amount awarded to you under any incentive compensation plan or
arrangement).
(c) An amount in cash equal to the aggregate spread
between the exercise prices of all options granted to you under
Monarch's existing stock option plans or any stock option plan
adopted by Monarch subsequent to the date hereof ("Options") which
are then outstanding, whether or not then fully exercisable, and the
higher of (a) the Fair Market Value of share of Common Stock of
Monarch ("Monarch Shares") on the Date of Termination or (b) the
average price per Monarch Share actually paid by the acquiring party
in connection with any Change in Control. As used in this
subparagraph, "Fair Market Value" shall mean (1) in the event
Monarch Shares are listed on any exchange or in the NASD National
Market System, the last sale price on such exchange or System on the
Date of Termination (or last trading date prior thereto) or, if
there are no sales on such date, the mean between the representative
bid and asked prices for Monarch Shares on such exchange or System
at the close of business on such date or (2) in the event that there
is then no public market for Monarch Shares or that trading in
Monarch Shares is sporadic and the mean between any bid and asked
prices is not representative of fair market value, the fair market
value of Monarch Shares determined in accordance with
Section 2031-2(f) of the Treasury Regulations or any successor
provision thereto. Any Option for which payment is made as
prescribed in this subparagraph (c) shall be canceled effective upon
the making of such payment. In lieu of having your Options canceled
and being paid the "spread" on such canceled Options in cash as set
forth in this subparagraph 5(A)(i)(c), you may elect to continue to
hold any part, or all, of the Options and exercise such Options, if
you so choose, in accordance with their terms. Any such election to
continue to hold Options shall be made by giving written notice of
this election to Monarch within 10 days of your Date of Termination,
which notice shall specify the date of grant, number of Shares
subject to the options and option exercise price of the options you
elect to continue to hold.
(d) All legal fees and expenses reasonably incurred by
you in good faith as a result of such termination (including all
such fees and expenses, if any, incurred in contesting or disputing
any such termination or in seeking to obtain or enforce any right or
benefit provided by this agreement).
(ii) Monarch shall, at its expense, maintain in full force and
effect for your continued benefit all life insurance, medical, health and
accident plans, programs and arrangements in which you were entitled to
participate at the time of the Change in Control, provided that your
continued participation is possible under the terms of such plans, programs
and arrangements. In the event that the terms of any such plan, program
<PAGE> 8
THE MONARCH MACHINE TOOL COMPANY
Mr. Richard E. Clemens
November 3, 1998
Page 8
or arrangement do not permit your continued participation or that any such
plan, program or arrangement has been or is discontinued or the benefits
thereunder have been or are materially reduced, Monarch shall arrange to
provide, at its expense, benefits to you which are substantially similar to
those which you were entitled to receive under such plan, program or
arrangement at the time of the Change in Control. Monarch's obligation
under this subparagraph (ii) shall terminate on the earliest of the
following dates: (a) the month in which you become age 65, (b) the date an
essentially equivalent and no less favorable benefit is made available to
you at no cost by a subsequent employer, or (c) the date which is 24 months
after the Date of Termination.
(iii) In the event that because of their relationship to you,
members of your family or other individuals are covered by any plan,
program, or arrangement described in subparagraph (ii) above immediately
prior to the Date of Termination, the provisions set forth in subparagraph
(ii) shall apply equally to require the continued coverage of such persons;
provided, however, that if under the terms of any such plan, program or
arrangement, any such person would have ceased to be eligible for coverage
during the period in which Monarch is obligated to continue coverage for
you, nothing set forth herein shall obligate Monarch to continue to provide
coverage for such person beyond the date such coverage would have ceased
even if you had remained an employee of Monarch or an Affiliate of Monarch.
(iv) Monarch shall enable you to purchase the automobile, if
any, which Monarch or an Affiliate of Monarch was providing for your use at
the time Notice of Termination was given at the wholesale value of such
automobile at such time or if the automobile was leased, then at any
buy-out price provided for in the lease.
(B) If an event constituting Good Reason shall occur, you shall be
entitled to the compensation and benefits described in (A) above only if you
give a Notice of Termination with respect thereto within 120 days after the
occurrence of such event, regardless of whether there has been an intervening
termination of your employment by Monarch or an Affiliate of Monarch or
otherwise.
(C) You shall not be required to mitigate the amount of any payment
provided for in this paragraph 5 by seeking other employment or otherwise, nor
shall the amount of any payment provided for in this paragraph 5 be reduced by
any compensation earned by you after the Date of Termination as the result of
employment by another employer or otherwise, except, however, the amount of
payments provided for in paragraph 5 shall be reduced by the amount of any
severance benefits which you are entitled to receive under any other agreement
with, or plan of, Monarch or an Affiliate of Monarch.
<PAGE> 9
THE MONARCH MACHINE TOOL COMPANY
Mr. Richard E. Clemens
November 3, 1998
Page 9
6. RIGHTS AS FORMER EMPLOYEE. Nothing contained in this agreement
shall be construed as preventing you, and shall not prevent you, following any
termination of your employment whether pursuant to this agreement or otherwise,
from thereafter participating in any benefit or insurance plans, programs or
arrangements (including without limitation, any retirement plans or programs) in
the same manner and to the same extent that you would have been entitled to
participate as a former employee of Monarch or an Affiliate of Monarch had this
agreement not have been executed, except, however, you shall not be entitled to
any severance payments under any severance pay programs of Monarch or an
Affiliate of Monarch (other than this agreement) if you are paid the benefits
provided for under this agreement.
7. SUCCESSORS. Monarch shall require any Successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of Monarch, by agreement in form
and substance satisfactory to you, to expressly assume and agree to perform this
agreement in the same manner and to the same extent that Monarch would be
required to perform it if no such succession had taken place. Failure of Monarch
to obtain such agreement prior to the effectiveness of such succession shall be
a breach of this agreement and shall entitle you to compensation from Monarch in
the same amount and on the same terms as you would be entitled hereunder if you
terminated your employment for Good Reason, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
This agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any amounts
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid to such beneficiary or
beneficiaries as you shall have designated by written notice delivered to
Monarch prior to your death or, failing such written notice, to your estate.
8. SAVINGS CLAUSE.
(A) The Deficit Reduction Act of 1984 added Section 280G to the
Internal Revenue Code of 1954, as amended (the "Code"). Section 280G imposes a
20% excise tax on excessive compensation received by, and denies a deduction to
the corporation for the amount of excess compensation paid to, employees who are
officers, shareholders, or highly compensated individuals as a result of a
change in the ownership or effective control of the corporation or in the
ownership of a substantial portion of the assets of the corporation. In general,
payments to an individual that are contingent on a Change in Control will not be
treated as excessive if such payments do not exceed three times the average
annual compensation received by such individual over the five years preceding
the Change in Control. The provisions in subparagraph (B) of this paragraph 8
are designed to maximize the amounts payable to you pursuant to this agreement
or otherwise which are contingent upon a change of control.
<PAGE> 10
THE MONARCH MACHINE TOOL COMPANY
Mr. Richard E. Clemens
November 3, 1998
Page 10
(B) In the event that it is determined that any payment by Monarch
to or for your benefit (whether paid or payable pursuant to the terms of this
agreement or otherwise) would be subject to the 20% tax pursuant to Section 4999
of the Code, then the aggregate present value of amounts payable to or for your
benefit pursuant to this agreement (such payments pursuant to this agreement are
hereinafter referred to as "Agreement Payments") shall be reduced to the Reduced
Amount. For purposes of this subparagraph, the "Reduced Amount" shall be defined
as an amount expressed in present value which maximizes the aggregate present
value of Agreement Payments without causing any payments to be subject to the
20% tax pursuant to Section 4999 of the Code.
9. NOTICES. All notices required or permitted to be given under this
agreement shall be in writing and shall be mailed (postage prepaid by either
registered or certified mail) or delivered, if to Monarch, addressed to:
The Monarch Machine Tool Company
2600 Kettering Tower
Dayton, Ohio 45423
Attention: Corporate Secretary
and if to you, addressed to:
Mr. Richard E. Clemens
79 Governors Club Drive
Beavercreek, OH 45385
Either party may change the address to which notices to such party are to be
directed by giving written notice of such change to the other party in the
manner specified in this paragraph. All notices, including without limitation,
any Notice of Termination, shall be deemed to have been given upon the date of
actual receipt by the recipient party.
10. ARBITRATION. Any dispute or controversy arising out of or
relating to this agreement shall be settled by arbitration in Dayton, Ohio, in
accordance with the rules then obtaining of the American Arbitration
Association, and judgment may be entered on the arbitrator's award in any court
having jurisdiction.
11. MISCELLANEOUS. No provision of this agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing, signed by you and such officer of Monarch as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of compliance by such other party with,
any condition or provision of this agreement to be
<PAGE> 11
THE MONARCH MACHINE TOOL COMPANY
Mr. Richard E. Clemens
November 3, 1998
Page 11
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this agreement.
12. GOVERNING LAW. The validity, interpretation, construction and
performance of this agreement shall be governed by the laws of the State of
Ohio, without giving effect to the principles of conflicts of law thereof.
13. VALIDITY. The invalidity or unenforceability of any provision of
this agreement shall not affect the validity or enforceability of any other
provision, which shall remain in full force and effect.
If this letter correctly sets forth our agreement on the subject
matter hereof, please so confirm by signing and returning the enclosed copy.
Very truly yours,
The Monarch Machine Tool Company
By /s/ William A. Enouen
----------------------------------
William A. Enouen
Chairman, Compensation Committee
CONFIRMED AND AGREED TO:
/s/ Richard E. Clemens
- ----------------------------------
Richard E. Clemens
Dated:
-------------------------
<PAGE> 1
THE MONARCH MACHINE TOOL COMPANY Exhibit 10.7
Mr. Karl A. Frydryk
November 3, 1998
Page 1
November 3, 1998
Mr. Karl A. Frydryk
9506 Lindner Lane
Dayton, Ohio 45458
Dear Mr. Frydryk:
The Monarch Machine Tool Company, an Ohio corporation ("Monarch"),
considers the establishment and maintenance of a sound and vital management to
be essential to protecting and enhancing the best interests of Monarch and its
shareholders. In this connection, Monarch recognizes that, as is the case with
many publicly-held corporations, the mere possibility of a change in control can
raise distracting and disrupting uncertainties and questions among management
personnel, can interfere with their whole-hearted attention and devotion to the
performance of their duties, and can even lead to their departure, all to the
detriment of the best interests of Monarch and its shareholders. Accordingly,
the Board of Directors of Monarch (the "Board") has determined that the best
interests of Monarch and its shareholders would be served by assuring to certain
executives of Monarch and its Affiliates, including yourself, the protection
provided by an agreement which defines the respective rights and obligations of
Monarch and the executive in the event of termination of employment subsequent
to a change in control.
In order to induce you to remain in the employ of Monarch or an
Affiliate of Monarch, this letter agreement sets forth the severance benefits
which Monarch agrees will be provided to you in the event your employment with
Monarch or an Affiliate of Monarch is terminated subsequent to a "change in
control" under the circumstances described below.
Except where the context otherwise indicates, (i) the term "Monarch"
hereinafter includes Monarch and any Successor to Monarch and (ii) the term
"Affiliate of Monarch" when used herein with reference to your employment means
any entity in which Monarch has, directly or indirectly, a 20% or more equity
interest.
1. OPERATION AND TERM OF AGREEMENT. This agreement, although
effective immediately, shall not become operative unless and until there has
been a Change in Control (as defined at Paragraph 2). None of the provisions of
this agreement shall be applicable
<PAGE> 2
THE MONARCH MACHINE TOOL COMPANY
Mr. Karl A. Frydryk
November 3, 1998
Page 2
to any termination of your employment, however occurring, which is effective
prior to a Change in Control. This agreement shall continue until the later of
December 31, 2001 or two years after the occurrence of a Change in Control,
provided such Change in Control occurs on or before December 31, 2001, subject
to extension beyond that date by mutual consent. Monarch will review this
agreement with you between January 1, 2001 and July 31, 2001, for the purpose of
determining whether or not an extension beyond December 31, 2001 is mutually
agreeable and, if so, on what basis and for how long.
2. CHANGE IN CONTROL. No benefits shall be payable hereunder unless
there shall have been a Change in Control, as set forth below, and your
employment with Monarch or an Affiliate of Monarch shall thereafter have been
terminated in accordance with paragraph 3 below. For purposes of this agreement,
a "Change in Control" shall mean and be deemed to have occurred if (i) any
"person," as such term is defined in Section 13(d) of the Securities Exchange
Act of 1934 (the "Act"), other than Monarch or an entity then controlled by
Monarch is or becomes the beneficial owner, directly or indirectly, of
securities of Monarch representing 20% or more of the combined voting power of
Monarch's then outstanding securities except, however, in determining whether
the 20% threshold has been attained by a particular person, any voting
securities of Monarch which such person acquires directly from Monarch (other
than pursuant to a stock dividend or split) shall not be taken into
consideration in calculating such person's percentage of ownership of the voting
power of Monarch; (ii) any "person" (as such term is defined at Section 13(d) of
the Act) other than Monarch or an entity then controlled by Monarch is or
becomes the beneficial owner, directly or indirectly, of securities of Monarch
representing 35% or more of the combined voting power of Monarch's then
outstanding securities, including securities such person may have acquired
directly from Monarch; (iii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of Monarch (the "Board") cease for any reason to constitute at least a
majority thereof unless the election, or the nomination for the election by
Monarch's shareholders, of each new Director was approved by a vote of at least
two-thirds of the Directors then still in office who were Directors at the
beginning of the period; (iv) Monarch merges or consolidates with another
corporation and an entity controlled by Monarch immediately prior to the merger
or consolidation is not the surviving entity or if Monarch is the surviving
entity, holders of 80% or more of the voting power of Monarch immediately prior
to the merger or consolidation do not own, immediately after the merger or
consolidation, 65% or more of the voting power of the surviving entity; or (v) a
sale, lease, exchange, or other disposition of all or substantially all of the
assets of Monarch takes place.
3. TERMINATION FOLLOWING CHANGE IN CONTROL.
(A) If any of the events described in paragraph 2 constituting a
Change in Control shall have occurred, then upon any subsequent termination of
your employment with Monarch or an Affiliate of Monarch at any time within two
years following the occurrence of
<PAGE> 3
THE MONARCH MACHINE TOOL COMPANY
Mr. Karl A. Frydryk
November 3, 1998
Page 3
such event, you shall be entitled to the benefits provided by this agreement, as
set forth in paragraph 5, unless such termination is (i) directed by Monarch for
Cause or because of your Disability, or (ii) because of your Retirement, or
(iii) by you other than for Good Reason, or (iv) because of your death.
(B) As used in this agreement, the terms "Cause," "Retirement,"
"Good Reason," and "Disability" shall have the meanings set forth below:
(i) Cause. "Cause" shall mean (a) the willful and continued
failure by you to substantially perform your duties with Monarch or an
Affiliate of Monarch (other than any such failure resulting from your
physical or mental illness or other physical or mental incapacity), after a
demand for substantial performance is delivered to you by the Board which
specifically identifies the manner in which the Board believes that you
have not substantially performed your duties, or (b) the willful engaging
by you in gross misconduct which is materially and demonstrably injurious
to Monarch or an Affiliate of Monarch resulting or intended to result,
directly or indirectly, in substantial personal gain or substantial
personal enrichment at the expense of Monarch or an Affiliate of Monarch.
For purposes of this subparagraph, no act, or failure to act, on your part
shall be considered "willful" unless done, or omitted to be done, by you
not in good faith and without reasonable belief that your action or
omission was in the best interests of Monarch. Notwithstanding the
foregoing, Cause shall not be deemed to exist unless and until there shall
have been delivered to you a copy of a resolution duly adopted by the
affirmative vote of not less than three-fourths of the number of Directors
then in office at a meeting of the Board called and held for that purpose
(after reasonable notice to you and an opportunity for you, together with
your counsel, to be heard before the Board), finding that in the good faith
opinion of the Board you were guilty of conduct set forth above in clauses
(a) or (b) of the first sentence of this subparagraph and specifying the
particulars thereof in detail.
(ii) Retirement. "Retirement" shall mean cessation of your
employment in accordance with Monarch's or an Affiliate of Monarch's
retirement policy (including early retirement) generally applicable to
salaried employees, or in accordance with any retirement arrangement with
respect to you established with your consent.
(iii) Good Reason. "Good Reason" shall mean:
(a) The assignment to you of any duties inconsistent
with your position, duties, responsibilities and status with Monarch
or an Affiliate of Monarch immediately prior to a Change in Control
or a change in your responsibilities, as in effect immediately prior
to a Change in Control, which materially diminishes your
responsibilities with Monarch or an Affiliate of Monarch when
considered as a whole, or any removal of you from or any failure
<PAGE> 4
THE MONARCH MACHINE TOOL COMPANY
Mr. Karl A. Frydryk
November 3, 1998
Page 4
to re-elect you to any of such positions or offices; provided,
however, that the foregoing shall not constitute Good Reason if done
in connection with termination of your employment by Monarch or an
Affiliate of Monarch for Cause or because of your Disability, or by
you other than for Good Reason.
(b) A reduction by Monarch or an Affiliate of Monarch of
your then current annual base salary or, if higher, your annual base
salary as in effect at the time of the Change in Control.
(c) Failure by Monarch or an Affiliate of Monarch to
continue in effect any benefit, incentive compensation, pension,
employee stock ownership, stock option, life insurance, medical,
health and accident, or disability plan in which you are
participating at the time of a Change in Control or plans providing
you with substantially similar benefits, or the taking of any action
by Monarch or an Affiliate of Monarch which would adversely affect
your participation in or materially reduce your benefits under any
of such plans or deprive you of any material fringe benefit enjoyed
by you at the time of the Change in Control, or the failure by
Monarch or an Affiliate of Monarch to provide you with the number of
paid vacation days to which you would then be entitled in accordance
with Monarch's or an Affiliate of Monarch's vacation policy in
effect at the time of the Change in Control.
(d) The relocation of Monarch's principal executive
offices to a location outside Montgomery County, Ohio, if at the
time of a Change in Control you are based at Monarch's principal
executive offices.
(e) Monarch's or an Affiliate of Monarch's requiring you
to be based anywhere other than the location where you are based at
the time of a Change in Control, if the same requires you to
relocate your principal residence; or, in the event you consent to
being based anywhere other than such location, the failure by
Monarch or an Affiliate of Monarch to pay (or reimburse you for) all
reasonable moving expenses incurred by you relating to a change of
your principal residence in connection with such relocation and to
indemnify you against any loss [defined as the difference between
the higher of (1) your aggregate investment in such residence or (2)
the fair market value of such residence, as determined by a real
estate appraiser designated by you and reasonably satisfactory to
Monarch, and the actual sale price of such residence after the
deduction of all real estate brokerage charges and related selling
expenses] realized upon the sale of such residence in connection
with any such change of residence.
<PAGE> 5
THE MONARCH MACHINE TOOL COMPANY
Mr. Karl A. Frydryk
November 3, 1998
Page 5
(f) The failure of Monarch to obtain the assumption of
this agreement by any Successor as provided in paragraph 7 hereof.
(g) Monarch's or an Affiliate of Monarch's termination
of your employment without satisfying any applicable requirements of
paragraph 4 and subparagraph B(i) above.
(iv) Disability. "Disability" shall mean your inability to
perform the duties required of you on a full-time basis for a period of six
consecutive months because of physical or mental illness or other physical
or mental disability or incapacity, followed by Monarch giving you thirty
days' written notice of its intention to terminate your employment by
reason thereof, and your failure because of physical or mental illness or
other physical or mental disability or incapacity to resume the full-time
performance of your duties within such period of thirty days and thereafter
perform the same for a period of two consecutive months.
(C) During any period of time subsequent to a Change in Control, if
you fail to perform your duties as a result of physical or mental illness or
other physical or mental disability or incapacity, you shall continue to receive
your full salary at your annual base salary rate then in effect, together with
all incentive compensation until you return to work or your employment with
Monarch or an Affiliate of Monarch is terminated; provided, however, that any
amount otherwise payable for any period of time pursuant to this subparagraph
(C) shall be reduced by any payment or payments you receive for such period of
time under any employee salary continuation plan or employee disability
insurance plan maintained by Monarch or an Affiliate of Monarch no part of the
cost of which was paid or is payable by you.
(D) If subsequent to a Change in Control, your employment is
terminated by Monarch or an Affiliate of Monarch for Cause, Monarch shall pay
you your full salary through the Date of Termination at your annual base salary
rate in effect at the time Notice of Termination is given, and you shall also
receive all accrued or vested benefits of any kind to which you are, or would
otherwise have been, entitled through the Date of Termination (as defined in
paragraph 4), and Monarch or an Affiliate of Monarch shall thereupon have no
further obligation to you under this agreement.
4. NOTICE AND DATE OF TERMINATION.
(A) Any termination of your employment subsequent to a Change in
Control shall be consummated by written Notice of Termination given to the other
party. For purposes of this agreement, "Notice of Termination" shall mean a
notice which indicates the specific termination provision or provisions in this
agreement relied upon, if any, and sets forth in
<PAGE> 6
THE MONARCH MACHINE TOOL COMPANY
Mr. Karl A. Frydryk
November 3, 1998
Page 6
reasonable detail the facts and circumstances claimed to provide a basis for
termination of your employment.
(B) "Date of Termination" shall mean (i) if your employment is
terminated by Monarch or an Affiliate of Monarch for Cause, the date specified
in the Notice of Termination or the date on which the meeting of the Board
referred to in subparagraph 3(B)(i) is concluded, whichever date is the later;
or (ii) if your employment is terminated for any other reason, the date on which
Notice of Termination is given or the effective date specified in the Notice,
whichever is later. For purposes of this agreement, termination of your
employment shall be deemed to have occurred within two years following the
occurrence of a Change in Control if the Date of Termination is within such two
year period.
5. COMPENSATION UPON TERMINATION.
(A) The compensation and benefits to be provided to you pursuant to
paragraph 3 of this agreement upon termination of your employment with Monarch
or an Affiliate of Monarch under specified circumstances within two years
following a Change in Control include the following:
(i) Subject to the provisions of paragraph 8 hereof, Monarch
shall pay to you as severance pay in a lump sum in cash on the fifteenth
day following the Date of Termination, the following amounts:
(a) Your full salary through the Date of Termination at
your annual base salary rate in effect at the time Notice of
Termination is given; and also the amount of the award or awards, if
any, with respect to any completed period or periods which has been
earned by or awarded to you pursuant to any incentive compensation
plan or arrangement of Monarch or an Affiliate of Monarch but which
has not yet been paid to you.
(b) In lieu of any further salary payments to you for
periods subsequent to the Date of Termination, an amount (the
"Additional Compensation Payment") equal to two hundred percent
(200%) of the greater of (i) the sum of your annual base salary at
the rate in effect as of the Date of Termination (or, if higher, at
the rate in effect at the time of the Change in Control) plus an
amount equal to the average annual amount awarded to you under any
incentive compensation plan or arrangement for the two years
immediately preceding the year during which the Date of Termination
occurs (whether or not fully paid) or (ii) your average annual
compensation for the five calendar years preceding the calendar year
in which the Change in Control occurred (it being understood that
for purposes of this clause (b)(ii), "compensation" means your
actual salary plus
<PAGE> 7
THE MONARCH MACHINE TOOL COMPANY
Mr. Karl A. Frydryk
November 3, 1998
Page 7
any amount awarded to you under any incentive compensation plan or
arrangement).
(c) An amount in cash equal to the aggregate spread
between the exercise prices of all options granted to you under
Monarch's existing stock option plans or any stock option plan
adopted by Monarch subsequent to the date hereof ("Options") which
are then outstanding, whether or not then fully exercisable, and the
higher of (a) the Fair Market Value of share of Common Stock of
Monarch ("Monarch Shares") on the Date of Termination or (b) the
average price per Monarch Share actually paid by the acquiring party
in connection with any Change in Control. As used in this
subparagraph, "Fair Market Value" shall mean (1) in the event
Monarch Shares are listed on any exchange or in the NASD National
Market System, the last sale price on such exchange or System on the
Date of Termination (or last trading date prior thereto) or, if
there are no sales on such date, the mean between the representative
bid and asked prices for Monarch Shares on such exchange or System
at the close of business on such date or (2) in the event that there
is then no public market for Monarch Shares or that trading in
Monarch Shares is sporadic and the mean between any bid and asked
prices is not representative of fair market value, the fair market
value of Monarch Shares determined in accordance with
Section 2031-2(f) of the Treasury Regulations or any successor
provision thereto. Any Option for which payment is made as
prescribed in this subparagraph (c) shall be canceled effective upon
the making of such payment. In lieu of having your Options canceled
and being paid the "spread" on such canceled Options in cash as set
forth in this subparagraph 5(A)(i)(c), you may elect to continue to
hold any part, or all, of the Options and exercise such Options, if
you so choose, in accordance with their terms. Any such election to
continue to hold Options shall be made by giving written notice of
this election to Monarch within 10 days of your Date of Termination,
which notice shall specify the date of grant, number of Shares
subject to the options and option exercise price of the options you
elect to continue to hold.
(d) All legal fees and expenses reasonably incurred by
you in good faith as a result of such termination (including all
such fees and expenses, if any, incurred in contesting or disputing
any such termination or in seeking to obtain or enforce any right or
benefit provided by this agreement).
(ii) Monarch shall, at its expense, maintain in full force and
effect for your continued benefit all life insurance, medical, health and
accident plans, programs and arrangements in which you were entitled to
participate at the time of the Change in Control, provided that your
continued participation is possible under the terms of such plans, programs
and arrangements. In the event that the terms of any such plan, program
<PAGE> 8
THE MONARCH MACHINE TOOL COMPANY
Mr. Karl A. Frydryk
November 3, 1998
Page 8
or arrangement do not permit your continued participation or that any such
plan, program or arrangement has been or is discontinued or the benefits
thereunder have been or are materially reduced, Monarch shall arrange to
provide, at its expense, benefits to you which are substantially similar to
those which you were entitled to receive under such plan, program or
arrangement at the time of the Change in Control. Monarch's obligation
under this subparagraph (ii) shall terminate on the earliest of the
following dates: (a) the month in which you become age 65, (b) the date an
essentially equivalent and no less favorable benefit is made available to
you at no cost by a subsequent employer, or (c) the date which is 24 months
after the Date of Termination.
(iii) In the event that because of their relationship to you,
members of your family or other individuals are covered by any plan,
program, or arrangement described in subparagraph (ii) above immediately
prior to the Date of Termination, the provisions set forth in subparagraph
(ii) shall apply equally to require the continued coverage of such persons;
provided, however, that if under the terms of any such plan, program or
arrangement, any such person would have ceased to be eligible for coverage
during the period in which Monarch is obligated to continue coverage for
you, nothing set forth herein shall obligate Monarch to continue to provide
coverage for such person beyond the date such coverage would have ceased
even if you had remained an employee of Monarch or an Affiliate of Monarch.
(iv) Monarch shall enable you to purchase the automobile, if
any, which Monarch or an Affiliate of Monarch was providing for your use at
the time Notice of Termination was given at the wholesale value of such
automobile at such time or if the automobile was leased, then at any
buy-out price provided for in the lease.
(B) If an event constituting Good Reason shall occur, you shall be
entitled to the compensation and benefits described in (A) above only if you
give a Notice of Termination with respect thereto within 120 days after the
occurrence of such event, regardless of whether there has been an intervening
termination of your employment by Monarch or an Affiliate of Monarch or
otherwise.
(C) You shall not be required to mitigate the amount of any payment
provided for in this paragraph 5 by seeking other employment or otherwise, nor
shall the amount of any payment provided for in this paragraph 5 be reduced by
any compensation earned by you after the Date of Termination as the result of
employment by another employer or otherwise, except, however, the amount of
payments provided for in paragraph 5 shall be reduced by the amount of any
severance benefits which you are entitled to receive under any other agreement
with, or plan of, Monarch or an Affiliate of Monarch.
<PAGE> 9
THE MONARCH MACHINE TOOL COMPANY
Mr. Karl A. Frydryk
November 3, 1998
Page 9
6. RIGHTS AS FORMER EMPLOYEE. Nothing contained in this agreement
shall be construed as preventing you, and shall not prevent you, following any
termination of your employment whether pursuant to this agreement or otherwise,
from thereafter participating in any benefit or insurance plans, programs or
arrangements (including without limitation, any retirement plans or programs) in
the same manner and to the same extent that you would have been entitled to
participate as a former employee of Monarch or an Affiliate of Monarch had this
agreement not have been executed, except, however, you shall not be entitled to
any severance payments under any severance pay programs of Monarch or an
Affiliate of Monarch (other than this agreement) if you are paid the benefits
provided for under this agreement.
7. SUCCESSORS. Monarch shall require any Successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of Monarch, by agreement in form
and substance satisfactory to you, to expressly assume and agree to perform this
agreement in the same manner and to the same extent that Monarch would be
required to perform it if no such succession had taken place. Failure of Monarch
to obtain such agreement prior to the effectiveness of such succession shall be
a breach of this agreement and shall entitle you to compensation from Monarch in
the same amount and on the same terms as you would be entitled hereunder if you
terminated your employment for Good Reason, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
This agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any amounts
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid to such beneficiary or
beneficiaries as you shall have designated by written notice delivered to
Monarch prior to your death or, failing such written notice, to your estate.
8. SAVINGS CLAUSE.
(A) The Deficit Reduction Act of 1984 added Section 280G to the
Internal Revenue Code of 1954, as amended (the "Code"). Section 280G imposes a
20% excise tax on excessive compensation received by, and denies a deduction to
the corporation for the amount of excess compensation paid to, employees who are
officers, shareholders, or highly compensated individuals as a result of a
change in the ownership or effective control of the corporation or in the
ownership of a substantial portion of the assets of the corporation. In general,
payments to an individual that are contingent on a Change in Control will not be
treated as excessive if such payments do not exceed three times the average
annual compensation received by such individual over the five years preceding
the Change in Control. The provisions in subparagraph (B) of this paragraph 8
are designed to maximize the amounts payable to you pursuant to this agreement
or otherwise which are contingent upon a change of control.
<PAGE> 10
THE MONARCH MACHINE TOOL COMPANY
Mr. Karl A. Frydryk
November 3, 1998
Page 10
(B) In the event that it is determined that any payment by Monarch
to or for your benefit (whether paid or payable pursuant to the terms of this
agreement or otherwise) would be subject to the 20% tax pursuant to Section 4999
of the Code, then the aggregate present value of amounts payable to or for your
benefit pursuant to this agreement (such payments pursuant to this agreement are
hereinafter referred to as "Agreement Payments") shall be reduced to the Reduced
Amount. For purposes of this subparagraph, the "Reduced Amount" shall be defined
as an amount expressed in present value which maximizes the aggregate present
value of Agreement Payments without causing any payments to be subject to the
20% tax pursuant to Section 4999 of the Code.
9. NOTICES. All notices required or permitted to be given under this
agreement shall be in writing and shall be mailed (postage prepaid by either
registered or certified mail) or delivered, if to Monarch, addressed to:
The Monarch Machine Tool Company
2600 Kettering Tower
Dayton, Ohio 45423
Attention: Corporate Secretary
and if to you, addressed to:
Mr. Karl A. Frydryk
9506 Lindner Lane
Dayton, Ohio 45458
Either party may change the address to which notices to such party are to be
directed by giving written notice of such change to the other party in the
manner specified in this paragraph. All notices, including without limitation,
any Notice of Termination, shall be deemed to have been given upon the date of
actual receipt by the recipient party.
10. ARBITRATION. Any dispute or controversy arising out of or
relating to this agreement shall be settled by arbitration in Dayton, Ohio, in
accordance with the rules then obtaining of the American Arbitration
Association, and judgment may be entered on the arbitrator's award in any court
having jurisdiction.
11. MISCELLANEOUS. No provision of this agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing, signed by you and such officer of Monarch as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of compliance by such other party with,
any condition or provision of this agreement to be
<PAGE> 11
THE MONARCH MACHINE TOOL COMPANY
Mr. Karl A. Frydryk
November 3, 1998
Page 11
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this agreement.
12. GOVERNING LAW. The validity, interpretation, construction and
performance of this agreement shall be governed by the laws of the State of
Ohio, without giving effect to the principles of conflicts of law thereof.
13. VALIDITY. The invalidity or unenforceability of any provision of
this agreement shall not affect the validity or enforceability of any other
provision, which shall remain in full force and effect.
If this letter correctly sets forth our agreement on the subject
matter hereof, please so confirm by signing and returning the enclosed copy.
Very truly yours,
The Monarch Machine Tool Company
By /s/ William A. Enouen
----------------------------------
William A. Enouen
Chairman, Compensation Committee
CONFIRMED AND AGREED TO:
/s/ Karl A. Frydryk
- ----------------------------------
Karl A. Frydryk
Dated:
-------------------------
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Monarch has the following consolidated subsidiaries, each of which is
wholly-owned. The German subsidiaries are in liquidation.
Name Jurisdiction
---- ------------
Monarch Werkzeugmaschinen GmbH Germany
Stamco Depiereux GmbH Germany
Monarch Busch GmbH Germany
Stamco (U.K.), Ltd. United Kingdom
Monarch Machine Tool International, Inc. (FSC) Barbados, West Indies
GFG Corporation Wisconsin
GFG International Corporation (FSC) Virgin Islands
GFG Peabody Ltd. United Kingdom
48
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
March 26, 1999
We consent to the incorporation by reference in the registration statement of
The Monarch Machine Tool Company and Subsidiaries on Forms S-8 (File No.
2-92311 and File No. 33-80332) of our report dated February 11, 1999, on our
audits of the consolidated financial statements and financial statement schedule
of The Monarch Machine Tool Company and Subsidiaries as of December 31, 1998 and
1997, and for the years ended December 31, 1998, 1997 and 1996, which report is
included in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Dayton, Ohio
49
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